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Red Sun's poor operating conditions make it difficult to "replenish blood". A large number of assets are mortgaged, and penalties and lawsuits continue.

Against the background of the global economic downturn, Red Sun's main products and overseas market revenue have declined severely. This has not only hindered the company's "blood-making" ability, but also made the company subject to penalties and penalties as a large number of assets are mortgaged. The lawsuits kept coming.

Main products and overseas market revenue have declined seriously

For funding problems, companies must either rely on their own operations to "replenish blood" to solve corporate liquidity problems, or rely on borrowing funds to "replenish blood" to maintain operations. Can Red Sun currently solve the problem of lack of funds through operations?

According to the 2019 annual report, the company was affected by the "3.21" Xiangshui explosion that year, and all its main "big five" mature manufacturing subsidiaries were greatly affected. The "Big Five" subsidiaries are not only key high-tech backbone enterprises in various regions, but also key units that receive frequent inspections at the national, provincial and municipal levels. Affected by the incident that year, the "Big Five" subsidiaries stopped production for an average of 86 days, resulting in benefits dropped significantly.

In addition, because chemical pesticide companies are mainly concentrated in chemical industry parks such as Jiangsu Subei and Shandong, affected by the most stringent environmental protection and safety crisis in history, large areas of chemical industry parks have been closed and rectified, which has caused the upstream and downstream raw materials of Red Sun to Frequent supply cuts have seriously affected the company's normal production, and the sharp increase in raw material prices has also led to a significant increase in the cost of Red Sun's products, which has had a huge negative impact on its profits.

Under the influence of a series of unfavorable factors, Red Sun made a lot of goodwill impairment provisions that year, resulting in a substantial performance loss of 337 million yuan. Even with the "strong assistance" of a large number of related transactions in the first half of 2020, Red Sun's operating conditions are still not as good as those in the same period of 2019, which shows that its operating conditions are embarrassing.

From the perspective of Red Sun’s revenue structure, overseas markets have always been its important markets. Among them, the overseas revenue amounts in 2018, 2019 and the first half of 2020 were 2.269 billion yuan, 1.987 billion yuan and 267 million yuan respectively. billion, accounting for 38.40%, 43.05% and 11.35% of operating income. It is not difficult to see from the amount and proportion of overseas income that the company's sales in overseas markets are less optimistic than in the domestic market.

In the current turbulent international political situation, intensified trade frictions, and the lack of obvious relief of the overseas epidemic of the new crown epidemic, Red Sun’s overseas income has experienced a cliff-like decline. ". Under such circumstances, it may be difficult for it to re-emerge in overseas markets in the short term. In addition, the main products of important subsidiaries that the company invested heavily in mergers and acquisitions in the early stage have also encountered bans.

Table 1 Main business income divided by region

In September 2011, Red Sun acquired 100% of the equity of Anhui Guoxing at a consideration of 1.114 billion yuan. This subsidiary The main products are paraquat, pyridine base and bisglyphosate; at the same time, it also acquired 100% equity of Nanjing Biochemical at a consideration of 998 million yuan. Nanjing Biochemical mainly produced pyridine base, paraquat and trichloropyridine at the time of acquisition. Heterocyclic pesticides and intermediates such as sodium alkoxide and diquat; in March 2017, Red Sun also acquired a 70% stake in Shandong Kexin for a consideration of 72.8 million yuan. The company mainly produced paraquat mother liquor and glufosinate ammonium that year. , thiamethoxam, thiacloprid, bufenozide and other series of products. Judging from these acquisition projects, paraquat has always been one of Red Sun’s core products.

In the 2018 report, Red Sun stated that “the production, sales, volume and price of the company’s main products such as paraquat, diquat, and chlorpyrifos have maintained steady operations based on the rapid growth of the previous year, which has favorably promoted This has ensured the high-quality growth of the company’s operating results and the realization of major operating indicators during the reporting period.” It can be seen that paraquat has an extremely important impact on its revenue contribution.

