The issue of letters of credit has not gone beyond the “offending” of directors, the loss of 2 billion people in three years and the collapse of equit
May 1st, 2023

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The letter (300287.SZ) in its 2022nd annual report states that “the company did not obtain a written assurance from Mr. Zhenhua that the 2022 annual report would be authentic, accurate and complete due to the inability of the director, Mr. Yang Zhenhua, to perform his duties normally”.

According to the letter of 11 April, the director, Yang Zhenmin, one of the shareholders in the company’s holdings, is cooperating with the relevant department for personal reasons and is temporarily unable to perform the functions of the Director, General Manager, Legal Representative during the period of the investigation. All other directors, supervisors and senior managers of companies other than Yang Zhenhua are now in regular positions, and companies are now operating normally. As of the date of disclosure of the bulletin, companies had not been informed of specific reasons.

During the period when Yang Zhenmin is unable to perform the relevant duties, the Director of the company, the Deputy Director-General and Director-General of Finance are temporarily serving the functions of the Director-General, the Director-General, the statutory representative, and acting as a member of the Board of Directors.

In the evening of 21 April, the letter disclosed an annual report for 2022, which showed that the business income realized in 2022 was 11.43 billion yuan, a decrease of 33.16 per cent compared to the previous year’s income, but higher than the turnover in 2020; the net profit attributable to shareholders of listed companies was $469 million; and the loss was increased by 85.87 per cent compared to the previous year by $252 million, compared to the amount of 元13.15 million in 2020 and a total loss of 2.036 billion in three years.

After long-term losses, the combined balance sheet showed that, as of the end of 2022, undistributed profits amounted to $ 3.374 million.

According to the annual report, the letter has three core business blocks of audio video and control, data software and services, physical networking and intelligentization, and its clients can be divided into administrative units and business enterprises by industry.

Business income from clients of administrative units in 2022 was $175 million, and business income from business sector clients was $968 million, down by 31.59 per cent and 33.43 per cent, respectively; however, the corresponding rate was 16.17 per cent and 15.19 per cent, respectively, an increase of 1.06 per cent and 3.34 per cent over the same period in the previous year. However, the increase in Māori rates does not prevent the negative impact of declining business income on business performance.

Of interest is the fact that out of the $357 million in operating profits for the 2022 year of the letter, the loss of credits alone amounted to $155 million, resulting in almost half of the losses. In the case of credit reduction losses, the letter of credit included $157 million in bad accounting preparation for accounts receivable in 2022.

Not only is the bad book preparation rate deepening the margin of loss, but it is also “top” large accounts receivable on the spread. As of the end of 2022, the book value of accounts receivable in letters of credit was $981 million, or 55.34 per cent of the current assets of $1773 million. The annual report shows that the balance of accounts receivable at the end of the year was 1,689 million yuan renminbi and slightly increased at the beginning of the year by 1,627 million yuan renminbi, but that the bad accounts were prepared to reach 7.08 million yuan renminbi, up from $591 million at the beginning of the year, and that the negative score of 41.91 per cent was higher than at the beginning of the year by 36.31 per cent.

When accounts receivable are large and relatively high in assets, they can lead to bad bank preparation, bad-account risk and increased liquidity risk.

As a result of poor business performance, annual losses have been observed, and the equity value of the letters has also been low in recent years. In recent days, the price of the Liquefieds has been reduced by “cascades”. After a collapse of nine trading days, their equity prices have fallen from approximately $4.50/units to $3.38 per unit, with a fall of approximately 25 per cent.

In spite of the low value of the equity, large shareholders in the letters have recently waned their voices.

On the evening of 14 February, the letter disclosed in the Bulletin on Preferential Disclosure of the Custodian Shareholders and Unanimated Actors, Mr. Yang Zhenhua stated that the holding of 86,851.2 million shareholders (6.05 per cent of the total equity) as well as the unanimous action, Yang Zhenhua, would not exceed 14,35.27 million units (or 1 per cent of the total equity) within six months of the 15 transactions following the date of disclosure of the bulletin.

On 14 April, after the dispossessment, the letter disclosed the pre-disclosure bulletin on the reduction of shares held by the shareholders and consensual operators of the company holdings, stating that the holding of the 418.19 million holdings (2.92 per cent of the total equity) holdings of the holdings of the holdings of the shareholders and of the unanimity operator would not exceed 1047.05 million (or 0.73 per cent of the total equity) in the six months following 15 transactions from the date of disclosure of the bulletin.

Only less than two months ago, on 27 February, after the dispossessment, the letter, through the Proclamation on the Removal of the Shareholdings of Companies and Unanimized Actionmen, Mr. Yang Zhenhua, and Mr. Sakamoto’s partial shareholdings, disclosed the acquisition of a “freezing” by the TMVP of this proposed reduction in shares. Following the unfreezing of 10.5 million units, a further 3.3819 million units are being frozen.

According to the 2022 annual report and the 2023 quarterly report, the forces of Yang Zhenhua, the second largest shareholder, also hold important positions in letters of credit. After Yang Zhenmin was unable to perform his duties properly in conjunction with the relevant sectoral survey, the Director, Deputy General Manager and Director General of Finance, is the Officer-in-Charge, General Manager.

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