Warning letter from Dinglong Culture selling Medical Equity to Save performance of Titanium Industry

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Affected by many factors, such as the higher cost of game purchase, equity incentive amortization, titanium ore business has not yet formed a larger income scale and other factors, the profit trend of Dinglong Culture (002502.SZ) declined after "taking off the cap and removing the star". Against this background, Dinglong Culture announced the sale of its 17.46% stake in Junxin Medical held by its wholly-owned subsidiary on the evening of December 20. There is speculation that the year-end disposal of assets may be considered to boost full-year results.

In an interview with the Financial Associated Press, Dinglong Culture said: "previously, we considered making some attempts on the basis of the main business, but later we still wanted to focus on the development of titanium ore as the core business."

It is worth noting that on the same day, Dinglong Culture also released the "announcement on the receipt of the decision on Administrative Supervision measures of the Guangdong Securities Regulatory Bureau", involving inaccurate disclosure of relevant information about public welfare forests in the exploration right area. As to whether the above situation will affect the development of the corresponding business, Dinglong Culture told reporters: "the company is verifying the relevant situation."

Public data show that due to the impairment of large goodwill, Dinglong Culture suffered huge losses of 1.279 billion yuan in 2018 and 841 million yuan in 2019. The "delisting risk warning" was implemented in April 2020. It will turn losses into profits in 2020 and realize a net profit of 34 million yuan. And the company successfully took off its hat and went to the star on May 25, 2021.

But it won't be easy for the company in 2021. In the first three quarters of 2021, the operating income of Dinglong Culture increased by 13.75% to 385 million yuan compared with the same period last year, compared with 339 million yuan in the same period in 2020 and 792 million yuan in the same period in 2019. The net profit changed from profit to loss of 14 million yuan, 27 million yuan in the same period in 2020 and 467 million yuan in the same period in 2019.

Dinglong Culture acquired 51% stake in China Titanium Technology in 2020 and entered the titanium ore business. the main product is titanium concentrate, which is a high-quality raw material for the production of titanium products such as titanium dioxide and titanium metal. According to the company's reply to investors, the company's first titanium production line has been completed and put into production in the second quarter of this year, and the rest of the mines are continuing to promote the declaration of production and construction.

From the perspective of income structure, in the first half of 2021, 90.48% of Dinglong Culture's income came from game R & D and operation, while the income from ilmenite concentrate business was 15.5523 million yuan, which has not yet formed a large income scale.

As the cost of buying volume continues to rise, the gross profit margin of the company's game business was 16.92% in the first half of 2021, compared with 39.05% in the same period last year.

The latest report on China Game Industry 2021 released on December 16 shows that with the fierce development of market competition, the rise of the cost of buying quantity, and the price dispute between channels and R & D, the development gap between head enterprises and small and medium-sized enterprises has been further widened, which has become an important issue facing the game industry.

Against the above background, Dinglong Culture decided to sell the 17.46% stake in Junxin Medical held by its wholly-owned subsidiary. If the transaction goes well, the profit is expected to be about 10.6924 million yuan.

It is worth noting that Dinglong Culture also announced on the same day that it had received a notice on the written decision on administrative supervision measures of the Guangdong Securities Regulatory Bureau. The Guangdong Securities Regulatory Bureau decided to take administrative supervision measures to issue warning letters to Dinglong Culture, long Xueqin, Liu Wenkang and Wang Xiaoping.

The problems involved include inaccurate disclosure of relevant information about public welfare forests in the exploration rights area, inaccurate disclosure of some performance commitments in the 2020 annual report, inadequate basis for recognition of deferred income tax assets, inaccurate accounting of individual accounting subjects, failure to withdraw statutory provident fund in accordance with regulations, inaccurate offsetting of consolidated balance sheet transactions, and incomplete registration of insider files.