华宏科技(002645) - 2018 Q2 - 季度财报

Important Notice, Table of Contents and Definitions This section provides crucial disclaimers, defines key terms used throughout the report, and outlines the report's structure Important Notice The company's board and management affirm report accuracy, disclose forward-looking statements, identify key risks including market competition and goodwill impairment, and confirm no profit distribution for the period - The company's board of directors, supervisory board, and senior management guarantee the truthfulness, accuracy, and completeness of the report content, assuming legal responsibility[3] - The company explicitly identifies key future risks including market competition, raw material price fluctuations, maintaining technological leadership, project investment, management integration, and goodwill impairment[4] - The company plans no cash dividends, bonus shares, or capital reserve conversions for the 2018 semi-annual period[5] Definitions This section defines key terms used throughout the report, including abbreviations for the company and its subsidiaries, controlling shareholders, regulatory bodies, and the reporting period Term Definitions | Term | Definition | | :--- | :--- | | Company, Huahong Technology | Jiangsu Huahong Technology Co., Ltd. | | Huahong Group, Controlling Shareholder | Jiangsu Huahong Industrial Group Co., Ltd. | | Wellman | Jiangsu Wellman Technology Co., Ltd. | | Reporting Period | January 1, 2018 to June 30, 2018 | Company Profile and Key Financial Indicators This section provides an overview of the company's basic information and presents its key financial performance metrics for the reporting period Company Profile This section provides the company's basic information, including its stock ticker, stock code, listing exchange, full Chinese and English names, and legal representative Company Basic Information | Item | Content | | :--- | :--- | | Stock Abbreviation | Huahong Technology | | Stock Code | 002645 | | Listing Exchange | Shenzhen Stock Exchange | | Legal Representative | Hu Shiyong | Key Accounting Data and Financial Indicators In the first half of 2018, the company achieved strong performance growth, with operating revenue increasing by 50.53% to RMB 882.62 million and net profit attributable to shareholders rising by 103.36% to RMB 80.41 million, though net cash flow from operating activities turned negative, decreasing by 211.01% Key Financial Performance | Indicator | Current Period | Prior Period | YoY Change | | :--- | :--- | :--- | :--- | | Operating Revenue (RMB) | 882,615,402.77 | 586,327,838.91 | 50.53% | | Net Profit Attributable to Listed Company Shareholders (RMB) | 80,412,366.88 | 39,542,050.81 | 103.36% | | Net Profit Attributable to Listed Company Shareholders (Excluding Non-recurring Items) (RMB) | 75,842,474.90 | 36,116,074.40 | 110.00% | | Net Cash Flow from Operating Activities (RMB) | -55,144,359.26 | 49,676,360.69 | -211.01% | | Basic Earnings Per Share (RMB/share) | 0.2258 | 0.1111 | 103.24% | | Weighted Average Return on Net Assets | 4.69% | 2.52% | 2.17% | | Total Assets (RMB) | 2,483,183,788.89 | 2,235,551,600.85 | 11.08% (vs. end of prior year) | | Net Assets Attributable to Listed Company Shareholders (RMB) | 1,738,432,524.93 | 1,674,150,925.10 | 3.84% (vs. end of prior year) | Non-recurring Gains and Losses Items and Amounts During the reporting period, the company's total non-recurring gains and losses amounted to RMB 4.57 million, primarily from bank wealth management income of RMB 3.03 million and government subsidies of RMB 2.47 million Non-recurring Gains and Losses | Item | Amount (RMB) | | :--- | :--- | | Government Subsidies Included in Current Period Profit/Loss | 2,473,121.93 | | Bank Wealth Management Income | 3,031,209.66 | | Other Non-operating Income/Expenses and Non-current Asset Disposal Gains/Losses | 211,586.86 | | Total Non-recurring Gains and Losses | 4,569,891.98 | Company Business Overview This section outlines the company's primary business segments, significant asset changes, and core competitive advantages Principal Businesses The company's principal businesses are divided into two segments: renewable resources, encompassing processing equipment and scrap steel trading, and elevator components, focusing on signal and door systems, both benefiting from favorable national policies and market opportunities - The company's businesses are primarily divided into two segments: renewable resources and elevator components[24] - The renewable resources segment's main products include metal baling/shearing equipment and scrap steel shredding lines, also engaging in scrap steel trading with future plans to expand into end-of-life vehicle dismantling[24] - The elevator components segment primarily supplies elevator signal systems and door systems, actively expanding into the elevator safety components market[25] Significant Changes in Major Assets At the end of the reporting period, several of the company's assets experienced significant changes from the beginning of the year, with equity investments increasing by 4,701.82% due to fund establishment, and notes receivable, accounts receivable, prepayments, and inventories growing by 115.44%, 39.41%, 54.07%, and 59.92% respectively, driven by sales growth and order increases Major Asset Changes | Major Asset | Change from Beginning of Year | Primary Reason | | :--- | :--- | :--- | | Equity Investments | +4,701.82% | Contributed RMB 18 million to establish investment fund | | Notes Receivable | +115.44% | Change in business settlement methods | | Accounts Receivable | +39.41% | Company sales growth | | Prepayments | +54.07% | Increased orders and changes in procurement payment methods | | Inventories | +59.92% | Increased orders, leading to higher material purchases and finished goods inventory | Analysis of Core Competencies The company's core competencies encompass comprehensive service, technology and R&D, management, customer relationships, and global supply chain advantages, enabling integrated solutions and strong partnerships with international elevator giants like Schindler and Kone - The company possesses comprehensive service capabilities to provide integrated solutions for metal renewable resource recycling and utilization[30][31] - The company has strong technical and R&D capabilities in metal renewable resource processing equipment, having established a market-oriented R&D management model[32] - Subsidiary Wellman has established strong cooperative relationships with leading international elevator manufacturers such as Schindler, Kone, and Hitachi, becoming a partner in their global supply chains[34][35] Management Discussion and Analysis This section provides a detailed review of the company's operational performance, financial position, investment activities, and future outlook Overview of Operating Performance In the first half of 2018, the company's operating performance significantly improved, driven by domestic supply-side reforms and a recovery in the steel industry, achieving RMB 883 million in operating revenue, a 50.53% year-on-year increase, and RMB 80.41 million in net profit attributable to shareholders, up 103.36% H1 2018 Operating Performance | Indicator | H1 2018 | YoY Growth | | :--- | :--- | :--- | | Operating Revenue | 882,615,402.77 RMB | 50.53% | | Net Profit Attributable to Parent | 80,412,366.88 RMB | 103.36% | Analysis of Principal Businesses During the reporting period, the company's principal business growth was primarily driven by the renewable resources segment, which saw an 88.59% revenue increase, with processing equipment sales surging by 189.29%, while elevator components revenue remained stable at 2.62% growth, and scrap steel processing and trading revenue significantly declined by 72.82%, with sales expenses rising 106.96% due to increased transportation costs and financial expenses turning negative due to exchange rate fluctuations Operating Revenue by Segment and Product | Business Segment/Product | Operating Revenue (RMB) | YoY Change | | :--- | :--- | :--- | | By Industry | | | | Renewable Resources Segment | 621,251,305.92 | 88.59% | | Elevator Components Segment | 260,152,297.27 | 2.62% | | By Product | | | | Renewable Resources Processing Equipment Sales | 586,849,559.69 | 189.29% | | Elevator Components Sales | 256,032,673.50 | 0.99% | | Scrap Steel Processing and Trading | 34,401,746.23 | -72.82% | - Sales expenses increased by 106.96% year-on-year, primarily due to higher transportation costs[40] - Financial expenses decreased by 665.93% year-on-year, mainly due to foreign currency exchange rate changes[40] - Net cash flow from operating activities decreased by 211.01% year-on-year, primarily due to increased procurement volume for renewable resources equipment[40] Analysis of Assets and Liabilities At the end of the reporting period, the company's asset structure shifted, with inventories significantly increasing their proportion of total assets from 11.03% at the beginning of the year to 22.14%, and RMB 54.23 million in assets were restricted, primarily fixed assets, intangible assets pledged for loans, and deposits Restricted Assets | Item | Book Value at Period End (RMB) | Reason for Restriction | | :--- | :--- | :--- | | Cash and Cash Equivalents | 9,330,766.00 | Deposits | | Fixed Assets | 32,738,448.31 | Pledged for Loans | | Intangible Assets | 12,163,224.70 | Pledged for Loans | | Total | 54,232,439.01 | | Analysis of Investment Status During the reporting period, the company's investment amounted to RMB 18 million, an 11.29% year-on-year increase, primarily driven by its wholly-owned subsidiary Suzhou Huazhuo's RMB 18 million contribution to an environmental industry M&A fund, with the report also detailing the use of raised funds, where most committed projects are on track or completed, and some adjusted due to market changes - During the reporting period, the company's wholly-owned subsidiary, Suzhou Huazhuo Investment Management Co., Ltd., participated in establishing Suzhou Hengxin Huazhuo Equity Investment Partnership (Environmental Industry M&A Fund), with a subscribed capital of RMB 60 million, holding a 40% stake, and an actual contribution of RMB 18 million in the current period[50][51] Use of Raised Funds | Use of Raised Funds | Amount (RMB) | | :--- | :--- | | Total Raised Funds | 71,704,140.00 | | Total Investment in Reporting Period | 6,407,900.00 | | Total Accumulated Investment | 72,034,120.00 | | Total Accumulated Change in Use | 8,733,530.00 | Analysis of Major Holding and Participating Companies During the reporting period, subsidiaries Wellman (elevator