Arcplus(SH:600629)2017-08-30 16:00markdown [Definitions](index=4&type=section&id=Section%20I%20Definitions) This section provides definitions of key terms used in the report [Company Profile and Key Financial Indicators](index=4&type=section&id=Section%20II%20Company%20Profile%20and%20Key%20Financial%20Indicators) This section outlines the company's basic information and presents its key financial performance metrics [Company Information, Contacts, and General Overview](index=4&type=section&id=II.%20Company%20Information%2C%20Contacts%2C%20and%20General%20Overview) This chapter provides Huajian Group's basic corporate information, contact details, and addresses, noting its stock code 600629 and former name 'Lengguang Industrial' - The company's Chinese name is Huadong Engineering Group Corporation Limited, with stock abbreviation 'Huajian Group', and its legal representative is Qin Yun[11](index=11&type=chunk) - The company's A-shares are listed on the Shanghai Stock Exchange under stock code **600629**, previously abbreviated as 'Lengguang Industrial'[16](index=16&type=chunk) [Key Accounting Data and Financial Indicators](index=5&type=section&id=VII.%20Key%20Accounting%20Data%20and%20Financial%20Indicators) In H1 2017, operating revenue grew 21.64% to **2.127 billion Yuan**, while net profit attributable to shareholders declined 21.95% to **73.65 million Yuan**, with total assets and net assets significantly increasing due to acquisitions and financing Key Accounting Data for H1 2017 | Key Accounting Data | Current Period (Jan-Jun) (Million Yuan) | Prior Period (Million Yuan) | YoY Change (%) | | :--- | :--- | :--- | :--- | | **Operating Revenue** | 2,126.70 | 1,748.40 | 21.64% | | **Net Profit Attributable to Shareholders** | 73.65 | 94.36 | -21.95% | | **Net Cash Flow from Operating Activities** | -390.07 | -382.68 | -1.93% | | | **End of Current Period (Million Yuan)** | **End of Prior Year (Million Yuan)** | **Period-end vs. Prior Year-end Change (%)** | | **Net Assets Attributable to Shareholders** | 2,307.48 | 1,004.63 | 129.68% | | **Total Assets** | 6,453.92 | 4,838.58 | 33.38% | Key Financial Indicators for H1 2017 | Key Financial Indicators | Current Period (Jan-Jun) | Prior Period | YoY Change (%) | | :--- | :--- | :--- | :--- | | **Basic Earnings Per Share (Yuan/share)** | 0.1862 | 0.2628 | -29.15% | | **Weighted Average Return on Net Assets (%)** | 4.45% | 11.96% | Decrease by 7.51 percentage points | | **Weighted Average Return on Net Assets (Excluding Non-recurring Gains/Losses) (%)** | 3.09% | 7.37% | Decrease by 4.28 percentage points | Non-recurring Gains and Losses for H1 2017 | Non-recurring Gains and Losses | Amount (Yuan) | | :--- | :--- | | Gains/Losses on Disposal of Non-current Assets | -86,975.44 | | Government Grants Recognized in Current Profit/Loss | 26,817,228.77 | | Other Non-operating Income and Expenses | 784,054.23 | | Impact on Minority Interests | -216,271.75 | | Income Tax Impact | -4,736,303.61 | | **Total** | **22,561,732.20** | [Company Business Overview](index=7&type=section&id=Section%20III%20Company%20Business%20Overview) This section provides an overview of the company's core businesses, operating models, and industry landscape [Principal Businesses, Operating Model, and Industry Overview](index=7&type=section&id=I.%20Description%20of%20Principal%20Businesses%2C%20Operating%20Model%2C%20and%20Industry%20Situation%20During%20the%20Reporting%20Period) The company's core business is architectural design, providing integrated services through bidding and direct client engagement, operating in an increasingly competitive market influenced by national policies, M&A, and digital transformation - The company's principal business centers on architectural design, providing integrated services covering the entire project lifecycle, including engineering technical management, design, contracting, and surveying[23](index=23&type=chunk) - Business acquisition models primarily include bidding (public/invited) and direct client engagement[24](index=24&type=chunk) - Industry development exhibits four key characteristics: clear national construction trends (e.g., Xiong'an New Area), policy emphasis on industry development, diversified enterprise growth driven by 'technology + management + capital' through innovation, and efficiency enhancement via 'Internet+' integration[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) [Discussion and Analysis of Operations](index=8&type=section&id=Section%20IV%20Discussion%20and%20Analysis%20of%20Operations) This section provides a detailed discussion and analysis of the company's operational performance and strategic initiatives during the reporting period [Discussion and Analysis of Operations](index=8&type=section&id=I.