中国龙工(03339) - 2021 - 中期财报

Financial Highlights This chapter summarizes the consolidated financial performance of China Lonking Holdings Limited and its subsidiaries for the six months ended June 30, 2021, showing significant revenue growth but a decline in profitability metrics compared to the prior period 2021 H1 Key Financial Indicators Comparison | Indicator | Six Months Ended June 30, 2021 (RMB thousands) | Six Months Ended June 30, 2020 (RMB thousands) | Change (+/-) | | :--- | :--- | :--- | :--- | | Revenue | 8,191,260 | 6,513,807 | +25.75% | | Operating Profit | 1,028,647 | 1,064,603 | -3.38% | | EBITDA | 1,284,374 | 1,291,572 | -0.56% | | Profit attributable to owners of the parent | 944,563 | 943,608 | +0.10% | | Basic earnings per share | 0.22 | 0.22 | +0.00% | | Net asset value per share | 2.30 | 2.11 | +9.00% | | Consolidated gross profit margin | 18.69% | 22.89% | -4.20% | | Net profit margin | 11.53% | 14.49% | -2.96% | | EBITDA margin | 15.68% | 19.83% | -4.15% | | Return on equity | 9.58% | 10.44% | -0.86% | | Current ratio | 1.77 | 1.80 | -0.03% | | Interest coverage ratio | 70.40 | 84.70 | -14.30% | | Total debt to equity ratio | 87.94% | 77.65% | +10.29% | | Inventory turnover days | 102 | 107 | -5 Days | | Trade and bills payables turnover days | 140 | 140 | +0 Days | | Trade receivables turnover days | 93 | 83 | +10 Days | Review Report on Interim Condensed Consolidated Financial Information Ernst & Young has reviewed the Group's interim condensed consolidated financial information for the six months ended June 30, 2021, finding no material matters suggesting non-compliance with HKAS 34 - The review was conducted in accordance with Hong Kong Standard on Review Engagements 2410 issued by the HKICPA, with a scope smaller than an audit, thus no audit opinion is expressed[9] - The review concluded that no matters were found to suggest the interim condensed consolidated financial information was not prepared in all material respects in accordance with HKAS 34[10] Interim Condensed Consolidated Statement of Profit or Loss This chapter presents the Group's consolidated profit or loss for the six months ended June 30, 2021, showing significant revenue growth but decreased gross profit margin and profit before tax, with profit for the period remaining stable Interim Condensed Consolidated Statement of Profit or Loss Key Data | Indicator | Six Months Ended June 30, 2021 (RMB thousands) | Six Months Ended June 30, 2020 (RMB thousands) | | :--- | :--- | :--- | | Revenue | 8,191,260 | 6,513,807 | | Cost of sales | (6,660,466) | (5,023,023) | | Gross profit | 1,530,794 | 1,490,784 | | Profit before tax | 1,101,954 | 1,125,055 | | Income tax expense | (157,367) | (181,219) | | Profit for the period | 944,587 | 943,836 | | Profit attributable to owners of the parent | 944,563 | 943,608 | | Basic earnings per share (RMB) | 0.22 | 0.22 | Interim Condensed Consolidated Statement of Comprehensive Income This chapter presents the Group's comprehensive income for the six months ended June 30, 2021, with total comprehensive income for the period increasing due to exchange differences and fair value changes of financial assets Interim Condensed Consolidated Statement of Comprehensive Income Key Data | Indicator | Six Months Ended June 30, 2021 (RMB thousands) | Six Months Ended June 30, 2020 (RMB thousands) | | :--- | :--- | :--- | | Profit for the period | 944,587 | 943,836 | | Financial assets at fair value through other comprehensive income: fair value changes | (2,955) | 792 | | Income tax effect | 446 | (119) | | Exchange differences arising from translation of overseas operations | 15,170 | (3,912) | | Other comprehensive income/(loss) for the period, net of tax | 12,661 | (3,239) | | Total comprehensive income for the period | 957,248 | 940,597 | | Total comprehensive income attributable to owners of the parent | 957,224 | 940,368 | Interim Condensed Consolidated Statement of Financial Position This chapter presents the Group's financial position as of June 30, 2021, showing increases in total assets and current assets, a slight decrease in total equity, and increases in both current and non-current liabilities Interim Condensed Consolidated Statement of Financial Position Key Data | Indicator | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | | :--- | :--- | :--- | | Total non-current assets | 4,471,104 | 4,070,879 | | Total current assets | 14,068,366 | 13,203,357 | | Total current liabilities | 7,939,337 | 7,095,283 | | Total non-current liabilities | 735,520 | 84,678 | | Net assets | 9,864,613 | 10,094,275 | | Equity attributable to owners of the parent | 9,862,108 | 10,091,794 | | Total equity | 9,864,613 | 10,094,275 | Interim Condensed Consolidated Statement of Changes in Equity This chapter details the Group's equity movements for the six months ended June 30, 2021, showing total comprehensive income of RMB 957,248 thousands, but a reduction in total equity due to factors like declared dividends - As of June 30, 2021, equity attributable to owners of the parent was RMB 9,862,108 thousands, a decrease from RMB 10,091,794 thousands as of January 1, 2020[17] - Total comprehensive income for the period was RMB 957,248 thousands, of which RMB 957,224 thousands was attributable to owners of the parent[17] - Dividends declared during the period amounted to RMB 1,186,910 thousands, leading to a reduction in equity[17] Interim Condensed Consolidated Statement of Cash Flows This chapter presents the Group's cash flows for the six months ended June 30, 2021, showing increased net cash from operating activities, a shift from net outflow to net inflow from investing activities, reduced net cash outflow from financing activities, and a net increase in cash and cash equivalents Interim Condensed Consolidated Statement of Cash Flows Key Data | Indicator | Six Months Ended June 30, 2021 (RMB thousands) | Six Months Ended June 30, 2020 (RMB thousands) | | :--- | :--- | :--- | | Net cash flows from operating activities | 446,941 | 406,669 | | Net cash flows from/(used in) investing activities | 57,790 | (113,611) | | Net cash flows used in financing activities | (46,780) | (61,843) | | Net increase in cash and cash equivalents | 457,951 | 231,215 | | Cash and cash equivalents at end of period | 3,241,892 | 2,733,009 | Notes to the Interim Condensed Consolidated Financial Information This chapter provides detailed notes to the interim condensed consolidated financial information, covering company information, accounting policies, revenue recognition, segment information, asset and liability composition, equity changes, related party transactions, and fair value measurement of financial instruments 1. Company Information The Group's principal activities include manufacturing and distributing construction machinery and providing finance lease services; the Company