However, in the second year after Red Sun acquired Anhui Guoxing and Nanjing Biochemical, policies restricting the production and sales of paraquat were introduced. In 2012, the former Ministry of Agriculture, the Ministry of Industry and Information Technology, and the former General Administration of Quality Supervision, Inspection and Quarantine jointly issued Announcement No. 1745, adopting restrictive management measures for paraquat aqueous agents. Starting from July 1, 2014, the registration and production license of paraquat aqueous agent will be revoked, and the production of paraquat will be stopped. And starting from July 1, 2016, the sale and use of paraquat aqueous agent in China is prohibited. On September 25, 2018, the domestic registration certificate for paraquat soluble glue expired, but the paraquat glue produced previously can be operated and used within the validity period (2 years). On September 25 this year, the General Office of the Ministry of Agriculture and Rural Affairs issued the "Notice on Effectively Strengthening the Special Rectification Work of Paraquat" stipulating that paraquat products produced by paraquat mother drug manufacturers can only be exported and are not allowed to be sold within the country. This situation means that "paraquat" will completely withdraw from the domestic market.

According to the information disclosed during the merger and acquisition of Red Sun, the main products of its subsidiaries Anhui Guoxing and Nanjing Biochemical are paraquat. Judging from the recent financial data of these two companies, since 2019 Since then, the revenue and profit performance of the two subsidiaries have been poor.

Among them, Anhui Guoxing's net revenue and profit in 2019 fell by 23.89% and 51.60% respectively, while Nanjing Biochemical's fell by 55.61% and 157.14% respectively. The declines were very huge. In the first half of this year, the revenue and net profit of the two companies also declined significantly. Among them, Anhui Guoxing achieved operating income of only 746 million yuan and net profit of 85.99 million yuan; Nanjing Biochemical’s operating income The amount was only 200 million yuan, a sharp decline of 62.37%.

Table 2 Operation status of paraquat production subsidiaries (unit: 10,000 yuan)

Under such circumstances, is the overseas sales of paraquat pre-cooled due to the impact of the international environment, or is it Due to domestic policies, it seems that it is no longer important. What is important is that when this product has lost its retreat from the domestic market, if sales in overseas markets also have problems, the impact on it may not be short-term. In addition, due to the company's large amount of borrowings, there are huge interest expenses every year, and these interest expenses are also eroding Red Sun's performance.

Under various unfavorable circumstances, it may be very difficult for Red Sun to rely on business growth to "generate blood".

The equity of major shareholders is waiting to be frozen

A large number of assets have been mortgaged

Since relying on operations to solve its funding problems is no longer "reliable", it can use financing Can it solve the problem of financial constraints?

Under normal circumstances, companies need collateral to finance from banks. Although there is also credit borrowing, for Red Sun, which already has a large amount of overdue debt, I am afraid no bank will dare to risk it. It borrows heavily on credit.

This year’s semi-annual report disclosed that as of the end of June this year, the fixed assets on Red Sun’s account were 3.377 billion yuan, of which the book value of houses and buildings was 1.606 billion yuan, and the book value of machinery and equipment was 1.606 billion yuan. The book value of other items such as electronic equipment and transportation equipment does not exceed 40 million yuan. It is worth noting that among the houses and buildings of Red Sun, there are still 294 million yuan that have not obtained property rights certificates and cannot be used for mortgage, and not all mechanical equipment can be used for mortgage. Among its fixed assets, 2.269 billion yuan has been used for mortgage loans and financial leases, accounting for 67.19% of its fixed assets. This means that if the assets that cannot be used for mortgage are deducted, the company’s assets that can be used for mortgage may be There are already very few.

In addition, although it has 606 million yuan of intangible assets, 347 million yuan of it has been used for mortgage loans, accounting for 57.26%. After excluding the part that cannot be used for mortgage, the intangible assets can There is not much room for "play", otherwise it would not be able to repay the loan for several months overdue.