%20Discussion%20and%20Analysis%20of%20Operations) In H1 2017, new contract value grew 12.1% to **3.998 billion Yuan**, driven by strategic expansion in regional and overseas markets, alongside significant capital operations including asset injection and the establishment of a digital innovation technology company New Contract Situation in H1 2017 | Contract Category | Amount (Billion Yuan) | YoY Growth | | :--- | :--- | :--- | | **Total New Contract Value** | **3.998** | **12.1%** | | Design Consulting Contract Value | 2.791 | - | | Engineering Contracting Contract Value | 1.207 | - | - The company actively expanded its regional markets, establishing a Southwest Center in Chongqing after the Northwest and Central China centers, and seeking cooperation opportunities in regions like Beijing-Tianjin-Hebei, Jiangsu, and Shandong[31](index=31&type=chunk) - Overseas market expansion continued, with foreign economic project contract value reaching **368 million Yuan** in H1, a **43.7%** year-on-year increase[31](index=31&type=chunk) - The company established 'Huajian Digital Innovation (Shanghai) Technology Co., Ltd.' as its information industry parent company, dedicated to building three major business engines: 'Internet+Design', 'Digitalization+Construction', and 'Virtualization+Engineering'[33](index=33&type=chunk) [Analysis of Principal Businesses](index=9&type=section&id=(I)%20Analysis%20of%20Principal%20Businesses) During the reporting period, operating revenue grew 21.64% driven by engineering contracting, while operating costs increased faster; financial expenses significantly decreased due to higher interest income, and net cash flow from financing activities surged due to private share placement and new financing Analysis of Major Financial Statement Item Changes | Item | Current Period Amount (Million Yuan) | Prior Period Amount (Million Yuan) | Change (%) | Explanation for Change | | :--- | :--- | :--- | :--- | :--- | | **Operating Revenue** | 2,126.70 | 1,748.40 | 21.64 | Increase in engineering contracting business revenue | | **Operating Cost** | 1,594.01 | 1,263.90 | 26.12 | Impact of 'VAT reform' and growth in low-margin project revenue | | **Financial Expenses** | -2.94 | -0.36 | -723.70 | Increase in interest income | | **Asset Impairment Losses** | 30.63 | 13.18 | 132.43 | Increase in bad debt provisions based on aging | | **Net Cash Flow from Investing Activities** | -271.81 | -117.69 | -130.97 | New equity investments in Wuhan Zhenghua and Jiangxi Investment Group | | **Net Cash Flow from Financing Activities** | 505.69 | 7.58 | 6,575.00 | Funds raised from private share placement and new financing | [Analysis of Assets and Liabilities](index=10&type=section&id=(III)%20Analysis%20of%20Assets%20and%20Liabilities) At period-end, total assets reached **6.454 billion Yuan**, up 33.38%, driven by significant increases in fixed assets and long-term equity investments; liabilities rose to support investments, and capital reserves surged due to private share placement, with **294 million Yuan** in restricted assets Changes in Major Asset and Liability Items | Item Name | Amount at End of Current Period (Million Yuan) | Change from End of Prior Period (%) | Explanation | | :--- | :--- | :--- | :--- | | **Investment Properties** | 72.29 | 100.00 | Acquisition of Modern Architectural Design Building through private placement, with leased portions included | | **Fixed Assets** | 1,235.38 | 856.89 | Due to acquisition of Modern Architectural Design Building through private placement and consolidation of Wuhan Zhenghua | | **Long-term Equity