As one of the earliest listed companies in Shanghai, the company is mainly engaged in the design and research and development of smart meter chips, for the State Grid and the Southern Power Grid production and sales of smart metering chips. Meanwhile, the company tries to make breakthroughs in the fields of camera modules, display modules, high-end and portable medical equipment, industrial control equipment and various general consumer electronics products.
Because of stable customers and fixed market space, since listing more than 20 years ago, the company's revenue scale has been below 1 billion yuan, and the net profit rarely breaks through 100 million yuan, and even a slight loss in some years. But in 2019, it suddenly doubled its performance, with a net profit of more than 243 million yuan.
After analyzing the company's financial data, I found that as early as last year, the company was preparing for the performance surge.
In August 2019, Shanghai Beiling released a notice of accounting policy change, saying that the company has changed its accounting policy on the subsequent measurement model of investment real estate since January 1, 2019, from the cost measurement model to the fair value measurement model.
Because it was not the annual report season and the impact on the annual report would be after half a year, the news was ignored by most investors at that time. And after the release of the annual report, the impact of the change in accounting policy has not attracted enough attention.
One, the water in the net profit
After half a year, the company released its 2019 annual report, during the reporting period, the company*** realized operating income of 879 million yuan, an increase of 12.02% compared to the previous year; realized net profit of 243 million yuan, an increase of 57.56% compared to 103 million yuan in the previous year.
For the reason that the profit increase is much larger than the increase in operating income, the company explained in the annual report, the reason for the growth is mainly due to the company's IC design business growth over the same period.
This reason is actually very far-fetched, in fact, the company's performance growth rate soared mainly due to trading financial assets and investment properties to bring the fair value of the change in earnings, this kind of earnings is the assessment of value-added, not due to the improvement of the real operating business, and there is no real cash inflow.
The fair value gain of 75 million yuan from trading financial assets mainly consisted of two parts, one was from the flotation of A-share Huaxin and Xinjianneng (temporarily unlisted) stocks held; the other was the fair value gain of 17.97 million yuan from investment real estate.
The two together amounted to nearly 100 million yuan, plus 39 million yuan of investment income, a simple calculation, more than half of the company's net profit from non-recurring gains and losses.
Two, investment real estate is how to "make" profit
The impact of investment real estate has two aspects, fair value changes in profit and loss and depreciation, both can have a direct impact on net profit.
How does investment property image fair value gains and losses and depreciation?
It starts with the accounting treatment of this item. According to accounting standards, properties used for rental or sale need to be accounted for in the investment real estate program, using the investment real estate standard.
Guidelines provide that there are two ways to depreciate investment real estate, one is the same as ordinary fixed assets, monthly depreciation, there is no impact on the financial statements, this is called the cost measurement model; the other is not depreciated, when the annual report is issued in accordance with the fair value (market price) of the accounts, higher or lower than the portion of the recorded value, it becomes a gain or loss on the change in fair value, this is called the fair value measurement model. This is called the fair value measurement model.
The standard also states that investment properties in the cost measurement model can be converted to the fair value measurement model, but not vice versa. This change in accounting policy is a one-time irreversible change.
It should be noted that the original purpose of the investment property standard was to standardize the quality of financial accounting for real estate companies and housing rental companies, and to avoid a large amount of depreciation and thus unrealistic profits due to a large number of properties in inventory.
The result is that many non-real estate enterprises under the guise of rental and sale of business, a portion of the real estate into investment property, especially the adoption of the fair value measurement model, to achieve the effect of modification of profits. Although such a practice does not violate accounting standards, it is clearly a speculative accounting behavior.
The so-called fair value, usually refers to the market price, of course, this market price is not the enterprise pat on the head to decide, but by the qualified intermediary institutions to assess the confirmation.
Because most of the time the real estate is value-added, and most of the appraisal agencies are also controllable, so the fair value model has two obvious advantages: First, no depreciation, reducing the impact on profit margins; Second, the assessment of value-added to produce the annual report, the legitimacy of the "inflated" profits.
That is to say, the company's investment property to fair value measurement model, in addition to an increase of 17.97 million yuan of appraisal value added to the profit, but also less depreciation of about 10 million yuan, the impact on profits can be seen.
Three, investment income
The 2019 annual report shows that the company sold some of its equity and gained 45.81 million yuan of investment income.
Comparing the company's previous years' financial reports, it is found that the company held a large amount of equity 20 years ago and would sell it at an opportune time. Under the old accounting standards accounting system, this equity investment was placed in long-term equity investments, and with the implementation of the new standards, it was transferred to the available-for-sale financial assets program and trading financial assets.