is incorporated in the Cayman Islands and listed on the HKEX, with Ms. Ni Yinying as the ultimate controlling party - The Group's principal activities are the manufacture and distribution of wheel loaders, road rollers, excavators, forklifts, and other construction machinery, and the provision of finance leases[22] - The Company was incorporated in the Cayman Islands on May 11, 2004, and its shares are listed on the Main Board of the Stock Exchange of Hong Kong[22] - Ms. Ni Yinying, a non-executive director of the Company, is the ultimate controlling party of the Company[22] 2. Basis of Preparation and Changes in the Group's Accounting Policies This interim condensed consolidated financial information is prepared in accordance with HKAS 34, with accounting policies consistent with the annual financial statements, and the adoption of revised HKFRSs had no material impact 2.1 Basis of Preparation The interim condensed consolidated financial information is prepared in accordance with HKAS 34 "Interim Financial Reporting" and should be read in conjunction with the Group's annual financial statements as of December 31, 2020 - The interim condensed consolidated financial information is prepared in accordance with Hong Kong Accounting Standard 34 'Interim Financial Reporting'[23] - This information does not include all disclosures required in annual financial statements and should be read in conjunction with the annual financial statements as of December 31, 2020[23] 2.2 Changes in Accounting Policies and Disclosures The accounting policies adopted for this interim condensed consolidated financial information are consistent with the annual consolidated financial statements, with the initial adoption of revised HKFRSs having no material impact on performance or financial position - Accounting policies are consistent with the 2020 annual consolidated financial statements, with only the initial adoption of revised Hong Kong Financial Reporting Standards[24] - The adoption of new and revised standards had no significant impact on the preparation and presentation of the results and financial position for current and prior periods[24] 3. Revenue from Contracts with Customers The Group's revenue from customer contracts primarily stems from the sale of construction machinery, recognized when goods are transferred, with approximately 9% of sales denominated in non-functional currencies - The Group's revenue from contracts with customers primarily arises from the sale of wheel loaders, road rollers, excavators, forklifts, and other construction machinery[25] - Revenue is recognized when goods are transferred at a point in time[25] - Approximately 9% (2020: 5%) of sales are denominated in currencies other than the functional currency of the operating units[25] 4. Operating Segment Information The Group's operating segments include sales of construction machinery, finance leases, and financial investments, with construction machinery sales contributing the majority of revenue and segment results, and total revenue increasing by 25.75% year-on-year for the six months ended June 30, 2021 Operating Segment Revenue and Results (Six Months Ended June 30, 2021) | Segment | Revenue (RMB thousands) | Results (RMB thousands) | | :--- | :--- | :--- | | Sales of construction machinery | 8,191,112 | 938,540 | | Finance leases of construction machinery | 148 | 106 | | Financial investments | – | 101,178 | | Total | 8,191,260 | 1,039,824 | Analysis of Construction Machinery Sales by Product (Six Months Ended June 30, 2021) | Product | 2021 (RMB thousands) | 2021 (%) | 2020 (RMB thousands) | 2020 (%) | | :--- | :--- | :--- | :--- | :--- | | Wheel loaders | 3,897,669 | 47.6 | 3,216,119 | 49.4 | | Excavators | 1,264,224 | 15.4 | 1,282,636 | 19.7 | | Forklifts | 2,087,748 | 25.5 | 1,348,666 | 20.7 | | Parts | 888,015 | 10.8 | 617,112 | 9.5 | | Road rollers | 53,456 | 0.7 | 48,524 | 0.7 | | Subtotal | 8,191,112 | 100.0 | 6,513,057 | 100.0 | | Finance lease interest income | 148 | – | 750 | – | | Total | 8,191,260 | 100.0 | 6,513,807 | 100.0 | - The Group's operating activities are not seasonal[30] 5. Other Income and Other Gains and Losses This chapter analyzes the Group's other income and other gains and losses for the six months ended June 30, 2021, showing government grants as the primary source of other income, while other gains and losses were mainly influenced by gains from disposal of a subsidiary and fair value gains on financial assets Analysis of Other Income | Item | 2021 (RMB thousands) | 2020 (RMB thousands) | | :--- | :--- | :--- | | Government grants | 35,807 | 27,309 | | Penalty income | 17 | 1,905 | | Others | 2,868 | 9,400 | | Total | 38,692 | 38,614 | Analysis of Other Gains and Losses | Item | 2021 (RMB thousands) | 2020 (RMB thousands) | | :--- | :--- | :--- | | Loss on disposal of items of property, plant and equipment | (749) | (260) | | Write-down of inventories to net realizable value | 10,358 | 163 | | Fair value gains on financial assets at fair value through profit or loss, net | 96,461 | 305,616 | | Gains on derivative instruments | 4,717 | 4,717 | | Gains on bills receivable | 5,306 | – | | Gains on disposal of a subsidiary | 213,530 | – | | Exchange (losses)/gains | (5,515) | 5,026 | | Total | 324,108 | 247,327 | 6. Profit Before Tax This chapter outlines the composition of profit before tax for the six months ended June 30, 2021, with major expenses including inventory costs, depreciation, staff costs, and product warranty provisions, offset by gains from disposal of a subsidiary and fair value gains Major Deductions/(Credits) from Profit Before Tax | Item | 2021 (RMB thousands) | 2020 (RMB thousands) | | :--- | :--- | :--- | | Cost of inventories recognized as expense | 6,660,466 | 5,023,023 | | Depreciation of property, plant and equipment | 164,078 | 150,140 | | Staff costs, including directors' emoluments | 389,691 | 318,134 | | Provision for product warranties | 143,985 | 111,739 | | Gains on disposal of a subsidiary | (213,530) | – | | Fair value gains | (96,461) | (305,616) | | Interest income | (89,186) | (73,893) | | Government grants related to income | (35,807) | (27,309) | 7. Income Tax Expense This chapter explains the Group's income tax expense for the six months ended June 30, 2021, primarily comprising current income tax expense and deferred income tax expense, totaling RMB 157,367 thousands Composition of Income Tax Expense | Item | 2021 (RMB thousands) | 2020 (RMB thousands) | | :--- | :--- | :--- | | Current income tax expense | 149,670 | 161,292 | | Deferred income tax expense related to origination and reversal of temporary differences | 7,697 | 19,927 | | Income tax expense recognized in the consolidated statement of profit or loss | 157,367 | 181,219 | 8. Dividends Payable to Shareholders The Board does not recommend an interim dividend for