Judging from the response to the inquiry letter on the semi-annual report issued by Red Sun on September 22, as of the date of the reply, the controlling shareholder Nanyinong Group held 265.67 million shares of the listed company, with a shareholding ratio of 45.74% , of which 243.62 million shares were pledged, accounting for 91.7% of the shares it held. It is worth noting that this equity is still waiting to be frozen, and the number of shares waiting to be frozen is more than 6 times the number of shares it holds; The second largest shareholder, Red Sun Group, holds 46.46 million shares of the listed company, of which 6 million shares are pledged, accounting for 12.91% of its shares. In addition, it has 6.35 million shares that are waiting to be frozen; Chairman and actual controller of Red Sun Yang Shouhai is not only the chairman and actual controller of Nanyinong Group, but also the chairman and president of Red Sun Group. He holds 1.4% of the shares of the listed company, but 99.92% of his shares have been pledged. At the same time, the equity was also waiting to be frozen, and the frozen amount was more than twice the number of shares it held.

This situation shows that in addition to the tens of millions of shares of Red Sun Group that can be pledged, its controlling shareholders and actual controllers no longer have equity that can be pledged.

In fact, the situation of Red Sun Group itself is not optimistic. According to the announcement of the shareholding reduction plan issued by the listed company on September 19, Red Sun Group had an overdue default due to its margin trading and securities lending business, and some of its shares in Red Sun were passively reduced. After the completion of the shareholding reduction, the proportion of Red Sun shares held by Red Sun Group dropped from the previous 9% to 8%. From this point of view, Red Sun Group is no longer able to protect itself, which means that the company wants to rely on financing to solve the problem. It seems that it is also "difficult to reach the sky".

Penalties and lawsuits abound

The lack of collateral is the "flaw" that makes Red Sun's financing difficulties, and the penalties imposed by many regulatory agencies and the numerous lawsuits will make Red Sun The already unbearable "corporate reputation" was trampled to pieces.

On June 8, 2020, both the controlling shareholder and the second largest shareholder of Red Sun received notices of criticism. According to the Shenzhen Stock Exchange, from October 22 to October 24, 2019, due to a dispute over financing and borrowing, the shares of Red Sun held by Nan Yinong Group were judicially frozen, accounting for 7.62% of the total share capital of Red Sun. Yinong Group failed to notify Red Sun in time when its frozen shares exceeded 5% for the first time, nor did it perform relevant information disclosure obligations in a timely manner. It was not until March 19, 2020 that it provided supplementary disclosure through Red Sun.

As of March 17, 2020, the proportion of shares held by Nanyinong Group that had been judicially frozen accounted for 44.70% of the total share capital of Red Sun.

Red Sun Group is a shareholder holding more than 5% of Red Sun shares. From December 26, 2019 to February 20, 2020, Red Sun Group defaulted on its margin trading business, and its holdings of Red Sun shares were forced to be liquidated. A total of 5.8077 million shares were reduced, accounting for the total share capital of Red Sun. 1%, involving an amount of 55.636 million yuan. Red Sun Group did not disclose its shareholding reduction plan in advance fifteen trading days before the first shareholding reduction occurred, and did not provide additional disclosures until March 19 and March 23, 2020.

Both the two major shareholders of Red Sun violated relevant regulations. The Shenzhen Stock Exchange issued notices of criticism to them and recorded them in the integrity files of listed companies.

Since the above-mentioned behavior of Red Sun Group also violated the "Measures for the Administration of Information Disclosure of Listed Companies", not long after, the Jiangsu Securities Regulatory Bureau also took regulatory measures to issue a warning letter to Red Sun Group and recorded it as Securities and futures market integrity files.

It is also worth mentioning that on July 6 this year, Red Sun was suspected of violating laws and regulations in information disclosure. According to the relevant provisions of the Securities Law of the People's Republic of China, the China Securities Regulatory Commission filed a case against it. investigation. As of the date of this article, no investigation conclusion has been released.