Investments** | 155.30 | 1,265.91 | New investment in 34% equity of Jiangxi Investment Group | | **Short-term Borrowings** | 400.00 | 100.00 | New financing for investment support | | **Long-term Borrowings** | 167.84 | 117.07 | New project-specific borrowings and consolidation of Wuhan Zhenghua | | **Capital Reserves** | 1,431.33 | 658.19 | Increase from private share placement for asset acquisition and supporting funds | - As of the end of the reporting period, the company's major restricted assets totaled **294 million Yuan**, including fixed assets, inventories, and accounts receivable pledged for borrowings, as well as performance bond deposits[42](index=42&type=chunk) [Analysis of Investment Status](index=11&type=section&id=(IV)%20Analysis%20of%20Investment%20Status) During the reporting period, the company actively pursued strategic development through capital operations, including significant equity investments in Wuhan Zhenghua and Jiangxi Consulting, establishing a new digital technology subsidiary, and completing a major asset restructuring involving the acquisition of Modern Architectural Design Building via private share placement and related fundraising - Acquired **51%** equity in Wuhan Zhenghua Architectural Design Co., Ltd. for **152 million Yuan**, with industrial and commercial changes completed in February 2017[46](index=46&type=chunk) - Invested **145 million Yuan** to subscribe for **34%** equity in Jiangxi Provincial Consulting Investment Group Co., Ltd., with property rights transfer completed in June 2017[47](index=47&type=chunk) - Established a new wholly-owned subsidiary, Huajian Digital Innovation (Shanghai) Technology Co., Ltd., with a registered capital of **10 million Yuan**, to promote digital transformation[48](index=48&type=chunk) - Acquired Modern Architectural Design Building assets through share issuance and raised up to **280 million Yuan** in supporting funds for its information technology upgrade project, with relevant share issuance registration completed in March 2017[49](index=49&type=chunk)[50](index=50&type=chunk) [Analysis of Major Holding and Participating Companies](index=13&type=section&id=(VI)%20Analysis%20of%20Major%20Holding%20and%20Participating%20Companies) During the reporting period, the company consolidated five major subsidiaries, with Huadong Architectural Design and Research Institute Co., Ltd. achieving **2.119 billion Yuan** in revenue and **98.88 million Yuan** in net profit, while a new digital subsidiary was established and equity transfers optimized the investment structure Major Subsidiaries' Financial Data for H1 2017 (Unit: Million Yuan) | Company Name | Total Assets | Net Assets | Operating Revenue | Net Profit | | :--- | :--- | :--- | :--- | :--- | | **Huadong Architectural Design and Research Institute Co., Ltd.** | 5,379.59 | 1,125.64 | 2,118.73 | 98.88 | | **Shanghai Yunzhu Investment Co., Ltd.** | 110.81 | 90.61 | - | -2.90 | | **Huadong Engineering Group (International) Co., Ltd.** | 18.49 | -1.70 | 1.33 | 0.25 | | **Shanghai Modern Huagai Architectural Design Co., Ltd.** | 44.64 | 9.97 | 4.44 | 0.27 | | **Huajian Digital Innovation (Shanghai) Technology Co., Ltd.** | 10.00 | -0.00 | - | -0.00 | [Potential Risks](index=14&type=section&id=(II)%20Potential%20Risks) The company faces key risks including policy changes, intensified market competition, increased project management demands from business expansion, and human resource challenges in attracting and retaining talent - The company's business is highly dependent on national macroeconomic, industrial, and regional development policies, making policy changes a primary source of risk[54](index=54&type=chunk) - Market competition is intensifying, with resources concentrating towards leading enterprises, while regional protectionism in some areas poses risks to the company's market expansion[55](index=55&type=chunk) - With the expansion of EPC general contracting and overseas businesses, the company faces higher demands in full project lifecycle management, resource integration, contract management, and risk control[56](index=56&type=chunk) - As a knowledge-intensive enterprise, the stability and cultivation of core professional technical talent and excellent management personnel are crucial for the company's sustainable development, facing talent retention risks[57](index=57&type=chunk) [Significant Matters](index=15&type=section&id=Section%20V%20Significant%20Matters) This section details significant events and corporate actions undertaken by the company during the reporting period [Profit Distribution Plan](index=15&type=section&id=II.