components) and Donghai Huahong (renewable materials recycling) were the company's primary profit contributors, with Wellman achieving RMB 33.61 million in net profit and Donghai Huahong RMB 3.69 million, while wholly-owned subsidiary Suzhou Huazhuo also participated in establishing an environmental industry M&A fund Key Subsidiaries' Performance | Company Name | Principal Business | Operating Revenue (RMB) | Net Profit (RMB) | | :--- | :--- | :--- | :--- | | Wellman | Elevator component production, sales | 260,152,297.27 | 33,612,815.35 | | Donghai Huahong | Renewable materials recycling and wholesale | 34,401,746.23 | 3,693,470.87 | Operating Performance Forecast for Jan-Sep 2018 The company forecasts net profit attributable to listed company shareholders for January-September 2018 to increase by 37.10% to 48.52%, reaching RMB 120 million to RMB 130 million, primarily driven by increased demand for scrap steel processing equipment due to supply-side reforms in the steel industry 2018 Jan-Sep Performance Forecast | Item | Forecasted Situation | | :--- | :--- | | YoY Change Range for Net Profit Attributable to Parent (Jan-Sep 2018) | 37.10% To 48.52% | | Net Profit Attributable to Parent Range (Jan-Sep 2018) | 120,000,000 RMB To 130,000,000 RMB | | Net Profit Attributable to Parent (Jan-Sep 2017) | 87,528,400 RMB | | Reason for Performance Change | Supply-side reforms in the steel industry driving demand growth for scrap steel processing equipment | Risks and Countermeasures The company faces six major risks: policy, intensified market competition, rising raw material prices, human resources, goodwill impairment, and exchange rate fluctuations, for which it has developed countermeasures including strengthening inventory management, enhancing product quality, optimizing procurement strategies, improving human resource planning, and utilizing hedging tools - The company's main risks include policy, market competition, raw material prices, human resources, goodwill impairment, and exchange rate fluctuations[69][70][72][73][74][75] - Countermeasures include strengthening inventory and procurement management to address price volatility, enhancing product technology and quality to meet competition, improving talent acquisition and incentive mechanisms, reinforcing M&A project control, and utilizing tools like forward foreign exchange contracts to manage exchange rate risk[69][71][72][73][74][75] Significant Matters This section details the fulfillment of commitments, major related-party transactions, significant contracts, and important subsidiary matters Fulfillment of Commitments During the reporting period, the company and related parties strictly fulfilled all commitments, including performance pledges from asset restructuring, non-compete agreements, and share lock-up commitments from IPO and refinancing, with no violations reported - During asset restructuring, Zhou Jingcheng and other parties committed that Wellman's 2015 net profit would be no less than RMB 76 million, and the combined net profit for 2016-2017 no less than RMB 184 million, a commitment that has been strictly fulfilled[80][81] - Controlling shareholder Huahong Group, the actual controller, Zhou Jingcheng, and other related parties have all issued long-term commitments to avoid horizontal competition, which are being strictly fulfilled[81][84] - Share lock-up commitments by relevant shareholders during the initial public offering and asset restructuring are being strictly fulfilled, with no violations[81][82] Major Related-Party Transactions During the reporting period, the company did not engage in significant related-party transactions related to daily operations, nor did it conduct related-party transactions involving asset or equity acquisitions/disposals, or joint external investments - The company had no related-party transactions related to daily operations, asset or equity acquisitions/disposals, or joint external investments during the reporting period[90][91][92] Major Contracts and Their Fulfillment During the reporting period, the company had no significant entrustment, contracting, or leasing matters, and while it approved a guarantee limit of up to RMB 50 million for customers, no actual external guarantees were provided - The company had no significant contracts related to entrustment, contracting, or leasing during the reporting period[95][96][97][98] Guarantee Status | Guarantee Status | Amount (RMB) | | :--- | :--- | | Total External Guarantee Limit Approved in Reporting Period | 50,000,000 | | Total Actual External Guarantees Issued in Reporting Period | 0 | | Total Actual External Guarantee Balance at Period End | 0 | Significant Matters of Company Subsidiaries During the reporting period, the company's wholly-owned subsidiary, Suzhou Huazhuo Investment Management Co., Ltd., participated in establishing an environmental industry M&A fund, with relevant announcements already published - The company's wholly-owned subsidiary participated in establishing an environmental industry M&A fund, with relevant announcements (Nos. 2018-013, 2018-026) disclosed via Juchao Information Network[104] Share Changes and Shareholder Information This section details changes in the company's share capital and provides an overview of its shareholder structure Share Change Status During