Falsely inflated revenue by 182 million yuan, 300081 will be ST! The company has been losing money for five consecutive years, and in 2025 it is again expected to lose more than 300 million yuan.

On April 3, Hengxin Dongfang (300081.SZ) issued an announcement. On April 3, the company received an “Administrative Penalty Pre-Notice” issued by the Beijing Municipal Securities Regulatory Bureau. Due to false entries and an overstatement of revenue of RMB 182 million in the company’s 2022 annual report, the company and four former senior executives will face a total fine of RMB 12.5 million.

At the same time, the company’s stock trading will be subject to other risk warnings. Trading will be halted for one day from the opening of trade on April 7, and the stock will resume trading from the opening of trade on April 8. The stock abbreviation will be changed to “ST Hengxin.”

The announcement shows that in 2022, Hengxin Dongfang sold servers and related software to ST Chuangyi (300366.SZ), and sold software to Nubicon (02635.HK).

In the above business, Hengxin Dongfang does not have control over the relevant goods, and essentially only acts as a “sales agent.” Despite being aware of the transaction model of the matter in question, it still recognized revenue using the gross method. As a result, the 2022 annual report disclosed by Hengxin Dongfang contains false entries: in 2022, revenue was overstated by RMB 182 million, accounting for 37.12% of the total revenue disclosed for the period.

In October 2024, Hengxin Dongfang decided to adjust the accounting of this business to use the “net method.” Based on this adjustment, Hengxin Dongfang corrected accounting errors, reducing 2022 operating revenue by RMB 182 million and correspondingly reducing cost of operating sales by RMB 182 million. After the adjustment was completed, the company’s 2022 revenue changed from RMB 489 million to RMB 308 million, while net profit remained unchanged.

The Beijing Municipal Securities Regulatory Bureau plans to decide to issue a warning to Hengxin Dongfang and impose a fine of RMB 5 million. For four former executives—former chairman and general manager Meng Nan, former director Chen Wei, former chief financial officer Wang Linhai, and former vice general manager Li Xiaobo—the Bureau plans to issue warnings and impose fines of RMB 2.5 million, RMB 2.3 million, RMB 2.0 million, and RMB 0.7 million, respectively.

Shortly before the “Administrative Penalty Pre-Notice” was issued, Hengxin Dongfang announced on March 27 that Li Xiaobo applied to resign as the company’s vice general manager and chief technology officer for personal reasons. After resigning, he would no longer hold any position at the company. As of that date, Li Xiaobo held 122.1k shares of the company.

Regarding Hengxin Dongfang’s issues, some observers believe that seemingly professional choices in accounting treatment, once used incorrectly, may inflate revenue by several hundred million. Accounting treatment cannot be done based on “how good it looks.” It must strictly follow the Accounting Standards for Business Enterprises. Otherwise, once the inflated revenue is verified, not only will the company face fines, but the chief financial officer, the general manager, and the chairman will also bear joint liability.

In fact, Hengxin Dongfang has previously made multiple data corrections.

In the 2021 annual report, the 2022 annual report, and the 2023 third-quarter report, Hengxin Dongfang made corrections to accounts receivable, changes in shareholding, and other items.

In July 2023, Hengxin Dongfang also announced that, following an investigation by regulatory authorities, the company had issues such as insufficient evidence for impairment of intangible assets and incorrect settings for goodwill impairment parameters, which led to significant differences between the figures disclosed in the 2022 performance forecast—such as impairment losses on intangible assets, goodwill, and other long-term asset impairment losses—and the audited data disclosed in the periodic reports. Information disclosure was not accurate.

In addition, the company also had problems including non-compliant accounting for sales returns and debt restructuring, incomplete preservation of certain business documents, and inconsistencies between certain amounts in the 2022 financial statements and the notes.

As a result, Hengxin Dongfang, along with chairman and general manager Meng Nan and chief financial officer Wang Linhai, received regulatory warning letters.

In April 2024, Hengxin Dongfang corrected its 2023 third-quarter operating revenue and operating costs. Before the correction, the company’s third-quarter operating revenue was RMB 134 million; after the correction, it was RMB 99.5206 million, representing a net decrease of RMB 34.5132 million. Operating costs before the correction were RMB 103 million; after the correction, they were RMB 68.0056 million, representing a net decrease of RMB 34.5132 million.

In August 2024, Hengxin Dongfang again corrected its 2024 first-quarter report. The company stated that in its “2024 First-Quarter Report,” part of the assets in intangible assets were listed as “data resources” under intangible assets. After further review by the company in the near term, it found that the listing was incorrect.

According to materials, Hengxin Dongfang listed on the Shenzhen Stock Exchange in 2010. Its business covers applications and services for digital creative products, products and services for internet video applications, integration of computing power systems, and more.

On the performance front, since 2020, Hengxin Dongfang has not achieved profitability again.

In 2020 and 2021, Hengxin Dongfang’s operating revenue was RMB 336 million and RMB 487 million, respectively; year-on-year changes were -40.02% and 45.09%, respectively. Net profits were -RMB 513 million and -RMB 513 million, respectively.

After two consecutive years of losses exceeding RMB 500 million, Hengxin Dongfang’s losses narrowed somewhat, but in some years the loss amounts even exceeded operating revenue.

From 2022 to 2024, Hengxin Dongfang’s operating revenue was RMB 308 million, RMB 402 million, and RMB 375 million, respectively. The year-on-year changes were -36.80%, 30.79%, and -6.79%, respectively. Net profits were losses of RMB 421 million, RMB 281 million, and RMB 346 million, respectively.

In January, the company released its 2025 performance forecast, expecting its attributable net profit to be a loss of RMB 365 million to a loss of RMB 475 million.

Source: Manager Network

Editor: Cao Sui

Proofread by: Zhi Yan