Near Year-End, Honghe Technology Faces Regulatory Talks: Irregularities in Financial Accounting, Government Subsidies, and Voluntary Disclosure
Near year-end, Honghe Technology (002955) received regulatory talks from the Shenzhen Stock Exchange. Behind these regulatory talks, it was revealed that Honghe Technology had numerous irregularities, including financial accounting irregularities related to three-party operations, government subsidies, and voluntary disclosure.
Recently, Honghe Technology announced that it had received a decision letter (2023)248 from the Shenzhen Stock Exchange regarding its regulatory talks.
The decision letter showed that after investigation, Honghe Technology was found to have irregularities in financial accounting related to three-party operations and meeting records management, insider information registration, government subsidies, and voluntary disclosure. This violated Article Sixth of the "Guidelines for Listed Companies' Insider Information Registration Management" (Shenzhen Stock Exchange Announcement 2022-17) and Article Third of the "Regulations on the Disclosure of Information by Listed Companies" (Shanghai Stock Exchange Order 182).
In specific, according to Honghe Technology's recent announcement of the "Investor Relations Activity Record Table", Honghe Technology responded that in June 2023, the company would register its address from Beijing to Shenzhen, and in August 2023, the Shenzhen Stock Exchange conducted an on-site inspection. The company fully cooperated with the inspection. It was during this inspection that numerous irregularities were discovered.
Firstly, three-party operations and meeting records management: In 2020, some shareholders and high-ranking officials failed to attend meetings, and two temporary shareholder meetings lacked recording signatures from supervisors due to oversight by company staff.
Secondly, insider information registration: In 2020, there were two instances of regular reports with insider information that was not registered by company staff, omitting the signatures of two supervisors.
Thirdly, government subsidies and related financial accounting: The company received a technology transformation subsidy from Shenzhen's Ping Shan District in 2021 worth 179.07 million yuan, mainly used for upgrading and renovating its production line. Due to actual expenses being difficult to accurately categorize, the company recognized this as a government subsidy related to revenue in that period.
Additionally, Honghe Technology received government subsidies totaling 75.68 million yuan from February 2022 to March 2023 and directly recorded it under "Other Income" without processing it as "Financial Expenses - Interest Expenses". This did not affect the company's profit for that period.
Fourthly, voluntary disclosure management: In March 2020, the company disclosed its cooperation agreement with Shanghai Donghuan Telecommunications Co., Ltd. (Zoom). In August 2020, Zoom publicly announced that it would stop directly selling or upgrading its latest products to Chinese mainland customers. Due to oversight by company staff, subsequent progress was not disclosed.
Honghe Technology stated that the company attaches great importance to these issues and strictly follows the requirements of on-site inspections by the Shenzhen Stock Exchange and relevant laws and regulations. The company will organize relevant personnel to deepen their understanding and improve corporate governance levels, promoting healthy and stable development.
However, since there were irregularities, Honghe Technology is naturally subject to corresponding measures from regulators. According to Article 52 of the "Regulations on the Disclosure of Information by Listed Companies", the Shenzhen Stock Exchange decided to take regulatory talks with Honghe Technology. The regulator requires that the company's chairman will subsequently attend a meeting at the Shenzhen Stock Exchange to receive regulatory talks, bringing an effective ID card.
According to Honghe Technology's announcement on September 27 this year, after review, the board of directors agreed to elect Xu Xiaoli as the company's third-generation chairman, with a three-year term starting from the date of this meeting and ending when the third-generation board's term expires. According to data from Hexun.com, Xu Xiaoli has an annual salary of 96.18 million yuan and holds 42,457 shares of Honghe Technology.
Additionally, according to Honghe Technology's 2022 annual report, Xie Shuqing served as chairman, with Canadian nationality, serving from August 15, 2019, to September 25, 2023. His pre-tax annual salary was 108.79 million yuan, and he held various positions, including director of Beijing Honghe Meigao Electronic Engineering Technology Co., Ltd., director of Beijing Honghe Electronic Engineering Technology Co., Ltd., and director of Beijing Honghe Intelligent Systems Co., Ltd. He also worked as a software engineer at China Science and Technology Group. In terms of shareholding, Xie Shuqing increased his holdings by 1.17 million shares on May 26, 2022, and by 1.04 million shares on September 5, 2023, through large-scale transactions, respectively. As of December 26, 2023, Honghe Technology's share price was 29.51 yuan.
Public information shows that Honghe Technology listed on the main board of the Shenzhen Stock Exchange in May 2019 and is primarily engaged in designing, researching, producing, and selling smart interactive display products and intelligent audio-visual solutions. Looking back at last year's performance, Honghe Technology's domestic and foreign revenue has almost reached parity.
Performance aspects: since listing, Honghe Technology's net profit has fluctuated significantly. Specifically, from 2019 to 2022, the net profit year-on-year grew by -6.58%, -74.00%, 106.90%, and 134.44%. The latest financial report shows that in the first three quarters of this year, Honghe Technology's revenue, net profit, and return on equity (ROE) all declined year-on-year, respectively.