the six months ended June 30, 2021, while the 2020 final dividend of HKD 0.33 per share was paid on July 23, 2021 - The Directors do not recommend the payment of an interim dividend for the six months ended June 30, 2021[35] - The proposed final dividend of HKD 0.33 per ordinary share for the year ended December 31, 2020, was paid on July 23, 2021[35] 9. Property, Plant and Equipment For the six months ended June 30, 2021, the Group purchased property, plant and equipment worth RMB 148,415 thousands and disposed of assets with a net book value of RMB 760 thousands, resulting in a net loss of RMB 749 thousands - For the six months ended June 30, 2021, the Group purchased assets (including property, plant and machinery) at a cost of RMB 148,415 thousands, an increase compared to the same period last year[36] - The Group disposed of assets with a net book value of RMB 760 thousands, resulting in a net loss on disposal of RMB 749 thousands[36] 10. Inventories This chapter presents the Group's inventory composition as of June 30, 2021, totaling RMB 3,713,262 thousands, a slight decrease from the end of 2020, primarily consisting of finished goods, raw materials, and work in progress Composition of Inventories | Item | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | | :--- | :--- | :--- | | Raw materials | 1,305,379 | 1,190,225 | | Work in progress | 232,217 | 198,312 | | Finished goods | 2,175,666 | 2,365,355 | | Total | 3,713,262 | 3,753,892 | 11. Trade Receivables The Group offers trade customers credit terms of 6 to 24 months, with total trade receivables amounting to RMB 4,570,684 thousands as of June 30, 2021, an increase from the end of 2020, with the 0-90 days aging category being the largest - The Group offers trade customers credit terms of 6 to 24 months, with longer terms available for customers with good credit records[38] Aging Analysis of Trade Receivables | Aging | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | | :--- | :--- | :--- | | 0 to 90 days | 2,454,603 | 2,083,775 | | 91 to 180 days | 1,168,054 | 835,302 | | 181 to 360 days | 773,862 | 740,618 | | Over 1 year | 174,165 | 130,517 | | Total | 4,570,684 | 3,790,212 | | Less: Non-current portion | (666,339) | (603,090) | | Current portion | 3,904,345 | 3,187,122 | 12. Prepayments, Deposits and Other Receivables This chapter presents the Group's prepayments, deposits, and other receivables as of June 30, 2021, totaling RMB 686,882 thousands, a decrease from the end of 2020, primarily including prepayments, deductible VAT, and net loans receivable Composition of Prepayments, Deposits and Other Receivables | Item | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | | :--- | :--- | :--- | | Prepayments | 481,979 | 623,774 | | Deductible VAT | 67,061 | 93,516 | | Receivables for consideration on disposal of a subsidiary | 27,639 | – | | Deposits | 2,590 | 3,147 | | Total other receivables | 107,613 | 157,061 | | Total | 686,882 | 877,498 | - A significant portion of other receivables includes loans receivable from sales agents for machine repurchases, with the recovery of finance lease receivables being unsatisfactory due to deteriorating external operating conditions[40] 13. Financial Assets at Fair Value Through Other Comprehensive Income The Group classifies bills receivable held for collecting cash flows and for sale as financial assets at fair value through other comprehensive income, amounting to RMB 326,521 thousands as of June 30, 2021 - The Group has classified bills receivable held for collecting contractual cash flows and for selling as financial assets at fair value through other comprehensive income[42] Financial Assets at Fair Value Through Other Comprehensive Income | Item | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | | :--- | :--- | :--- | | Bills receivable, at fair value | 326,521 | 211,428 | 14. Equity Investments at Fair Value Through Other Comprehensive Income The Group has irrevocably designated unlisted equity investments as at fair value through other comprehensive income due to their strategic nature, totaling RMB 1,450 thousands as of June 30, 2021 - Unlisted equity investments have been irrevocably designated as at fair value through other comprehensive income due to their strategic nature[43] Equity Investments at Fair Value Through Other Comprehensive Income | Item | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | | :--- | :--- | :--- | | Unlisted equity investments, at fair value | 1,450 | 1,450 | 15. Financial Assets at Fair Value Through Profit or Loss The Group's financial assets at fair value through profit or loss primarily comprise listed and unlisted equity investments, totaling RMB 2,443,042 thousands, with unlisted investments being wealth management and fund products issued by PRC financial institutions Composition of Financial Assets at Fair Value Through Profit or Loss | Item | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | | :--- | :--- | :--- | | Listed equity investments, at fair value – non-current | 270,414 | 289,730 | | Unlisted equity investments, at fair value – current | 1,605,664 | 1,538,021 | | Unlisted equity investments, at fair value – non-current | 566,964 | 518,830 | | Total | 2,443,042 | 2,346,581 | - Listed equity investments are classified as financial assets at fair value through profit or loss as they are held for trading purposes[44] - Unlisted equity investments are wealth management and fund investment products issued by PRC financial institutions and investment companies, which are mandatorily classified as financial assets at fair value through profit or loss because their contractual cash flows are not solely payments of principal and interest[45] 16. Cash and Cash Equivalents and Pledged Bank Deposits This chapter presents the Group's cash and cash equivalents and pledged bank deposits as of June 30, 2021, totaling RMB 4,183,889 thousands, with cash and bank balances amounting to RMB 3,241,892 thousands Cash and Cash Equivalents and Pledged Bank Deposits | Item | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | | :--- | :--- | :--- | | Cash and bank balances | 3,241,892 | 2,480,567 | | Time deposits | 941,997 | 1,137,547 | | Total | 4,183,889 | 3,618,114 | | Less: Pledged for long-term bank loans | (356,000) | – | | Less: Pledged for short-term bank loans | – | (356,000) | | Less: Pledged for bank acceptance bills | (493,922) | (441,251) | | Less: Other pledged | (92,075) | (40,296) | | Cash and cash equivalents | 3,241,892 | 2,780,567 | - Pledged bank deposits refer to deposits pledged to banks to obtain bank borrowings or financing, and are classified as current or non-current assets accordingly[46] 17. Trade and Bills Payables This chapter presents the aging analysis of the Group's trade and bills payables as of June 30, 2021, totaling RMB 5,303,825 thousands, with the 0-180 days aging