STAR LAKE SCIENCE(SH:600866) Sou Hu Cai Jing·2025-06-27 05:29Core Viewpoint - The recent inquiry by the Shanghai Stock Exchange into Xinghuo Technology's annual report highlights concerns regarding the company's high levels of cash and debt, questioning its repayment capabilities and the authenticity of performance commitments from past acquisitions [2][6][9]. Financial Performance - Xinghuo Technology has shown stable performance over the past three years, with net profits increasing from 608 million yuan in 2022 to an expected 943 million yuan in 2024, despite a slight decline in revenue [5][6]. - The company reported cash reserves exceeding 1.7 billion yuan, yet has maintained long-term and short-term borrowings exceeding 2 billion yuan for three consecutive years, raising regulatory concerns about its financial authenticity [6][9]. Debt and Cash Management - The Shanghai Stock Exchange has requested explanations regarding the company's borrowing practices in light of its substantial cash reserves, with Xinghuo citing the capital-intensive nature of the biopharmaceutical industry as justification [7][9]. - Comparisons with peer companies, such as Meihua Biological and Fufeng Group, reveal that these companies have cash reserves that adequately cover their borrowings, unlike Xinghuo, which has a cash-to-debt coverage ratio of only 12.09% [8][9]. Acquisition and Performance Commitments - The inquiry also revisits a six-year-old acquisition of Jiuling Pharmaceutical, which has seen a significant decline in performance post-commitment period, raising questions about the legitimacy of the performance guarantees made during the acquisition [10][11]. - Jiuling Pharmaceutical's performance during the commitment period was satisfactory, but its profits plummeted significantly from 36.9 million yuan in 2021 to a loss of 404,000 yuan in 2023, illustrating a stark contrast to earlier commitments [10][14]. Industry Challenges - The decline in Jiuling Pharmaceutical's performance has been attributed to external factors such as increased trade tensions and tariffs on pharmaceutical intermediates, leading to reduced orders from overseas clients and intensified market competition [11][14]. - The overall market for pharmaceutical intermediates has become increasingly competitive, with Jiuling's revenue growth stagnating over the past decade and its gross margin dropping from 52.31% to 13.39% [14].