On the evening of March 28, ZhengTong Auto (01728.HK) issued a profit warning, expecting a loss of RMB 8 billion to RMB 9 billion in 2020.
The company has been in a deep business crisis for the past two years, and has been in constant negative news. In the secondary market, investors have “voted with their feet”, and the stock is now trading at HK$0.75, with a total market value of only about HKD2 billion (about RMB1.7 billion). The company’s share price has fallen by more than 90% since the highest point since its listing.
Losses far exceed the market value
According to the announcement, ZhengTong Auto expects a loss attributable to shareholders of the company to be RMB 8 billion to RMB 9 billion in 2020. The figure has not yet been reviewed by the auditors and the audit committee. The information shows that the company’s annual report will be disclosed on March 31.
Compared with the loss of more than 1.3 billion yuan in last year’s semi-annual report, it can be seen that the loss of ZhengTong Auto in the second half of the year has expanded sharply. And, the amount of pre-loss for the year has far exceeded the company’s current market capitalization level of about HK$2 billion.
The company attributed the loss for the reporting period mainly to the following aspects.
(1) The impact of the novel coronavirus (COVID-19, a Chinese communist virus) outbreak in the first half of the year and the increasing pressure on the Group’s liquidity position resulted in the Group’s declining financial results in the second half of the year.
(2) The situation led to a significant decrease in the performance indicators in the dealership agreements entered into by the Group with automobile manufacturers, resulting in the termination or suspension of certain dealership authorizations and the withdrawal and revocation of certain supplier rebate rights.
(3) The termination or suspension of certain dealership authorizations and the repositioning of some of the Group’s underperforming 4S stores resulted in impairment provisions for various assets, including goodwill, intangible assets and property, plant and equipment.
Founded in 1999 and subsequently listed on the Main Board of the Hong Kong Stock Exchange in 2010, ZhengTong Motors was the first luxury car dealership group to be listed in Hong Kong.
After the listing of ZhengTong Auto, the company’s chairman and founder, Wang Muqing, saw his wealth skyrocket and at one point became the richest man in Hubei Province. It is understood that Wang Muqing first became the richest person in Hubei in the Forbes Global Rich List in 2013.
However, since 2019, ZhengTong Auto’s performance situation has taken a sharp turn for the worse, with net profit plummeting more than 40% year-on-year that year. 2020 semi-annual report, the company’s performance even turned from profit to loss, with a loss of 1.366 billion yuan. By the end of June 2020, the company’s current liabilities had reached 22.788 billion yuan.
At the same Time, the company also spread the news that many of its 4S stores were unable to pick up their cars. According to media reports, some of ZhengTong Auto’s 4S stores have been unable to pick up their cars on the grounds that their funds have been withdrawn by the group and they have no money to redeem their certificates.
In July last year, ZhengTong Auto was revealed to have defaulted on an installment loan of about US$100 million. On July 22, ZhengTong Auto announced that it would repay 30% of the loan principal and interest in two installments, and the installment loan was extended to January 19, 2021. In January this year, ZhengTong Auto announced again that the installment loan would be extended to July 19, 2022.
In addition, Dongzheng Finance, a subsidiary of ZhengTong Auto, is also plagued with negative consequences. On October 19 last year, Dongzheng Finance received a fine from the Shanghai Banking and Insurance Regulatory Commission, in which ZhengTong Auto was alleged to have been set up by wholesale through improper means; ZhengTong Auto and its associates had conducted illegal connected transactions with Dongzheng Finance, which seriously endangered the sound operation of Dongzheng Finance, etc. As a result, the Shanghai Banking and Insurance Regulatory Bureau decided to order the liquidation of the equity held by ZhengTong Auto, the controlling shareholder of Dongzheng Finance, and to suspend the dealership’s auto loan business.
Immediately afterwards, on October 20, ZhengTong Auto announced that its controlling shareholder sold 29.9% of its shares for HK$1.4 billion to Xiamen Cinda, which has a Xiamen state-owned background. After the completion of the transaction, Xiamen Xinda will also become the largest single shareholder of Dongzheng Finance.
3-15 was exposed as “face stealing”
A few days ago, ZhengTong Auto was exposed to new negative news. The company was named in the CCTV 3-15 party just past.
According to CCTV, a number of BMW dealers under ZhengTong Auto had illegally installed cameras that could collect customers’ face information in order to collect customer information, and the data could be exchanged among more than 100 ZhengTong Auto stores.
After the incident came to light, ZhengTong Auto responded and said it had stopped using all the equipment.