Another lighting enterprise and its chairman received a warning letter. Why?

Due to untimely disclosure of the performance turning from profit to loss, recently,Xiaosong Shares (002723.SZ) simultaneously received a regulatory letter from the Shenzhen Stock Exchange and the "Administrative Regulatory Measures Decision" from the Guangdong Securities Regulatory Bureau.

It is understood that Xiaosong Shares is mainly engaged in home appliances and engineering construction businesses,affected by the drag of the real estate market, the company's revenue from engineering construction business decreased last year, coupled withand bad debt provisions and other factors, the performance in 2023 turned from profit to loss, but the company failed to disclose this information in a timely manner.

Prior to this disclosure incident, Xiaosong Shares had been subject to administrative penalties by regulatory authorities due to illegal reduction of holdings by its controlling shareholder.In addition, due to the controlling shareholder's deep involvement in huge debts, the shares of the listed company held by it have been frozen and judicially auctioned multiple times,but the auction has not been successful so far.

Performance shifted from profit to loss without timely forecast

According to the "Administrative Regulatory Measure Decision Letter" recently issued by the Guangdong Securities Regulatory Bureau to Xiaosong Shares, on April 30 this year, Xiaosong Shares released its 2023 annual report, disclosing that the net profit attributable to shareholders of the parent company for 2023 was a loss of approximately 6.9164 million yuan, turning from profit to loss Year-on-year (YoY). However, Xiaosong Shares failed to disclose the 2023 annual performance forecast before January 31, 2024, as required, and had not disclosed the relevant performance forecast as of the release of the company's 2023 annual report.

The aforementioned actions violated the relevant provisions of the "Measures for the Administration of Information Disclosure by Listed Company", thereforethe Guangdong Securities Regulatory Bureau decided to take administrative regulatory measures of issuing warning letters to the company, Chairman Peng Guoyu, General Manager, and Financial Director Wen Lin.

At the same time, the aforementioned actions also violated the relevant provisions of the Shenzhen Stock Exchange's "Stock Listing Rules (Revised in August 2023)", and the company, along with Peng Guoyu, Lu Baoshan, and Wen Lin, were issued regulatory letters by the Shenzhen Stock Exchange for failing to fulfill their duties diligently.

It is understood that Xiaosong Shares is a private enterprise that develops, manufactures, and sellsrechargeable emergency lighting productsand rechargeable AC/DC dual-use fans. The company'smain business is home appliances and engineering construction services, and it has expanded into the e-cigarette business in the past two years.

Regarding the home appliance business, Xiaosong Shares stated that in recent years, the successful incubation and expansion of a series of products such as desktop air purifiers, Under Sky healthy lighting, heat pump new energy, and smart pet appliances have fully demonstrated the company's strength in technological innovation and market acumen.

Among them, lighting products include rechargeable portable lamps, lanterns, wall-mounted lights, and eye-care desk lamps, with over 800 product models available to meet the needs of different scenarios.

In addition, in its 2023 annual report, Xiaosong Shares mentioned that the company continues to explore the real demands for high-quality lighting and eye health. Building on multi-primary color pure LED technology for educational lighting products, it has developed various healthy light lighting products. This technical product is widely used in diverse scenarios such as classrooms, libraries, and indoor homes.During the reporting period, the company successfully launchedthe high-end healthy light brand "Under Sky". The brand is committed to redefining healthy light environments. Currently, the Optical Master vertical study eye-care lamp and the Optical Shield mother-and-baby ceiling lamp have gone on the market, attracting widespread attention from consumers.Besides home healthy light, Under Sky also provides whole-house lighting customization services.In April 2024, the offline optical flagship store of Under Sky officially began trial operations, presenting a visual feast of new optical art to consumers through the combination of static and dynamic light and shadow, bringing people a full series of solutions for a more comfortable, healthier, and smarter light environment.

Regarding the engineering construction business, this business is mainly implemented by the subsidiary Guohai Construction, which is an engineering construction enterprise focusing on municipal public works, building construction, highway engineering, decoration and renovation engineering, waterproofing and insulation engineering, and road lighting engineering.

In 2023, Xiaosong Shares achieved revenue of 1.604 billion yuan, a year-on-year decrease of 6.97%. Among them, the home appliance business generated revenue of 915 million yuan, a year-on-year increase of 32.38%,and the gross profit margin increased by 6.37% year-on-year. However, during the same period, the entities related to the engineering construction business collectively achieved revenue of 689 million yuan, a year-on-year decrease of 33.32%, with the gross profit margin decreasing by 1.52% year-on-year.

Prior to this, from 2019 to 2022, Xiaosong Co., Ltd.'s Revenue was RMB 1 billion, RMB 1.089 billion, RMB 1.32 billion, and RMB 1.724 billion respectively, with corresponding Net profit attributable to shareholders of the parent company of RMB 39.06 million, RMB 25.94 million, RMB 17.99 million, and RMB 10.02 million respectively.