category accounting for the vast majority Aging Analysis of Trade and Bills Payables | Aging | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | | :--- | :--- | :--- | | 0 to 180 days | 5,238,278 | 4,812,807 | | 181 days to 1 year | 13,070 | 28,308 | | 1 to 2 years | 8,899 | 32,771 | | 2 to 3 years | 19,018 | 9,497 | | Over 3 years | 24,560 | 16,775 | | Total | 5,303,825 | 4,900,158 | - Bills payable have an aging period of within six months and are secured by pledged bank deposits of RMB 493,922 thousands[47] 18. Other Payables and Accruals This chapter presents the Group's other payables and accruals as of June 30, 2021, totaling RMB 1,100,465 thousands, primarily including accrued sales commissions, wages and salaries payable, and contract liabilities Composition of Other Payables and Accruals | Item | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | | :--- | :--- | :--- | | Accrued sales commissions | 659,499 | 582,684 | | Other payables | 89,921 | 81,514 | | Wages and salaries payable | 114,316 | 161,226 | | Contract liabilities | 68,500 | 77,422 | | Payables for acquisition of property, plant and equipment | 31,895 | 28,473 | | Other taxes payable | 9,341 | 10,489 | | Finance lease deposits | 7,762 | 8,100 | | Investment management fees | 38,662 | 43,662 | | Other accrued expenses | 80,569 | 65,253 | | Total | 1,100,465 | 1,058,823 | 19. Interest-Bearing Bank Borrowings This chapter presents the Group's interest-bearing bank borrowings as of June 30, 2021, totaling RMB 656,863 thousands, all of which are non-current secured bank loans pledged by certain time deposits Interest-Bearing Bank Borrowings | Item | Effective Annual Interest Rate (%) | Maturity | June 30, 2021 (RMB thousands) | December 31, 2020 (RMB thousands) | | :--- | :--- | :--- | :--- | :--- | | Current bank loans – secured | – | 2021 | – | 663,452 | | Non-current bank loans – secured | 1.30-1.35 | 2024 | 656,863 | – | | Total | | | 656,863 | 663,452 | - Certain bank loans of the Group are secured by pledged time deposits of RMB 356,000 thousands[51] 20. Commitments This chapter discloses the Group's capital commitments of RMB 43,929,410 thousands as of June 30, 2021, primarily related to the acquisition of property, plant and equipment in Shanghai, Fujian, and Jiangxi, China - As of June 30, 2021, the Group had capital commitments of RMB 43,929,410, primarily related to the acquisition of property, plant and equipment located in Shanghai, Fujian, and Jiangxi, China[52] 21. Disposal of a Subsidiary On January 21, 2021, the Group disposed of its entire equity interest in Henan Lonking Machinery Manufacturing Co., Ltd. for a cash consideration of RMB 745,000 thousands, recognizing a gain of approximately RMB 213,530 thousands and generating net cash and cash equivalents inflow of RMB 240,818 thousands - On January 21, 2021, the Group disposed of its entire equity interest in Henan Lonking Machinery Manufacturing Co., Ltd. for a cash consideration of RMB 745,000 thousands[53] - A gain of RMB 213,530 thousands was recognized from the disposal of the subsidiary[54] Analysis of Net Cash and Cash Equivalents Inflow from Disposal of a Subsidiary | Item | June 30, 2021 (RMB thousands) | | :--- | :--- | | Cash consideration | 745,000 | | Cash and bank balances disposed of | (476,543) | | Cash consideration not yet received as of June 30, 2021 | (27,639) | | Net cash and cash equivalents inflow from disposal of a subsidiary | 240,818 | 22. Related Party Transactions This chapter discloses the total amount and balances of the Group's related party transactions for the six months ended June 30, 2021, primarily involving purchases from and receivables/payables to related parties, and also lists key management personnel remuneration Transactions and Balances with Key Related Parties (Six Months Ended June 30, 2021) | Related Party | Transaction Type | 2021 (RMB thousands) | 2020 (RMB thousands) | | :--- | :--- | :--- | :--- | | Longyan Jinlong Machinery Co., Ltd. | Purchases from related parties | 38,649 | 26,900 | | | Amounts due to related parties | 6,882 | 10,138 | | Hercules (Shanghai) Automation Equipment Co., Ltd. | Purchases from related parties | 27,033 | 15,117 | | | Amounts due from related parties | 1,863 | 12,935 | | | Amounts due to related parties | 6,913 | 7,852 | | Shanghai Ruifande Machinery Co., Ltd. | Sales to related parties | 4 | 4 | | | Amounts due from related parties | 256 | 252 | | | Amounts due to related parties | 56 | 56 | | Shanghai Longtui Environmental Technology Co., Ltd. | Sales to related parties | – | 346 | | | Purchases from related parties | 362 | 222 | | | Amounts due from related parties | 10 | 10 | | | Amounts due to related parties | 191 | 408 | Key Management Personnel Remuneration | Item | 2021 (RMB thousands) | 2020 (RMB thousands) | | :--- | :--- | :--- | | Short-term employee benefits | 12,249 | 12,000 | | Contributions to retirement schemes | 79 | 41 | | Total remuneration paid to key management personnel | 12,328 | 12,041 | 23. Financial Instruments by Category This chapter details the carrying amounts of the Group's financial assets and liabilities by category as of June 30, 2021, and December 31, 2020, including financial instruments measured at fair value through profit or loss, fair value through other comprehensive income, and amortized cost - As of June 30, 2021, total financial liabilities amounted to RMB 6,142,970 thousands, primarily comprising trade and bills payables, financial liabilities included in other payables and accruals, and interest-bearing bank borrowings[62] - As of December 31, 2020, total financial liabilities amounted to RMB 5,743,844 thousands[65] 24. Fair Value and Fair Value Hierarchy of Financial Instruments This chapter describes the Group's fair value measurement methods and hierarchy for financial instruments, with management assessing that the fair values of most short-term financial instruments approximate their carrying amounts, and fair values are estimated using market quotations and discounted cash flow models - Management assesses that the fair values of short-term financial instruments such as cash and cash equivalents, current portion of trade receivables, and trade and bills payables approximate their carrying amounts[66] - The fair value of listed equity investments is calculated based on market quotations, while unlisted investments are estimated using discounted cash flow valuation models[67] Fair Value Hierarchy of Assets Measured at Fair Value (As of June 30, 2021) | Item | Quoted Prices in Active Markets (Level 1) (RMB thousands) | Significant Observable Inputs (Level 2) (RMB thousands) | Significant Unobservable Inputs (Level 3) (RMB thousands) | Total (RMB thousands) | | :--- | :--- | :--- | :--- | :--- | | Financial assets at fair value through other comprehensive income | – | – | 326,521 | 326,521 | | Equity investments designated at fair value through other comprehensive income | – | – | 1,450 | 1,450 | | Financial assets at fair value through profit or loss | 270,414 | 2,172,628 | – | 2,443,042 | | Total | 270,414 | 2,172,628 | 327,971 | 2,771,013 | Management Discussion and Analysis This chapter discusses the Group's operating results, financial position, and outlook for the six months ended June 30, 2021, highlighting significant revenue growth and strong export performance, but a decline in consolidated gross profit margin, with management emphasizing strategies to consolidate market position, expand international markets, optimize product structure, and increase R&D investment Performance and Business Review In the first half of 2021, the Group achieved total revenue of RMB 8,191 million, a 25.75% year-on-year increase, with export sales growing by 128.5% to 8.8% of total sales, though the consolidated gross profit margin decreased to 18.69% - The Group achieved total revenue of RMB 8,191 million in the first half, a year-on-year increase of 25.75%[72] - Export sales increased by 128.5% year-on-year, raising their proportion of total sales from 4.8% in the prior period to 8.8%[72] - The consolidated gross profit margin decreased by 4.20 percentage points from 22.89% in the same period of 2020 to 18.69% in 2021[72] - The Group achieved a net profit of approximately RMB 945 million in the first half, a slight increase from RMB 944 million in the prior period[72] Geographical Performance In the first half of 2021, the Company's sales performed well overall, with significant increases in all regions except Southwest and Central China, and overseas sales growing by 128.5% to approximately RMB 717 million - Sales in the Northeast region increased by 39.7% to RMB 313 million[73] - Sales in the Eastern and Southern regions increased by 32.9% to RMB 1,613 million and 35.9% to RMB 933 million, respectively[73] - Sales in the Northern and Northwestern regions increased by 25.8% to RMB 2,035 million and 21.7% to RMB 831 million, respectively[73] - Overseas sales increased by 128.5% to approximately RMB 717 million[73] Product Analysis In the first half of 2021, the Group's product sales significantly increased across categories, with wheel loaders remaining the primary product, forklifts becoming the second largest with notable growth, excavators experiencing a slight decline, and parts sales also growing substantially Wheel Loaders In the first half of 2021, wheel loader sales reached RMB 3,898 million, a 21.2% increase year-on-year, with ZL50 loaders as the main model and rapid growth in small and medium-sized loaders - In the first half of 2021, wheel loader sales amounted to RMB 3,898 million, an increase of 21.2% compared to the prior period[74] - ZL50 loaders were the main model, growing by 19.0% to RMB 3,121 million[74] - Sales of small and medium-sized loaders grew rapidly, with ZL30 loaders increasing by 44.8% to RMB 378 million[74] Excavators Excavator product sales decreased by 1.4% year-on-year to RMB 1,264 million, reducing their proportion of the Group's sales revenue by approximately 4% to 15%, mainly due to slower infrastructure investment growth and increased industry competition - Excavator product sales decreased by 1.4% year-on-year to RMB 1,264 million[75] - Excavator sales as a proportion of the Group's sales revenue decreased by approximately 4% to 15%[75] Forklifts and Road Rollers Forklift product sales increased by 54.8% to RMB 2,088 million, becoming the Group's second-largest product, primarily driven by a significant increase in demand from the logistics and warehousing industries, while road roller sales grew by 10.2% to RMB 53 million - Forklift product sales increased by 54.8% to RMB 2,088 million, becoming the Group's second-largest product[76] - Road roller sales increased by 10.2% to RMB 53 million, accounting for 1% of the Group's total sales[76] Parts During the period, as sales of the Group's other products significantly increased, demand for parts rose substantially, with parts sales growing by 43.9% to RMB 888 million - Parts sales increased by 43.9% to RMB 888 million, primarily due to a significant increase in sales of the Group's other products[77] Financial Review This chapter reviews the Group's financial position, including increased cash and bank balances, maintained current ratio, changes in capital structure, growth in capital expenditure, and fluctuations in revenue, expenses, and receivables Cash and Bank Balances As of June 30, 2021, the Group's cash and bank balances were approximately RMB 3,242 million, an increase of about RMB 461 million from the end of 2020, primarily from net cash inflow from operating activities - As of June 30, 2021, the Group had bank balances and cash of approximately RMB 3,242 million, an increase of approximately RMB 461 million from December 31, 2020[78] - The increase in cash and bank balances was primarily due to net cash inflow from operating activities of RMB 447 million, net cash inflow from investing activities of RMB 58 million, and net cash outflow from financing activities of RMB 47 million[78] - Pledged bank deposits amounted to approximately RMB 942 million, an increase of approximately RMB 104 million from the end of 2020[78] Liquidity and Financial Resources The Group is committed to maintaining a solid financial position, with total shareholders' funds of approximately RMB 9,865 million and a current ratio of 1.77 as of June 30, 2021, and the Directors believe the Group has sufficient resources to support its operations - As of June 30, 2021, total shareholders' funds were approximately RMB 9,865 million, a 2.3% decrease from December 31, 2020[80] - As of June 30, 2021, the Group's current ratio was 1.77 (December 31, 2020: 1.86)[80] - The Directors believe the Group has sufficient resources to support its working capital requirements and meet its foreseeable capital expenditures[80] Capital Structure As of June 30, 2021, the Group's total debt-to-asset ratio was approximately 46.79%, an increase from 41.56% at the end of 2020, and no shares of the Company were purchased, sold, or redeemed by the Company or its subsidiaries during the period - As of June 30, 2021, the total debt-to-asset ratio was approximately 46.79% (December 31, 2020: 41.56%)[81] - During the period ended June 30, 2021, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any shares of the Company or any other listed securities[81] Capital Expenditure During the period, the Group added approximately RMB 148 million in property, plant and equipment to align with its strategy and product transformation, with these expenditures fully funded by internal resources and general borrowings - During the period, the Group added approximately RMB 148 million in property, plant and equipment, an increase from