In recent years, 2017 and 2014, the year of deductible net profit loss or lower, the company sold part of the equity, to exchange for a certain investment income to ensure that the profit curve is smoother.
Four, excellent financial data
Balance sheet shows that the company's cash on hand is more than 1.4 billion, in addition to 193 million trading financial assets, but also purchased 193 million financial products (included in the other current assets project), cash reserves are sufficient, the book does not have any long and short-term borrowing. The income statement shows that interest expense for the year was -52.73 million dollars, and interest income on deposits was not bad. The cash flow statement shows net operating cash flow of $135 million, with excellent liquidity.
From the composition of assets and liabilities, the only risk that currently exists on the company's books is goodwill of 456 million yuan. This part of the goodwill comes from the merger and acquisition of the subsidiary Rui Neng Micro, the net profit of Rui Neng Micro in 2019 is 56.56 million yuan, an increase of 61.75% compared with the same period of the previous year, and from the operating situation, the subsidiary's goodwill is not a big risk of a thunderstorm.
So, what is confusing is that the company's non-net profit is not so bad in the case of better financial indicators in 2019, which has already exceeded the net profit of the previous year, so why do you have to work so hard to increase so much profit?
The net profit for 2019 is extraordinarily abnormal compared to the net profit of previous years.
Fifth, the major shareholder's capital chain is facing a collapse
I believe that the reason why the company tries every possible way to revise its profits, or even revise its accounting policies to increase profits, is related to the major shareholders. In particular, dividends and equity pledges, revealing the existence of major shareholders.
1, dividend
In April 2020, the company announced a dividend, expected to pay cash dividends of 77.42 million yuan. After various adjustments, the net profit on the books for 2019 is $243 million, and the dividend accounts for about 32% of the net profit, which is a seemingly normal ratio.
But if you don't do anything about accounting policies and non-recurring gains and losses, then the company's share of net profit is more than 60% or more if it pays out cash dividends in the same amount, which is very unreasonable.
What is the purpose of the effort to pay high dividends? Is it to return the majority of small and medium-sized investors, or to feed the major shareholders?
From the shareholding ratio point of view, the company's largest shareholder, UW Semiconductor Ltd. shareholding ratio of 25.43%, UW Semiconductor is a wholly owned subsidiary of China Electronics Corporation, that is to say, this part of the cash dividends, at least a quarter of the China Electronics pocket.
While the proportion is not very high, but to a certain extent to alleviate the urgent needs of the major shareholders.
What happened to the major shareholders?
2, equity pledges
Wind shows, as a wholly owned subsidiary of China Electronics, UW Semiconductor will also be in the hands of 33.50% of the equity of Shanghai Beiling pledged.
3, the same brother deep science and technology
Shanghai Beiling is not the only listed company under the China Electronics, operating better subsidiaries and deep science and technology.
Wind shows that China Electronics has also pledged 31.03% of its shares in Shenzhen Science and Technology.
Usually, this percentage of risk is not too high, but this is the company's first equity pledge, Moreover, the major shareholder is a central enterprise.
Besides the equity pledge, there is also a reduction in holdings. on June 30th the deep science and technology provisional announcement shows that the first major shareholder China electronic letter reduced its holdings of 63,681,085 shares, the proportion of 4.33 percent.
The shareholding of the major shareholders from 43.51% to 39.18%, although this reduction will not change the actual position of the major shareholders, but the proportion of reduction is not low.
4, the plight of China Electronics
Central enterprises for equity pledges is a very rare phenomenon, like the two barrels of oil and other central enterprises, even in the market situation is very poor, the loss of a mess, but also will not be equity pledges.
Why would a centralized enterprise pledge its equity?
That would have to come from the recent performance of the major shareholders, China Electronics Holdings 14 listed companies, but the group is not listed as a whole, so it's hard to see its statements according to common sense.
As a result, China Electronics issued bonds, and under the rules for bond issuance, the group disclosed its recent financial results. The financial report has thrown us for a loop, almost exactly the same as when San'an Group issued the bonds and stormed the market.
In 2019, China Electronics suffered a huge loss of $3 billion. The balance sheet shows that the company's long and short-term borrowings are close to 100 billion, and the company's capital turnover is extremely difficult. The income statement shows that the interest expense in 2019 is more than 5.1 billion...
China Electronics' financial report data makes us clear that it is the major shareholder's operating difficulties, the funds are stretched to the limit, so that it is necessary to allow its listed companies to carry out the transfer of benefits, trimming the profits, and even through the rubbing of the concept of the way of market capitalization management, and at a high level of reduction of cash.
In the long run, the financial situation of the major shareholders is worrying, will eventually affect the listed companies, is very likely to lead to more infringement of the interests of small and medium-sized investors in a variety of transfer of benefits behavior.