Regarding the shift from profit to loss in last year's performance, Xiaosong Co., Ltd. explained that the main reason for the decline in Revenue last year was the impact of the downturn in the real estate industry, which led to a decrease in Revenue from engineering construction business.The decline in Net profit attributable to shareholders of the parent company was mainly due to the decreased profitability of the engineering construction segment in the current period and the corresponding provision for , impairment of fixed assets, as well as the provision for bad debts by the parent company related to the arbitration case involving the Hangzhou Yuyou Acquisition project. In 2023, the company made total provisions for asset impairment and bad debts amounting to RMB 50.9716 million, which correspondingly reduced the company's net profit.

It is understood that as early as December 14, 2021, Xiaosong Co., Ltd. issued an announcement stating its intention to acquire an 85% stake in Hangzhou Yuyou New Consumption Technology Co., Ltd. for RMB 297.5 million. At that time, Xiaosong Co., Ltd. paid a total of RMB 35 million in equity Acquisition deposit to the other party in accordance with the contract.

Just 10 days later, Xiaosong Co., Ltd. decided to terminate the Acquisition and demanded the return of the RMB 35 million deposit already paid, but the other party refused to fulfill the obligation to refund.

According to previous announcements by Xiaosong Co., Ltd., regarding the aforementioned dispute, the company filed an arbitration application with the Shenzhen International Arbitration Court in May 2022, demanding that the other party return the equity Acquisition deposit and pay interest on the overdue refund. According to last year's arbitration result, Hangzhou Yuyou was required to refund a total of RMB 14 million in Acquisition deposit plus corresponding interest. Upon assessment, this matter led Xiaosong Co., Ltd. to cumulatively provide RMB 25.2 million in asset impairment provisions.

Controlling shareholder previously engaged in illegal reduction of holdings

It is understood that, even before receiving the regulatory letter and the "Administrative Regulatory Measures Decision" for this information disclosure violation, Xiaosong Shares had already been subject to administrative penalties by regulatory authorities due to the controlling shareholder's illegal reduction of holdings.

On March 17 last year, Xiaosong Shares disclosed the "Pre-disclosure Announcement on Share Reduction by Controlling Shareholder and Directors", in which the company's controlling shareholder, Shenzhen Huaxin Chuangli Technology Industrial Development Co., Ltd. (hereinafter referred to as "Huaxin Chuangli"), planned to reduce its shareholding in the company by 3,181,356 shares, accounting for 1% of the company's total share capital at that time, through centralized bidding within six months starting from April 10, 2023. On August 25 and September 5 of the same year, the company's controlling shareholder carried out two reductions, with reduced quantities of 300,000 shares and 953,000 shares respectively.

On August 27 last year, the CSRC issued the "". According to the requirements, if a listed company experiences break-issue or break-net-asset situations, or has not distributed cash dividends in the past three years, or the cumulative cash dividend amount is less than 30% of the average annual net profit of the past three years, the controlling shareholder and actual controller shall not reduce their holdings of the company's shares through the secondary market.

However, the ratio of the cumulative cash dividend amount of Xiaosong Shares in the past three years to the average annual net profit of the past three years was 19.25%, which means that Huaxin Chuangli's reduction of 953,000 shares of the company on September 5, 2023, violated the relevant requirements of the "Further Standardization of Share Reduction Behavior".

In response, the China Securities Regulatory Commission ordered the controlling shareholder, Huaxin Chuangli, to make corrections, and the Shenzhen Stock Exchange issued a public censure. On December 18, 2023, Huaxin Chuangli repurchased 953,000 shares of the company through block trading using self-raised funds.

Furthermore, Huaxin Chuangli remains deeply embroiled in debt disputes. On March 17 this year, Xiaosong Shares announced that 15.58 million shares held by Huaxin Chuangli were subject to further judicial freezing, accounting for 31.48% of its total holdings and 4.90% of the company's total share capital. The primary reason for the judicial freeze was a creditor-debtor dispute between Huaxin Chuangli and Xiamen International Trust Co., Ltd., involving an amount as high as 1.037 billion yuan.

It is understood that Huaxin Chuangli has been striving to resolve this debt issue in recent years. In May and June this year, these shares were auctioned twice on the Taobao Judicial Auction Network Platform. After failing to sell in the first auction on May 23, they were finally acquired on June 21 by Wu Weijun (hereinafter referred to as the "Buyer") for a price of 101 million yuan.

If this judicial auction is ultimately completed and transferred, Huaxin Chuangli's shareholding in Xiaosong Shares will passively decrease from the previous 15.57% to 10.67% (this passive reduction will not result in a change of control of the company). Meanwhile, Xiaosong Shares stated in its latest announcement on July 8 that the deadline for payment of the remaining balance of the aforementioned judicial auction was July 5, 2024. However, after communication between the lawyer entrusted by the controlling shareholder and the staff of the Shenzhen Intermediate People's Court handling this judicial auction, it was confirmed that as of the payment deadline, the Buyer had not yet paid the remaining balance of the online auction transaction.

Source: China Business Network, aforementioned corporate announcements

Another lighting enterprise and its chairman received a warning letter. Why?

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