%20Profit%20Distribution%20or%20Capital%20Reserve%20to%20Share%20Capital%20Increase%20Plan) The company has no proposed profit distribution or capital reserve to share capital increase plan for H1 2017 - The company proposes no profit distribution or capital reserve to share capital increase for H1 2017[60](index=60&type=chunk) [Fulfillment of Commitments](index=16&type=section&id=III.%20Fulfillment%20of%20Commitments) During the reporting period, controlling shareholder Shanghai Modern Architectural Design (Group) Co., Ltd. strictly fulfilled all commitments related to the major asset restructuring, including share lock-up, resolving horizontal competition, and regulating related-party transactions - The share lock-up commitment made by controlling shareholder Shanghai Modern Architectural Design (Group) Co., Ltd. regarding the major asset restructuring was strictly fulfilled, with a lock-up period of **36 months**[61](index=61&type=chunk) - The commitment to avoid horizontal competition is being fulfilled, with a pledge to inject Shanghai Land Highway Engineering Consulting and Design Co., Ltd. into Huajian Group when appropriate[62](index=62&type=chunk) - Commitments regarding the regulation of related-party transactions and ensuring the value of injected assets are both within their validity period and have been strictly fulfilled[62](index=62&type=chunk)[64](index=64&type=chunk) [Equity Incentive and Employee Incentive](index=19&type=section&id=IX.%20Status%20and%20Impact%20of%20Company%27s%20Equity%20Incentive%20Plan%2C%20Employee%20Stock%20Ownership%20Plan%2C%20or%20Other%20Employee%20Incentive%20Measures) In May 2017, the company approved the 'Incentive Fund Plan (2017-2020)', aiming to incentivize market-selected professional managers, core management personnel, and employees with significant contributions to enhance management team motivation and accountability - The company's Board of Directors approved the 'Incentive Fund Plan (2017-2020)', with incentive recipients including professional managers, directors, academicians, and other core employees[65](index=65&type=chunk) [Significant Related-Party Transactions](index=20&type=section&id=X.%20Significant%20Related-Party%20Transactions) The most significant related-party transaction was the company's acquisition of Modern Architectural Design Building assets from its controlling shareholder via share issuance, with new share registration completed; routine related-party transactions for 2017 are estimated at **120 million Yuan** - The company completed a significant related-party transaction by issuing shares to its controlling shareholder to acquire Modern Architectural Design Building, with asset transfer and share registration finalized[67](index=67&type=chunk)[68](index=68&type=chunk) - The company estimates total routine related-party transactions with affiliates for 2017 to be approximately **120 million Yuan**[66](index=66&type=chunk) [Significant Contracts and Their Performance](index=22&type=section&id=XI.%20Significant%20Contracts%20and%20Their%20Performance) This chapter discloses the company's leasing and guarantee situations, including office building leases from its controlling shareholder and total guarantees to subsidiaries amounting to **151 million Yuan**, representing **6.54%** of net assets Company Guarantees to Subsidiaries | Guarantee Item | Amount (Million Yuan) | | :--- | :--- | | **Total Guarantees to Subsidiaries Incurred During Reporting Period** | 91.38 | | **Total Guarantees to Subsidiaries Outstanding at Period-end (B)** | 151.00 | | **Ratio of Total Guarantees to Company's Net Assets (%)** | 6.54 | [Changes in Ordinary Shares and Shareholder Information](index=27&type=section&id=Section%20VI%20Changes%20in%20Ordinary%20Shares%20and%20Shareholder%20Information) This section details changes in the company's ordinary share capital and provides an overview of its shareholder structure [Changes in Share Capital](index=27&type=section&id=I.