The most expensive fight sparks doubts from Ye Tan: Shenwu Group has lost 5.7 billion yuan

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On the evening of May 24, Yetan Finance published an article titled “Shenwu Group: I’m sorry, Jobs – I used your tactics to fulfill your dream!” The article in question questioned whether Shenwu Group was using related-party transactions in a manner similar to LeEco; as a result, on the 25th, Shenwu Group’s two listed companies, Shenwu Environmental Protection and Shenwu Energy Saving, both saw their stock prices drop to the lowest level allowed, against the trend of the market. “The “Ye Tan Finance” account published a piece questioning Shenwu Group. The WeChat official account of “Ye Tan Finance” posted last night: “Shenwu Group: I’m sorry, Steve Jobs – I used your tactics to fulfill your dreams!” It mentions that Shenwu Environmental Protection used related-party transactions to boost its performance, and raises doubts regarding the failure of cash to flow back properly in Shenwu Energy Saving’s 2016 annual report, as well as its excessively high gross profit margin. Regarding Shenwu Environmental Protection, Ye Tan said: Dating without the intention of getting married is nothing but mischief; net profits that lack cash flow support are nothing but nonsense. In 2016, Shenwu Environmental Protection achieved a net profit of 708 million yuan, but its operating net cash flow was only 218 million yuan. Shenwu Group, since your subsidiaries all obey you like pieces on a chessboard, I hope you’ll show some sincerity as well; otherwise, Jobs will be even more upset when he finds out. As for Shenwu Energy Saving, the article states that the company’s performance in 2016 was driven primarily by Indonesia’s Great River Nickel Alloy Company, which contributed 637 million yuan in revenue, accounting for 73.66% of the company’s total annual revenue. Moreover, this company had a higher gross profit margin, at 39.77% higher than that of Shenwu Energy Saving’s domestic operations. But despite contributing so much in terms of sales, this company refuses to pay up; its debts amount to 512 million, accounting for 80.38% of the revenue it has generated. In other words, Shenwu Energy Saving has not received payment for over 80% of its sales! Nevertheless, the stock price of Shenwu Energy Saving still doubled in 2016. The direct consequence of this article is that the shareholders of the two listed companies in the Shenwu group are becoming anxious! After the market opened on May 25, both companies hit their daily price limits downward, resulting in a total loss of around 5.7 billion yuan in market value. CITIC Securities’ lead analyst responded overnight; after Ye Tan published his article, Shenwu Group didn’t have time to react, but the CITIC Securities analyst was angered. Zhu Chunyang, the former top analyst at China Merchants Securities and currently a director at the company’s R&D center as well as the leading analyst in the environmental protection sector, wrote an article last night criticizing Ye Tan harshly. At 6 a.m. this morning, he posted on his WeChat account “China Merchants Power and Public Utilities Research” with the title: “(Regarding Shenwu) Ye Tan may try to attract attention, but I’m sorry – you’ve offended me.” It provided responses to each of the issues raised by Ye Tan regarding the related-party transactions involving Shenwu Environmental Protection, as well as the sharp deterioration in Shenwu Energy’s operating cash flow and its high gross profit margin. Shenwu’s urgent response: At 20:30 on May 25th, Shenwu Group held a joint telephone conference involving Shenwu Environmental Protection and Shenwu Energy Saving. It was stated that on the evening of May 24th, the Ye Tan Finance account published an article titled “Shenwu Group: I’m sorry, Jobs – I used your tactics to fulfill your dreams,” which created misunderstandings regarding Shenwu Group and its two listed subsidiaries, leading to significant fluctuations in their stock prices and causing serious harm to the interests of investors. Respond to the misinterpretations of the article and communicate with investors regarding the company’s operations. During the teleconference, Shenwu Group provided explanations regarding related-party transactions. Lei Hua, general manager of Shenwu Energy Saving, said that there was absolutely no issue with high gross profit margins; as a listed company that possesses core technologies and key projects, its gross profit margin on exports is actually relatively low. The company also has no cash flow issues; details can be found in the quarterly report. Lu Bangjie, the secretary of the board at Shenwu Environmental Protection, said that while he does not deny the existence of related-party transactions, their volume is not large. Essentially, these related-party transactions represent the recognition of revenue from project work in the industrial sector.