Jinlong Electromechanical annual report queried: asked to explain reasons and rationale for low gros

On May 15, Jinlong Electromechanical received an inquiry letter from the Shenzhen Stock Exchange regarding its annual report, requesting the company to supplement explanations regarding the main contracts of its e-cigarette business, including but not limited to transaction content, counterparties, transaction amounts, settlement situations as per contract, payment situations and destinations, whether there are third-party payments, and whether there are returns after the period, and to explain whether the order amounts match the operational scale of the customers based on their registered capital, establishment time, sales scale, and final sales destinations.

It is required to explain the reasons and rationale for the low gross profit margin of the company's e-cigarette business, considering the business model, sales prices and volumes, cost structure, industry competition landscape, and the company's competitive advantages and disadvantages, and whether it is consistent with comparable companies in the same industry. Additionally, it should further explain whether there is significant reliance on a single customer, and whether the business has commercial substance, considering the high proportion of direct material costs, low gross profit margin, and few cooperative customers in the e-cigarette business.

It is required to explain the basis for the application of the gross method or net method for revenue recognition in the company's e-cigarette business, considering the business model, reasons for low gross profit margin, contract terms, and the accounting policies adopted for revenue recognition, and to clarify whether significant integrated services were provided, whether there is the right to independently choose suppliers and customers, and whether there are situations of designated customers by suppliers, designated suppliers by customers, or suppliers introducing customers.

During the reporting period, the company's structural components business revenue was 1.144 billion yuan, a year-on-year increase of 12.55%, while the sales volume decreased by 17.69% compared to the same period last year, with a gross profit margin of 16.79%, down 5.79 percentage points year-on-year. The company is required to explain the reasons and rationale for the divergence between the revenue and sales volume trends and the gross profit margin changes, and whether it is consistent with comparable companies in the same industry.

During the reporting period, the company's selling expenses and management expenses were 33.6 million yuan and 200.5 million yuan, respectively, with year-on-year increases of 2.94% and a decrease of 27.22%; the proportion of selling expenses and management expenses to operating income was 0.87% and 5.20%, respectively, with year-on-year decreases of 0.86 and 9.39 percentage points. The company is required to explain the reasons and rationale for the significant growth in business scale this period, while selling expenses remained basically flat and management expenses decreased significantly, and whether it is consistent with comparable companies in the same industry, and whether there are any off-balance-sheet expenses.

It is required to explain the background of the formation of entrusted processing materials, including but not limited to the products involved, business model, and the specific division of labor between the company and the entrusted processing party in product production, and to further clarify whether the company bears the main responsibility for transferring goods to customers, whether it bears inventory risks before or after the transfer of goods, whether it has the right to independently determine the price of goods, and whether the company acts as the principal or agent in transactions.

It is required to list the book balances and ages of various categories of inventory by business segment, and to explain the reasons and rationale for the significant increase in ending inventory based on the corresponding business scale, ending orders on hand, market competition landscape, and whether it is consistent with comparable companies in the same industry, along with the methods and processes for inventory impairment provision, the basis for determining net realizable value, corresponding product gross profit margin levels, and changes during the period, to clarify whether the inventory impairment provision is sufficient, accurate, and timely.

The company's accounts receivable aging composition 1 is formed from receivables other than those related to e-cigarette businesses, with an ending balance of 390 million yuan and a bad debt provision ratio of 12%. The company is required to supplement explanations regarding the aging of the above accounts receivable and the corresponding provision ratio, whether the provision ratio is consistent with previous years and comparable companies in the same industry, whether there are overdue situations, overdue reasons, and subsequent collection measures, and to clarify whether the bad debt provision is sufficient, timely, and accurate.

At the end of the reporting period, the company's top five prepaid items balance was 23.48 million yuan, accounting for 80.77%; the balance of prepaid long-term asset payments was 14.43 million yuan. The company is required to supplement the specific situation of the above items, including but not limited to aging, transaction content, contractual performance arrangements, whether performance is in accordance with progress, whether there are overdue situations, the basis and rationale for impairment provision, and whether the counterparties constitute related parties.

It is required to explain the reasons for transferring the ordinary partnership shares of Haotai Da within less than a year, whether the counterparty has any relationship or other interests with the company, major shareholders, or directors and supervisors, and the reason for the company still holding 48.60% of the limited partnership shares of Haotai Da after the transfer.

It is required to explain the transaction content, business process, and commercial rationale of the related transactions with Lianhui Optoelectronics, and the reasons for simultaneously selling and purchasing from Lianhui Optoelectronics, and whether the sales pricing is consistent with comparable companies in the same industry.

During the reporting period, the company transferred 100% equity of Dongguan Huanyin Electronic Technology Co., Ltd. and 40% equity of Zhuhai Jinlong Hongxin Technology Co., Ltd. for a consideration of 1 yuan. The company is required to supplement explanations regarding the operating and financial data of the above companies before the transfer, whether the company fulfilled the corresponding review procedures and information disclosure obligations, the basis for the transaction price of 1 yuan, the reasons and rationale for transferring equity, and whether the counterparty has any relationship or other interests with the company, major shareholders, or directors and supervisors.

It is required to explain the reasons for not yet hiring a financial director and board secretary, how to ensure the effectiveness and compliance of the company's internal controls, and the subsequent hiring arrangements; it is required to explain the specific reasons for the resignation of the former financial director before the annual report disclosure, whether they were able to perform their duties independently during their tenure, whether they were aware of any matters that could have a significant adverse impact on the company's production and operation, and whether they were aware of any violations by the company, shareholders, directors, supervisors, and their related parties.