the prior period[82] - Capital expenditures were fully funded by the Group's internal resources and general borrowings[82] Revenue In the first half of 2021, the Group's sales significantly increased, primarily driven by China's COVID-19 control, economic recovery, government domestic demand policies, and global economic recovery boosting international market sales - In the first half of 2021, the Group's sales significantly increased, mainly due to the control of the COVID-19 pandemic in China and a good economic recovery[83] - Under government policies to stabilize domestic demand and expand infrastructure, the construction machinery industry experienced strong demand[83] - Influenced by factors such as the post-pandemic global economic recovery, international market sales also increased significantly[83] Disposal of a Subsidiary On January 21, 2021, the Group disposed of its entire equity interest in Henan Lonking Machinery Manufacturing Co., Ltd. for a cash consideration of RMB 745,000,000, recognizing a gain of approximately RMB 214 million - The Group disposed of its entire equity interest in Henan Lonking Machinery Manufacturing Co., Ltd. for a cash consideration of RMB 745,000,000[84] - The Group recognized a gain of approximately RMB 214 million from the disposal of the subsidiary[84] Other Gains and Losses Other gains and losses increased by approximately RMB 77 million year-on-year in the first half, primarily due to a recognized gain of about RMB 214 million from the disposal of the Henan subsidiary, partially offset by a decrease of approximately RMB 141 million in fair value gains from wealth management products - Other gains and losses increased by approximately RMB 77 million in the first half compared to the prior period[85] - This was primarily due to a recognized gain of approximately RMB 214 million from the disposal of the Henan subsidiary[85] - Fair value changes in wealth management products recognized in the current period amounted to approximately RMB 96 million, a decrease of approximately RMB 141 million from the prior period[85] Selling and Distribution Expenses Selling and distribution expenses increased by approximately RMB 85 million year-on-year, mainly due to higher transportation costs resulting from significantly increased sales and a substantial rise in service costs due to increased service provisions - Selling and distribution expenses increased by approximately RMB 85 million compared to the prior period[86] - This was primarily due to increased transportation costs resulting from significantly higher sales during the period[86] - The corresponding increase in service provisions led to a substantial rise in service costs[86] Research and Development Expenses Research and development expenses significantly increased by 18.3% to approximately RMB 319 million during the period, largely in line with sales growth, primarily due to direct material inputs and higher labor costs for R&D activities - Research and development expenses significantly increased by 18.3% to approximately RMB 319 million during the period[87] - The increase in R&D expenses was primarily due to direct material inputs and higher labor costs for R&D activities[87] Trade Receivables Trade receivables increased by approximately RMB 780 million, or 20.6%, at the end of the period compared to the end of 2020, primarily due to increased domestic and international sales during the period - Trade receivables increased by approximately RMB 780 million, or 20.6%, at the end of the period compared to the end of 2020[89] - This was primarily due to increased domestic and international sales during the period[89] Prepayments, Deposits and Other Receivables Prepayments, deposits, and other receivables decreased by approximately RMB 191 million at the end of the period compared to the end of last year, mainly due to the Group's adjustment of raw material inventory in anticipation of lower market demand and operating rates in the second half, and reduced interest receivable - Prepayments, deposits, and other receivables decreased by approximately RMB 191 million at the end of the period compared to the end of last year[90] - This was primarily due to the Group's adjustment of raw material inventory in anticipation of lower market demand and operating rates in the second half[90] - The Group collected interest on time deposits matured during the period, leading to a decrease in interest receivable compared to the end of last year[90] Capital Commitments As of June 30, 2021, the Group had contracted capital expenditures of approximately RMB 44 million for the acquisition of property, plant and equipment, not yet accounted for in the financial statements, representing an increase from the end of 2020 - As of June 30, 2021, the Group had contracted capital expenditures of approximately RMB 44 million for the acquisition of property, plant and equipment, not yet accounted for in the financial statements[91] Outlook The Group anticipates both opportunities and challenges in the construction machinery industry in the second half of 2021, and will continue to focus on core products, adhere to the "agency system" marketing principle, strengthen channel integration and market layout, enhance international expansion, and continuously improve quality management and increase R&D investment to adapt to market changes and achieve sustainable development - China's economy is steadily improving, with macro policies continuing to support the real economy, and resilient infrastructure and real estate investment will continue to unleash domestic demand in the construction machinery industry[92] - Overseas markets are expected to further boost exports of construction machinery products, benefiting from vaccine promotion and global economic recovery[92] - The Group will focus on the high-quality, sustainable development of its four main product categories: loaders, excavators, forklifts, road machinery, and core components[92] - In marketing, the Group will adhere to the 'agency system' principle, strengthen channel integration and market planning, optimize product structure, and utilize flexible 'one region, one policy' marketing strategies to expand overseas market share[92] - Regarding quality, the Group will continue to improve its quality management system, strengthen quality management and supervision of supplier products, and comprehensively enhance the quality of all product categories[92] - In R&D and technology, the Group will increase R&D investment, accelerate product transformation and upgrading, especially in the R&D reserves and market launch of large-tonnage loaders, new energy loaders, new energy forklifts, medium and large excavators, and related components[92][93] - The Group will build a data-centric digital and intelligent platform, promote streamlined and information-based