Huamao Shares (000850): 7 Consecutive Years Of Investment Income, Loss Of The Shenzhen Stock Exchange Issued A Letter Of Inquiry

"The main industry is not making money and the investment income is getting together", Huamao shares (000850, SZ) have aroused the concern of regulators.

In May 23rd, the Shenzhen stock exchange sent annual enquiry letter to Huamao shares, which mainly referred to eight aspects, such as investment management, main business and so on.

Financial expenses exceed net profit in 2018

According to the 2018 annual report, Huamao shares achieved 2 billion 782 million yuan in business revenue, an increase of 18.72% over the same period last year, and net profit (net profit below) was 119 million yuan, an increase of 14.07% over the same period last year.

However, the main source of profit for Huamao shares is investment income. In 2018, 11 million 610 thousand shares of GF Securities were sold back to 224 million yuan, with an investment income of 135 million yuan.

In addition, the company received dividends from many companies such as Guotai Junan.

In this case, in 2018, the investment income of Huamao shares was close to 200 million yuan, and the non recurring gains and losses were as high as 187 million yuan.

If the non recurring gains and losses were deducted, Huamao shares lost 68 million 400 thousand yuan in 2018 net profit.

Such a business situation has also attracted the attention of regulators.

According to the annual report of Huamao 2018, the company's main business is cotton, wool, linen, silk and rayon, pure and blended yarn and its fabric, knitwear, clothing, printing and dyeing processing; textile equipment and accessories, home textiles sales, and investment management.

Accordingly, the Shenzhen stock exchange requires the company to explain the specific contents of the investment management business, the reasons for investment management as the main business of the company, and whether the business has synergistic effect with the textile business of the company.

According to the inquiry letter, as at the end of the reporting period, the balance of the sale of financial assets of Huamao shares was 2 billion 182 million yuan, the long-term equity investment balance was 1 billion 103 million yuan, short-term loans were 1 billion 779 million yuan, and long-term loans were 171 million yuan.

Accordingly, the Shenzhen Stock Exchange asked that it explain the necessity of maintaining large amounts of available financial assets and long-term equity investments under the circumstances of large interest bearing liabilities, especially short-term loans.

The daily economic news reporter noted that the financial cost of Huamao shares reached 122 million yuan in 2018, of which over 99% was net interest expense.

In this way, the financial cost of the company even exceeded the net profit of the same period.

Net profit is negative for 7 consecutive years.

For Huamao shares, it is not new to rely on investment returns.

According to the letter of inquiry, since 2012, the net profit of Huamao's shares has been negative for a long time, but the profit from investment has finally been realized every year. For example, the investment income of Huamao shares in 2017 and 2018 was 227 million yuan and 195 million yuan respectively.

As a result, the Shenzhen Stock Exchange asked the company to explain why the net profit from non profits continued to be negative in 2012 and how to improve its sustainability.

On the afternoon of May 23rd, the "daily economic news" reporter called the Huamao securities department. The staff member said that the reply to the related questions of the inquiry letter was being arranged, and the subsequent announcement will be made accordingly.

In the 2018 annual report, Huamao shares described the development strategy of the company as follows: implementing the "126" project strategy, that is, giving play to the synergy effect of the industrial chain, creating a new textile industry system with core competitive advantages; making the best of "industrial capital" and "financial capital"; implementing the six key projects of intelligent chemical plant demonstration project, boutique fabric brand engineering, international business expansion project, capital platform integration project, technological management innovation, upgrading project and talent team building, and strengthening the project.

The Shenzhen Stock Exchange also focuses on Huamao's investment business.

The annual report shows that the initial balance of the sale of financial assets measured by the fair value of Huamao shares is 2 billion 451 million yuan. The profit and loss of the fair value change is 406 million yuan, the current sale amount is 224 million yuan, and the balance at the end is 1 billion 852 million yuan.

Accordingly, the Shenzhen Stock Exchange asked it to explain why the fair value of this period has declined considerably.

In addition, the main business of Anqing Yuan Hong Mining Investment Co., Ltd. is the management of investment, but it lost 30 million 777 thousand and 300 yuan in 2018.

In this regard, the Shenzhen Stock Exchange asked for reasons for the loss of the company and whether there was a larger business risk.