%20Changes%20in%20Share%20Capital) During the reporting period, total share capital increased by **73,147,942 shares** to **432 million**, primarily due to share issuance for asset acquisition and supporting funds, with restricted shares rising to **19.48%** Share Capital Change Table (Unit: Shares) | Share Class | Before This Change | Increase/Decrease in This Change | After This Change | | :--- | :--- | :--- | :--- | | **I. Restricted Shares** | 11,060,377 | +73,147,942 | 84,208,319 | | **II. Unrestricted Tradable Shares** | 347,999,813 | 0 | 347,999,813 | | **III. Total Shares** | **359,060,190** | **+73,147,942** | **432,208,132** | - The increase in total shares is due to the company's issuance of **59,334,425 shares** to Modern Design Group for asset acquisition and **13,813,517 shares** to other investors for supporting funds[87](index=87&type=chunk) [Shareholder Information](index=31&type=section&id=II.%20Shareholder%20Information) As of period-end, the company had **27,295** ordinary shareholders, with the top two, Shanghai Modern Architectural Design (Group) Co., Ltd. and Shanghai Guosheng (Group) Co., Ltd., holding **56.1%** and **15.25%** respectively, both state-owned enterprises Shareholding of Top Two Shareholders as of Period-end | Shareholder Name | Number of Shares Held at Period-end (Shares) | Percentage (%) | Shareholder Nature | | :--- | :--- | :--- | :--- | | **Shanghai Modern Architectural Design (Group) Co., Ltd.** | 242,455,352 | 56.1 | State-owned Legal Person | | **Shanghai Guosheng (Group) Co., Ltd.** | 65,893,468 | 15.25 | State-owned Legal Person | - As of the end of the reporting period, the company had a total of **27,295** shareholders[92](index=92&type=chunk) [Preferred Shares Information](index=35&type=section&id=Section%20VII%20Preferred%20Shares%20Information) This section confirms the absence of preferred shares related information for the company [Preferred Shares Information](index=35&type=section&id=Section%20VII%20Preferred%20Shares%20Information) The company has no preferred shares related information - During the reporting period, the company had no preferred shares related information[100](index=100&type=chunk) [Information on Directors, Supervisors, and Senior Management](index=36&type=section&id=Section%20VIII%20Information%20on%20Directors%2C%20Supervisors%2C%20and%20Senior%20Management) This section provides details on the company's directors, supervisors, and senior management personnel [Changes in Directors, Supervisors, and Senior Management](index=36&type=section&id=II.%20Changes%20in%20Company%27s%20Directors%2C%20Supervisors%2C%20and%20Senior%20Management) During the reporting period, changes occurred in the company's senior management, with former CFO Zhang Hua resigning and Wu Fengyu appointed as Deputy CFO Changes in Senior Management | Name | Position Held | Change Type | | :--- | :--- | :--- | | Zhang Hua | CFO | Resigned | | Wu Fengyu | Deputy CFO | Appointed | [Corporate Bonds Information](index=37&type=section&id=Section%20IX%20Corporate%20Bonds%20Information) This section confirms the absence of corporate bonds related information for the company [Corporate Bonds Information](index=37&type=section&id=Section%20IX%20Corporate%20Bonds%20Information) The company has no corporate bonds related information - During the reporting period, the company had no corporate bonds related information[103](index=103&type=chunk) [Financial Report](index=38&type=section&id=Section%20X%20Financial%20Report) This section presents the company's comprehensive financial statements and related notes for the reporting period [Financial Statements](index=38&type=section&id=II.