SMM News: the contradiction between Oriental Seiko and its subsidiary Beijing Pride New Energy Battery Technology Co., Ltd. (referred to as "Pride") has attracted much attention. On the evening of June 27, Oriental Seiko issued an announcement showing that through Lixin Accounting firm, according to the audit evidence obtained in the course of its annual audit of Prader, An audit adjustment recommendation was made to the uncorrected misstatement in the 2018 financial statements provided by Prad management. Oriental Seiko directly pointed out that by obtaining Ningde era rebate at the end of the year surprise profits, the sale of products to Fukuda does not have commercial essence, the two revenue recognized by BAIC new energy does not conform to the commercial essence and there are obvious problems such as intertemporal income recognition behavior and so on.
Performance compensation is in dispute
On April 17, Dongfang Seiko released its 2018 annual report and the "Special Audit report of Guangdong Dongfang Seiko Technology Co., Ltd. on the achievement of its 2018 performance commitments" issued by Lixin Accounting Affairs. Prader's net profit loss after deduction in 2018 was about 217 million yuan, and the cumulative net profit after deducting from 2016 to 2018 was about 377 million yuan. According to the asset purchase agreement and profit compensation agreement signed between the company and the former shareholder and performance compensation obligor of Prade (that is, Peking University advance Technology Industry Co., Ltd., Beijing Automobile Group Industrial Investment Co., Ltd., Ningde Times New Energy Technology Co., Ltd., BAIC Futian Automobile Co., Ltd., Qinghai Puren Intelligent Science and Technology Research and Development Center (limited partnership), hereinafter collectively referred to as "Plaid original shareholder"), Prader's former shareholder and performance compensation obligor promised that the cumulative net profit after deduction for the period from 2016 to 2018 was 998 million yuan, while the cumulative net profit from 2016 to 2018 did not meet the requirements of the performance commitment. Prader's former shareholder and performance compensation obligor is required to fulfill its performance compensation obligations to Oriental Seiko.
However, after the disclosure of the Oriental Seiko Annual report and the relevant special audit report, there were differences and disputes between the former shareholders and performance compensation obligors, the management appointed by the former shareholders and the Oriental Seiko on the net profit of Pred in 2018 and the completion of the performance commitments of Plade from 2016 to 2018. On 6 May, Some of Prader's management (chairman, general manager, chief financial officer) held a media conference without the approval of Prader's board of directors and without the confirmation and authorization of its shareholders. On May 8, Prad suffered another hacker attack on its server, resulting in the destruction and loss of some of its data, and the dispute between Oriental Seiko and Prader gradually became public and aroused widespread concern.
According to Oriental Seiko, on February 27, Prad management provided Dongfang Seiko and Lixin with a net profit of about 310 million yuan, but only the official seal of Capred. Prad's 2018 financial statements, signed by the person in charge of the enterprise, the person in charge of accounting work, and the head of the accounting institution (the person in charge of accounting), were not signed by the head of the enterprise, the person in charge of accounting work, and the head of the accounting institution (the person in charge of accounting). Based on the audit evidence obtained during the annual audit of Pride, Lixin made an audit adjustment recommendation to the uncorrected misstatement in the 2018 financial statements provided by the management of Pride.
Get a rebate from the Ningde era or make a surprise profit at the end of the year
According to the announcement issued by Oriental Seiko, Ningde Times is one of the original shareholders, performance commitments and performance compensation obligors of Prader, directly holding 6.20% of Oriental Seiko's A-share common shares. It is also the largest supplier to Plaid over the years and is the only supplier of Plaid's key accessories for new energy power battery systems, namely cells. Pride received rebates from the Ningde era in accordance with the "direct issuance of scarlet letter VAT invoices" to carry out rebates.
However, in the 2018 financial statements provided on 27 February 2019, Plaid management recognized the following anomalies in Ningde-era rebates:
First, the amount of rebate and the proportion of rebate received by Pride in 2018 are abnormal. In its 2018 financial statements provided on February 27, 2019, Pride management confirmed that the Ningde era rebate amount was 390 million yuan, which was significantly higher than the rebate amount and rebate ratio in 2017, and significantly higher than the rebate amount and rebate ratio in 2016.