management processes, and accelerate the application of the Group's digital technology capabilities and the improvement of intelligent manufacturing levels[93] Corporate Governance This chapter outlines the Company's corporate governance practices, with the Board committed to maintaining high standards and complying with the Corporate Governance Code in Appendix 14 of the Listing Rules, noting certain deviations regarding directors' liability insurance, independent non-executive directors' attendance at general meetings, and the Chairman also serving as CEO Code Provision A.1.8 The Company has not yet made appropriate insurance arrangements for potential legal actions against directors, as the Board believes reasonably priced and adequately covered directors' liability insurance products are not yet available in the market - The Company has not yet arranged directors' liability insurance due to the lack of reasonably priced and adequately covered products in the market[95] Code Provision A.6.7 Three independent non-executive directors were unable to attend the Annual General Meeting held on May 26, 2021, deviating from the Code Provision requiring independent non-executive directors to attend general meetings - Three independent non-executive directors were unable to attend the Annual General Meeting held on May 26, 2021, due to other important commitments[96] Code Provision A.4.3 Mr. Qian Shizheng has served as an independent non-executive director for over nine years, and his re-election was approved by shareholders via an independent resolution at the 2021 Annual General Meeting, with the Board believing he maintains his independence - Mr. Qian Shizheng has been appointed as an independent non-executive director for over nine years, and his re-election was approved by shareholders via an independent resolution[97] - The Board believes Mr. Qian maintains his independence despite serving for over nine years, as his extensive experience meets the Group's needs and he provides independent judgment[97] Code Provision A.2.1 Mr. Li Xinyan, the Company's Chairman, also serves as Chief Executive Officer, deviating from the Code Provision requiring separation of these roles, but the Board believes this arrangement helps maintain policy continuity and business stability - Mr. Li Xinyan, the Company's Executive Director and Chairman of the Board, has also served as Chief Executive Officer since December 21, 2015, holding both positions concurrently[98] - The Board believes Mr. Li's concurrent holding of both positions is appropriate and in the best interests of the Company, helping to maintain policy continuity and business stability[98] Compliance with the Model Code for Securities Transactions by Directors of Listed Issuers The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules, and all Directors confirmed compliance with its provisions during the year - The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 of the Listing Rules as its code of conduct for directors' securities transactions[100] - Following specific inquiries to all Directors, each Director confirmed compliance with the required standards set out in the Model Code during the year[100] Improvements to Internal Control System In the first half of 2021, the Company implemented several improvements to its internal control system, including strengthening supply chain management, enhancing monitoring and information management, refining decision-making mechanisms, reinforcing financial supervision, and establishing performance evaluation and assessment mechanisms - Further strengthening the management of the Group's supply chain to broaden channels, enhance quality, and make products more competitive[101] - Further improving the construction of the monitoring system and information management to achieve institutionalized, procedural, and standardized company operations[101] - Strengthening financial supervision by arranging a comprehensive audit of the Company by professionals at least every six months[101] - Establishing and further refining management team assessment procedures for effective supervision and establishing performance evaluation and assessment mechanisms[101] Investor Relations Management This chapter emphasizes the Company's commitment to investor relations management, ensuring investor rights through effective communication and high transparency, maintaining good communication with domestic and international investors via conference calls despite the pandemic, and striving to create value for all stakeholders Information Disclosure The Company views effective communication as central to investor relations, believing high transparency and timely information dissemination are crucial for success, and communicated with 46 domestic and international investors through over 25 conference calls in the first half - The Company regards effective communication as the core of investor relations and believes that highly transparent management and timely dissemination of information to investors are crucial factors for the Company's success[102] - During the six months ended June 30, 2021, the Company received communications from 46 domestic and international investors, including over 25 conference calls[102] Interests of Other Stakeholders While committed to maximizing shareholder value, the Company also strives to provide high-quality products and services to customers, development opportunities for employees, and demonstrates a strong sense of responsibility towards shareholders, investors, employees, customers, suppliers, and society, actively participating in public welfare - While committed to maximizing shareholder value, the Company also strives to provide high-quality products and services to customers and career development opportunities for employees[103] - The Company has a strong sense of responsibility towards shareholders, investors, employees, customers, suppliers, and society, and operates with integrity[103] - While pursuing profit growth, the Company also gives back to society by managing its business in compliance with relevant laws and environmental regulations, improving corporate governance, enhancing corporate transparency, and actively participating in public welfare and contributing to local social development[103] Contact This chapter provides investor relations contact information for communication - The investor relations contact person is Ms. Lv Zhenzhen, reachable at phone: 86-21-3760 2000 (5676), email: Lzz@Lonking.cn[103] Disclosure of Interests This chapter discloses the interests of the Company's Directors and Chief Executive in shares and underlying shares, as well as the interests of substantial shareholders in the Company's issued share capital, ensuring compliance with the Securities and Futures Ordinance Directors' and Chief Executive's Interests in