%20Financial%20Statements) As of June 30, 2017, total assets were **6.454 billion Yuan**, total liabilities **3.999 billion Yuan**, and equity attributable to parent **2.307 billion Yuan**; H1 2017 saw **2.127 billion Yuan** in operating revenue, **114 million Yuan** in total profit, and **73.65 million Yuan** in net profit attributable to parent, with significant cash flow movements across activities Key Items from Consolidated Balance Sheet (June 30, 2017) | Item | Amount (Billion Yuan) | | :--- | :--- | | **Total Assets** | 6.454 | | **Total Liabilities** | 3.999 | | **Total Equity Attributable to Parent Company Owners** | 2.307 | Key Items from Consolidated Income Statement (Jan-Jun 2017) | Item | Amount (Million Yuan) | | :--- | :--- | | **Total Operating Revenue** | 2,126.70 | | **Total Profit** | 113.57 | | **Net Profit Attributable to Parent Company Owners** | 73.65 | Key Items from Consolidated Cash Flow Statement (Jan-Jun 2017) | Item | Amount (Million Yuan) | | :--- | :--- | | **Net Cash Flow from Operating Activities** | -390.07 | | **Net Cash Flow from Investing Activities** | -271.81 | | **Net Cash Flow from Financing Activities** | 505.69 | | **Net Increase in Cash and Cash Equivalents** | -155.91 | [Company Overview and Consolidation Scope](index=53&type=section&id=III.%20Company%20Overview) This section details the company's historical evolution, including its 2015 major asset restructuring that transformed it into a core architectural design enterprise; during the reporting period, total share capital increased to **432 million shares** through private placement, and the consolidation scope changed due to new acquisitions, establishments, and one deregistration - The company, formerly 'Lengguang Industrial', underwent a major asset restructuring with Modern Group in 2015, injecting **100%** equity of Huadong Design Institute, thereby transforming its principal business to architectural design[136](index=136&type=chunk)[142](index=142&type=chunk) - In H1 2017, the company's total share capital increased to **432,208,132 shares** through share issuance to Modern Group for asset acquisition and private placement to specific investors for supporting funds[144](index=144&type=chunk) - The consolidation scope changed this period: newly added subsidiary 'Wuhan Zhenghua Architectural Design Co., Ltd.' through non-common control business combination, newly established subsidiary 'Huajian Digital Innovation (Shanghai) Technology Co., Ltd.', and deregistered 'Shanghai Modern Design Group Yunnan Co., Ltd.'[154](index=154&type=chunk) [Notes to Consolidated Financial Statement Items](index=82&type=section&id=VII.%20Notes%20to%20Consolidated%20Financial%20Statement%20Items) This chapter details key consolidated financial statement items, including an 856.89% surge in fixed assets to **1.235 billion Yuan**, a 1265.91% increase in long-term equity investments, a **32.90 million Yuan** rise in goodwill, and increases in short-term and long-term borrowings and capital reserves due to acquisitions and financing - Fixed assets at period-end increased by **1.106 billion Yuan** (an **856.89%** increase) compared to the beginning of the year, primarily due to the acquisition of Modern Architectural Design Building through private share placement and the consolidation of Wuhan Zhenghua[331](index=331&type=chunk) - Long-term equity investments at period-end increased by **144 million Yuan** (a **1265.91%** increase) compared to the beginning of the year, primarily due to the new investment in **34%** equity of Jiangxi Provincial Consulting Investment Group Co., Ltd.[323](index=323&type=chunk) - Goodwill book value increased by **32.90 million Yuan**, resulting from the acquisition of Wuhan Zhenghua Architectural Design Co., Ltd.[338](index=338&type=chunk) - Short-term borrowings at period-end increased by **200 million Yuan** (a **100%** increase) compared to the beginning of the year, primarily for new investment supporting financing[351](index=351&type=chunk) - Capital reserves increased by **1.243 billion Yuan** this period, primarily from share premium generated by private share placement for asset acquisition (**971 million Yuan**) and supporting funds raised (**272 million Yuan**)[392](index=392&type=chunk) [Reference Documents Catalog](index=161&type=section&id=Section%20XI%20Reference%20Documents%20Catalog) This section lists all documents available for reference related to the report