the reporting period, the company's total share capital increased from approximately 209 million shares to 356 million shares due to the implementation of the 2017 equity distribution plan, which involved a capital reserve transfer of 7 shares for every 10 shares held, with transfer registration completed on June 20, 2018 - The company's total share capital increased from 209,445,019 shares to 356,056,532 shares[108] - The share change resulted from the implementation of the 2017 equity distribution, involving a capital reserve transfer of 7 shares for every 10 shares held to all shareholders[108] Shareholder Numbers and Shareholding Status As of the end of the reporting period, the company had 12,280 common shareholders, with controlling shareholder Jiangsu Huahong Industrial Group Co., Ltd. holding 49.69% of shares, some of which are pledged, and individual shareholders like Zhou Jingcheng, Hu Shiyong, and Zheng Yu holding significant stakes among the top ten shareholders - The total number of common shareholders at the end of the reporting period was 12,280[110] Top Shareholders' Holdings | Shareholder Name | Shareholding Percentage | Number of Shares Held | Pledged or Frozen Status | | :--- | :--- | :--- | :--- | | Jiangsu Huahong Industrial Group Co., Ltd. | 49.69% | 176,914,398 | Pledged 132,617,000 | | Zhou Jingcheng | 8.64% | 30,753,631 | - | | Hu Shiyong | 4.36% | 15,514,200 | - | | Zheng Yu | 3.02% | 10,739,102 | Pledged 10,739,102 | Directors, Supervisors, and Senior Management Information This section provides details on the shareholding changes and personnel appointments within the company's board, supervisory board, and senior management Changes in Shareholdings of Directors, Supervisors, and Senior Management During the reporting period, the shareholdings of the company's directors, supervisors, and senior management increased from 40.60 million shares to 69.03 million shares due to capital reserve transfers, with no share reductions occurring Shareholdings of Directors, Supervisors, and Senior Management | Name | Position | Shares Held at Beginning of Period (shares) | Shares Held at End of Period (shares) | | :--- | :--- | :--- | :--- | | Hu Shiyong | Chairman | 9,126,000 | 15,514,200 | | Hu Shiqing | Director | 3,510,000 | 5,967,000 | | Zhou Jingcheng | Director | 18,090,371 | 30,753,631 | | Zhou Shijie | Deputy General Manager | 6,132,329 | 10,424,959 | | Total | -- | 40,604,600 | 69,027,820 | Changes in Directors, Supervisors, and Senior Management Personnel During the reporting period, the company appointed Huang Jiansheng and Chen Fangming as Deputy General Managers on April 23, 2018 - The company appointed Huang Jiansheng and Chen Fangming as Deputy General Managers on April 23, 2018[120] Financial Report This section presents the company's unaudited consolidated and parent company financial statements, along with detailed notes on key financial items Financial Statements This section provides the unaudited consolidated and parent company financial statements for the first half of 2018, including balance sheets, income statements, cash flow statements, and statements of changes in owners' equity, showing total assets increased to RMB 2.48 billion, total operating revenue was RMB 883 million, and net profit was RMB 81.01 million Key Items from Consolidated Balance Sheet | Key Items from Consolidated Balance Sheet (RMB) | Balance at Period End | Balance at Period Beginning | | :--- | :--- | :--- | | Total Assets | 2,483,183,788.89 | 2,235,551,600.85 | | Total Liabilities | 730,600,772.93 | 547,847,313.22 | | Total Owners' Equity Attributable to Parent Company | 1,738,432,524.93 | 1,674,150,925.10 | Key Items from Consolidated Income Statement | Key Items from Consolidated Income Statement (RMB) | Amount for Current Period | Amount for Prior Period | | :--- | :--- | :--- | | Total Operating Revenue | 882,615,402.77 | 586,327,838.91 | | Operating Profit | 96,341,140.79 | 45,265,015.67 | | Net Profit | 81,009,495.38 | 37,669,493.71 | Notes to Consolidated Financial Statement Items This section provides detailed explanations for key items in the consolidated financial statements, including accounts receivable of RMB 218 million with RMB 28.12 million in bad debt provisions, inventories significantly increasing to RMB 550 million, goodwill with a book value of RMB 592 million primarily from Wellman and Naxin Heavy Industry acquisitions, and operating revenue and cost growth driven by principal businesses - Accounts receivable book value at period end was RMB 217,928,218.85, with bad debt provisions of RMB 28,119,326.93 calculated using the aging analysis method[278][279] - Inventories book value at period end was RMB 549,676,294.37, a significant increase from RMB 343,720,475.05 at the beginning of the period, primarily due to increases in raw materials, work-in-progress, and finished goods[298][299] - Goodwill had an original book value of RMB 591,857,492.19, primarily arising from the acquisitions of Wellman (RMB 579 million) and Naxin Heavy Industry (RMB 6.99 million), with impairment provisions of RMB 6,986,654.18 already made[322][323] - Current period operating revenue was RMB 883 million, with principal business revenue at RMB 877 million; operating cost was RMB 687 million, with principal business cost at RMB 685 million[378]