In fact, as Red Sun’s major shareholders occupied the listed company’s funds, the listed company’s debts became overdue, and many lawsuits against Red Sun and its subsidiaries followed. According to the data disclosed in the semi-annual report of the listed company, there have been more than 50 major litigation and arbitration matters, of which 15 cases involved more than 10 million yuan, and there were 3 cases involving more than 100 million yuan, with the total amount involved exceeding 1 billion yuan. The cases involve financial loan contract disputes, sales contract disputes, private loan contract disputes, advertising contract disputes, undertaking contract disputes, bill disputes and many other aspects.

Red Sun is overwhelmed by these many lawsuits. Due to the numerous lawsuits, the equity of major shareholders of listed companies has also been waiting to be frozen. Among them, Nan Yinong Group’s equity is waiting to be frozen, accounting for 50% of its equity in listed companies. 624.55%, and its actual controller Yang Shouhai’s frozen equity accounted for 246.13% of the listed company’s equity held by him.

Under the circumstances of numerous lawsuits and equity freezes, which will have an immeasurable impact on the credibility of listed companies, it may be difficult for Red Sun to obtain financing through banks.

There are many doubts about expenses during the period

In the first half of 2020, Red Sun’s operating conditions were poor, with operating income falling 32.98% year-on-year. In theory, with the decline in operating income, the company Period costs will also be reduced accordingly. The semi-annual report disclosed that its sales expenses actually decreased by 11.88 million yuan compared with the same period last year, a decrease of -12.15%; administrative expenses decreased by 15.67 million yuan compared with the previous year, a decrease of -9.31%. Judging from the cost changes alone, it seems reasonable. However, if you look at the specific details, there are many doubts.

In the first half of 2020, Red Sun’s sales expenses included employee compensation of 16.54 million yuan, a decrease of several million yuan compared with 19.18 million yuan in the same period of 2019. With operating income declining sharply, It makes sense that salespeople would be paid less. However, among its administrative expenses in the first half of 2020, employee compensation was 66.73 million yuan, which was 6.4 million yuan more than the 60.34 million yuan in the same period of 2019, a year-on-year increase of 10.6%. What's going on?

Could it be that in the first half of 2020 when the epidemic broke out, the company's operating income dropped sharply, a large number of overdue loans could not be repaid, and the company received successive lawsuits and many other unfavorable factors "besieged" the sales, etc. Department employees are experiencing salary cuts, but only company managers have experienced significant salary increases? If this is true, the loopholes in Red Sun's management are indeed not small.

In addition, its interest expense is also strange. According to data disclosed by the company, its interest expenses in the first half of 2020 were nearly 60 million yuan less than the same period in 2019, a year-on-year decrease of 43.09%. Judging from the borrowing amount, at the end of June 2020, its short-term borrowing amount was 4.262 billion yuan, its borrowing amount was 622 million yuan, and its interest expense was 78.75 million yuan. According to this simple calculation, the interest on its short-term borrowings and long-term borrowings The expense ratio is approximately 1.61%; in the same period of 2019, its short-term borrowing amount was 4.608 billion yuan, long-term borrowing amount was 412 million yuan, and interest expenses were as high as 138 million yuan. By simple calculation, its short-term borrowings and long-term borrowings in 2019 were The interest expense ratio was 2.76%, almost double what it was in 2020.

You must know that in the first half of 2020, Red Sun has fallen into a financial crisis. Large amounts of loans are overdue, and some overdue interest rates are as high as 18.25%. The lowest overdue interest fee is also 6.53%. In 2019, In the first half of 2020, there were no overdue loans at all. Moreover, the loan amount structure in the first half of 2020 was not very different from that in 2019. This situation makes people wonder why its interest expenses in the first half of 2020 dropped so much. Why is the interest expense ratio so obviously low?

Table 3 Red Sun’s several expenses (10,000 yuan)

(The individual stocks mentioned in the article are only examples and analysis, not trading recommendations.

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