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Qinshang's share performance "changing face" and investigating the case
For Qinshang, which is planning to divest its semiconductor business, the company is facing yet another challenge since its listing. On the evening of October 10, it issued a notice stating that it had received a warning letter from the Guangdong Provincial Securities Regulatory Bureau. The 2016 audited net loss reached 427 million yuan, significantly lower than the previously forecasted profit range of 47 million to 54 million yuan. The company failed to revise its performance forecast within the required timeframe, violating relevant regulations.
On September 8, both Qinshang shares and its actual controller, Li Xuliang, were investigated for alleged violations. A staff member from the Securities Department of Qinshang stated on October 11 that while the company received a warning letter, no financial penalties were imposed. The company and its actual controller have not yet received any conclusive conclusions.
The company has repeatedly faced regulatory scrutiny due to its poor 2016 performance. In the third quarter of 2016, Qinshang had forecasted a profit of 47 million to 54 million yuan. Even on February 28, it remained optimistic, estimating a net profit of 47.87 million yuan for 2016. However, by April 14, it announced an amendment to its annual results, citing a goodwill impairment of 420 million yuan related to the acquisition of Guangzhou Longwen Education Technology Co., Ltd. This led to a massive net loss of 396 million yuan, a drastic drop from the previous forecast.
On April 21, the company finally released its audited 2016 annual report, confirming a net loss of 427 million yuan. That same day, its plan to acquire 100% equity in Chengdu Qizhong Experimental Middle School was halted after receiving a draft termination agreement from the transaction party.
During this period, the stock price of Qinshang experienced significant volatility. It dropped sharply from 11 yuan in November 2016 to a low of 8.14 yuan on April 25, 2017. Li Xuliang, the former chairman, was involved in the investigation along with the company. According to the 2017 semi-annual report, he directly held 5.81% of the shares and indirectly controlled 16.79% through his holding in Dongguan Qinshang Group Co., Ltd.
On September 26, current Chairman Chen Yonghong, CFO Deng Junhong, and independent director Yan Xinhua all emphasized the importance of learning from the incident and ensuring such issues do not recur. While the investigation's conclusion remains unclear, a Shanghai-based lawyer noted that the case could take 1–2 years to resolve, and the company might face litigation from small shareholders.
Despite the ongoing challenges, the lawyer also pointed out that given Qinshang’s 2015 profit of 20.74 million yuan, delisting is unlikely, as the interests of small and medium investors must be considered.
In addition to the regulatory issues, Qinshang is also dealing with multiple legal cases. On September 29, it disclosed progress in litigation, including 84 civil cases involving a total claim of 17.374 million yuan. As of now, 37 cases have been finalized, resulting in a total compensation of 11.727 million yuan, plus litigation costs of 177,100 yuan. Another 45 cases are still pending.
Beyond these issues, the company’s plans to divest its semiconductor business and expand into cross-border education remain uncertain. On May 25, it announced its intention to sell its semiconductor lighting business, which accounted for 92.4% of its 2016 revenue. The company cited industry overcapacity and fierce competition as reasons for the divestiture. However, some industry observers believe the LED business depends heavily on market expansion capabilities.
Since the trading suspension in May, the company has not resumed operations. It announced that it would disclose its major asset restructuring plan by October 26. At an investor meeting on September 26, concerns were raised about whether the company could sustain its valuation without the lighting business. CFO Qin Jun responded that the company would continue to focus on the education sector, particularly early childhood education and international schools.
Qinshang has been actively acquiring education-related assets since 2016, including companies specializing in K12 training, early childhood education, and international schools. Despite stable cash flows in the education sector, some private equity investors argue that the company’s investment strategy lacks clarity and long-term vision.
A recent report from GF Securities recommended a "cautious increase" in holdings, reflecting mixed sentiment among analysts. Overall, Qinshang faces a complex landscape of regulatory, legal, and strategic challenges as it navigates its future direction.