Deluxe Family(SH:600503) Xin Lang Zheng Quan·2025-08-15 08:27Core Viewpoint - The governance crisis at Huali Family (600503.SH) has raised regulatory concerns due to failed shareholder meetings and questionable cross-industry acquisitions, revealing long-term operational risks [1][2]. Governance Crisis - The annual shareholder meeting on May 17, 2023, resulted in all 21 proposals being rejected, including critical items like the annual report and board re-election, primarily due to opposition from the second-largest shareholder, Ze Xi Investment, which holds 5.62% of shares [2]. - Ze Xi Investment's objections were based on claims of increased executive compensation despite declining performance and violations of company bylaws, stemming from the board's refusal to disclose their prior proposals [2]. Regulatory Scrutiny - The Shanghai Stock Exchange issued a regulatory letter demanding the company to analyze the reasons for the proposal rejections, assess governance effectiveness, and disclose crisis resolution plans [3]. - The company claimed no significant governance flaws, but the failed shareholder meeting highlighted decision-making failures [3]. - Huali Family's plan to invest 300 million yuan in the loss-making pharmaceutical company Haihe Pharmaceutical raised questions about the rationale behind choosing a continuously unprofitable target [3]. Financial Concerns - As of Q1 2025, Huali Family's cash reserves were only 168 million yuan, with the proposed 300 million yuan investment exceeding 15% of its net assets, raising concerns about the company's ability to manage cash flow amidst ongoing losses [4]. - The company has not provided a clear strategy to address the long-term financial impact of the investment in a loss-making entity [4].