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Qinshang's share performance "changing face" and investigating the case
For Qinshang, which is considering divesting its semiconductor business, the company is facing yet another challenge since its listing. On October 10, the company announced that it had received a warning letter from the Guangdong Provincial Securities Regulatory Bureau. The notice revealed that the company's 2016 audited net loss reached 427 million yuan, far exceeding the previous forecast of 47 to 54 million yuan. This significant discrepancy led to a failure to revise the performance forecast within the required timeframe, violating regulatory guidelines.
On September 8, both Qinshang’s shares and its actual controller, Li Xuliang, were investigated for these violations. A spokesperson from the company’s Securities Department stated on October 11 that although they received a warning letter, no financial penalties had been imposed. They also noted that neither the company nor the actual controller had received any conclusive findings yet.
The series of red flags stemmed from a major performance shortfall in 2016. According to the third-quarter report, the company had initially predicted a profit of between 47 and 54 million yuan for the year. Even as late as February 28, it still projected a net profit of 47.87 million yuan. However, by April 14, it issued an amendment announcement, revealing that the goodwill impairment related to the acquisition of Guangzhou Longwen Education Technology Co., Ltd. — purchased for 2 billion yuan in 2016 — had caused a loss of 396 million yuan. As a result, the net profit dropped by over 2000%.
On April 21, the company finally released its audited annual report, confirming a net loss of 427 million yuan. That same day, it also announced the suspension of its indirect acquisition of Chengdu Qizhong Experimental Middle School due to a draft termination agreement from the transaction party.
Throughout this period, the stock price of Qinshang experienced dramatic fluctuations, dropping from 11 yuan in November 2016 to as low as 8.14 yuan on April 25, 2017. The former chairman, Li Xuliang, was involved in the investigation alongside the company. According to the 2017 semi-annual report, he directly owned 5.81% of the shares and indirectly held 16.79% through his control of Dongguan Qinshang Group Co., Ltd.
On September 26, current Chairman Chen Yonghong, CFO Deng Junhong, and independent director Yan Xinhua addressed the issue, stating that the company would take the situation seriously to avoid similar problems in the future.
Although the investigation's outcome remains unclear, a Shanghai-based lawyer told the 21st Century Economic Reporter that the case could take 1–2 years to resolve, given its complexity. The lawyer also suggested that the company might face litigation from small and medium shareholders. However, he added that with a 2015 profit of 20.74 million yuan, delisting was unlikely, as regulators would consider the interests of smaller investors.
Beyond the regulatory issues, Qinshang faces more challenges. On September 29, the company disclosed progress in ongoing litigation. In May 2014, it received an administrative penalty decision involving 84 civil cases, with a total claim amounting to 17.374 million yuan. Of these, 37 cases have been finalized, resulting in compensation of 11.727 million yuan plus litigation costs of 177,100 yuan. Another 45 cases are still under review.
In addition to these legal troubles, 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 intense competition as reasons for the sale. However, some industry observers believe that the LED sector relies heavily on market expansion capabilities.
Despite the sale announcement, trading has remained suspended for nearly five months. According to an update on July 25, the company planned to disclose its major asset restructuring plan by October 26. As the deadline approaches, the company continues to work on its strategy.
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 invest in early childhood education and international schools. He also mentioned that the company is preparing to acquire foreign assets, specifically the 100% equity of Aidi International Education.
Since 2016, Qinshang has made several acquisitions in the education sector, including 80% of Little Red Hat Education and 100% of Beijing Biao Education and Changsha Siqi Education. These moves cover K12 training, early childhood education, and international schools.
The 2017 semi-annual report showed that while the semiconductor business saw a slight increase in revenue, its net profit declined. In contrast, the Guangzhou Longwen business expanded significantly, reaching 3.8 billion yuan in revenue for the first half of the year, up 15.94% year-on-year, with a 63.36% rise in net profit.
However, some private equity investors question the company's investment logic, noting that while educational assets offer stable cash flow, returns are not immediate. Despite this, the company continues to pursue growth in the education sector.