Shares and Underlying Shares As of June 30, 2021, the Company's Directors and Chief Executive held registrable interests in the shares of the Company or its associated corporations, with Ms. Ni Yinying holding 56.03% of the Company's issued share capital Long Positions in Shares and Underlying Shares of the Company As of June 30, 2021, Ms. Ni Yinying held 2,398,273,188 ordinary shares of the Company, representing 56.03% of the issued share capital Directors' Long Positions in Shares of the Company | Director Name | Capacity | Number of Shares Held | Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | Ni Yinying | Beneficial owner | 2,398,273,188 | 56.03% | | Chen Chao | Beneficial owner | 1,596,000 | 0.04% | | Zheng Kewen | Beneficial owner | 429,900 | 0.01% | | Total | | 2,400,299,088 | 56.08% | Long Positions in Shares and Underlying Shares of Lonking (Shanghai) Machinery Co., Ltd., an Associated Corporation of the Company Mr. Li Xinyan and Ms. Ni Yinying indirectly hold 0.11% equity interest in Lonking (Shanghai) Machinery Co., Ltd. through Shanghai Lonking Machinery Co., Ltd Directors' Long Positions in Shares of Associated Corporations | Director Name | Capacity | Registered Capital | Percentage of Issued Share Capital | | :--- | :--- | :--- | :--- | | Mr. Li Xinyan | Corporation (Note 1) | 480,000 | 0.11% | | Ms. Ni Yinying | Corporation (Note 1) | 480,000 | 0.11% | - This 0.11% equity interest in Lonking (Shanghai) Machinery Co., Ltd. is held by Shanghai Lonking Machinery Co., Ltd., which is owned by Mr. Li Xinyan and Ms. Ni Yinying with 39.5% and 60.5% equity interests, respectively[108] Substantial Shareholders As of June 30, 2021, in addition to the Directors' interests, Citigroup Inc. was a substantial shareholder of the Company, holding 213,321,188 ordinary shares, representing 4.98% of the issued share capital Substantial Shareholders' Long Positions in Shares of the Company | Shareholder Name | Capacity | Number of Ordinary Shares in which Interests are Held | Percentage of the Company's Issued Share Capital | | :--- | :--- | :--- | :--- | | Citigroup Inc. | Investment Manager | 213,321,188 | 4.98% | Other Information This chapter provides other important information about the Group, including no interim dividend recommendation, employee and remuneration policies, no purchase, sale, or redemption of listed securities during the period, and the Audit Committee's review of interim results Interim Dividend The Directors do not recommend the payment of any interim dividend for the six months ended June 30, 2021 - The Directors do not recommend the payment of any interim dividend for the six months ended June 30, 2021[111] Employees and Remuneration Policy The Group's employee remuneration policy is formulated by the Human Resources Department based on performance, qualifications, and abilities, with Directors' remuneration determined by the Remuneration Committee, and the Group employed approximately 8,237 staff as of June 30, 2021 - The Group's employee remuneration policy is formulated by the Human Resources Department based on employees' performance, qualifications, and abilities[112] - The remuneration of the Company's Directors is determined by the Remuneration Committee based on operating results, individual performance, and market statistics[112] - As of June 30, 2021, the Group employed approximately 8,237 staff[112] Purchase, Sale or Redemption of the Company's Listed Securities During the period ended June 30, 2021, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any shares of the Company or any other listed securities - During the period ended June 30, 2021, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any shares of the Company or any other listed securities[113] Audit Committee Review of Accounts The Company's Audit Committee, together with management and external auditors, has reviewed the interim results for the six months ended June 30, 2021, and continuously reviews accounting principles and practices - The Audit Committee, together with management and external auditors, has continuously reviewed the accounting principles and practices adopted by the Group[113] - The interim results for the six months ended June 30, 2021, have been reviewed by the Company's Audit Committee[113] Company Information This chapter provides detailed company information for China Lonking Holdings Limited, including Board members, committee compositions, company secretary, office addresses, legal advisers, auditor, stock code, and principal bankers Board of Directors The Board of Directors comprises executive directors, a non-executive director, and independent non-executive directors, with Mr. Li Xinyan serving as Chairman and Chief Executive Officer - Executive Directors include Mr. Li Xinyan (Chairman and Chief Executive Officer), Mr. Chen Chao, Mr. Zheng Kewen, and Mr. Yin Kunlun[114] - The Non-executive Director is Ms. Ni Yinying[114] - Independent Non-executive Directors include Dr. Qian Shizheng, Mr. Wu Jianming, and Mr. Yu Taiwei[114] Audit Committee The Audit Committee is chaired by Dr. Qian Shizheng, with Mr. Yu Taiwei and Ms. Ni Yinying as members - The Audit Committee is chaired by Dr. Qian Shizheng, with Mr. Yu Taiwei and Ms. Ni Yinying as members[114] Remuneration Committee The Remuneration Committee is chaired by Dr. Qian Shizheng, with Ms. Ni Yinying as a member - The Remuneration Committee is chaired by Dr. Qian Shizheng, with Ms. Ni Yinying as a member[114] Nomination Committee The Nomination Committee is chaired by Mr. Yu Taiwei, with Ms. Ni Yinying as a member - The Nomination Committee is chaired by Mr. Yu Taiwei, with Ms. Ni Yinying as a member[114] Executive Committee The Executive Committee is chaired by Mr. Li Xinyan, who also serves as Chief Executive Officer, with Mr. Chen Chao, Mr. Zheng Kewen, and Mr. Yin Kunlun as members - The Executive Committee is chaired by Mr. Li Xinyan, who also serves as Chief Executive Officer, with Mr. Chen Chao, Mr. Zheng Kewen, and Mr. Yin Kunlun as members[114] Company Secretary The Company Secretary is Mr. Zhu Xun - The Company Secretary is Mr. Zhu Xun[114] Head Office The Company's Head Office is located at No. 26 Minyi Road, Xinqiao Town, Songjiang Industrial Zone, Shanghai, China - The Head Office is located at No. 26 Minyi Road, Xinqiao Town, Songjiang Industrial Zone, Shanghai, China, Postcode: 201612[114] Registered Office The Company's Registered Office is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands - The Registered Office is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands[114] Investor Relations Investor relations contact information is provided for communication - The investor relations contact person is Ms. Lv Zhenzhen, reachable at phone: 86-21-3760 2000 (5676), email: Lzz@Lonking.cn[114] Principal Place of Business in Hong Kong The Company's Principal P