Second, the third rebate contract was signed at the end of the year, about 277 million yuan, but there was no contract number. According to information provided by Pride to Lixin accountants, Prader and Ningde Times signed a total of three rebate contracts related to the 2018 business, involving a total rebate amount of about 394 million yuan. Among them, the total amount of rebate involved in the two rebate contracts signed in September 2018 was about 117 million yuan, both of which had the contract number; the third rebate contract involved a rebate amount of about 277 million yuan, and the contract was signed on January 21, 2019, without a contract number.
Third, after confirming the rebate, the gross profit margin of Pride sales in 2018 is abnormal. The 2018 financial statements provided by Pride management on February 27, 2019 showed that the gross profit margin on sales of its power battery system was approximately 19.71% in 2018, well above the gross profit margin of 12.91% in 2017 and 11.74% in 2016. During the period from 2016 to 2018, the gross profit margin of listed companies in the same industry showed a downward trend as a whole, but the gross profit margin of Pride power battery system did not decline, but increased significantly in 2018.
As a result, Oriental Seiko pointed out that the third rebate contract signed between Plaid and Ningde in January 2019 was suspected of surprise profits at the end of the year and that the fairness of the rebate deal was in doubt.
Pride's sale of products to Fukuda does not have commercial substance
The announcement also shows that BAIC holds 6.47% of the A-share common shares of Oriental Seiko, and the controlling shareholders of BAIC and Foton are Beijing Automobile Group Co., Ltd., BAIC and Foton constitute a consistent relationship of action. BAIC and Foton are related legal persons of Oriental Seiko, and they are also Prader performance commitment parties and performance compensation obligors.
Oriental Seiko said that Pride began to buy power batteries from Ningde era in 2017 and then sell them to Fukuda Motor, but Prader did not complete the necessary links such as substantive research and development, procurement, production, quality inspection, warehousing and logistics. The gross profit margin of the relevant consignment business confirmed in 2018 was much higher than the gross profit margin of Pride's self-produced and self-selling business that year, and the transaction was not in line with the commercial essence.
At the same time, in 2018, Pride book recognition of Fukuda under the subsidiary R & D service revenue of about 23.5849 million yuan, recognized the corresponding cost of 9.7875 million yuan (included in R & D expenses). However, the contract was signed at the end of 2018; the gross profit margin of the R & D service income was as high as 54.69%, and there was a large gap between the actual amount of the R & D project and the budgeted amount; in 2018, Plaid sold only 52 sets of products to subsidiaries of Fukuda Automobile, with a sales income of only 7.7458 million yuan, and the input-output efficiency was low, which was not in line with business logic. As of April 30, 2019, Pride had not yet received payments for the R & D project, so there was a lack of authenticity of the R & D revenue recognized by the Fukuda subsidiary in 2018.
Prader has doubts about the two revenues recognized by BAIC's New Energy
According to the announcement, Beijing Auto Investment holds 6.47% of Oriental Seiko's A-share common shares. The controlling shareholders of BAIC and BAIC New Energy are Beijing Automobile Group Co., Ltd., BAIC and BAIC New Energy constitute a consistent action relationship, BAIC and BAIC New Energy are the related legal persons of Oriental Seiko.
Oriental Seiko pointed out that Pride and BAIC signed two "parts development contracts" in January 2019, with a contract value of 10.3448 million yuan (excluding tax), and Pride issued an invoice on December 25, 2018. Pride confirmed that the mold fee income was 10.3448 million yuan on December 28, 2018. BAIC New Energy did not bear the cost of the mold for Prad in the previous year. According to the details of the cost of research and development of the mold provided by the management of Prad, the actual cost of the development of the mold is 3.78 million yuan. The gross margin of this income is as high as 63.45%.
At the same time, the "Technology Development contract" signed between Pride and BAIC New Energy in March 2019 stipulates that Prader actually incurred a certain test fee and sample cost of 28.7651 million yuan, 50% of which was borne by BAIC New Energy, the amount is 14.3826 million yuan (including tax). Pride issued an invoice of 13.1158 million yuan at the end of December 2018 and recognized the current operating income. According to the test report provided by Pride management, as of December 31, 2018, the test acceptance of the project had not yet been completed.
Therefore, the total revenue of 23.4606 million yuan recognized by Pride to BAIC in 2018 is not in line with the commercial essence, and there is obvious intertemporal revenue recognition behavior.