Liaoning Zhenlong was inspected for IPO fraud.

Every editor, every reporter Zhao Yangge　　　　

Every reporter Zhao Yangge

Liaoning Zhenlong Specialty Co., Ltd. (hereinafter referred to as Liaoning Zhenlong), a company mainly engaged in the processing and sales of seed kernel series products and other dried fruits and nuts, published its prospectus in official website, China Securities Regulatory Commission on April 23, 2014. After waiting for nearly two years, it was not the listing road, but the filing inspection.

The company faces many risks.

A piece of news is going viral. According to many media reports, such as China, a brokerage firm, Liaoning Zhenlong IPO was investigated for alleged fraud, and Cinda Securities, as its sponsor and lead underwriter, was also implicated, and was also investigated by the CSRC before January 26, 2016. Cinda Securities has also confirmed the relevant information to the media.　

According to public information, the prospectus of Liaoning Zhenlong was signed on April 22, 2014, and the website of the CSRC was disclosed on April 23, 2014.

On March 13th, 2015, China Securities Regulatory Commission issued the "Information Disclosure Quality Spot Check and Lottery of Initial Public Offerings", including Liaoning Zhenlong and Sichuan imperial ware Co., Ltd..

It is reported that Liaoning Zhenlong was established on October 17, 2000, with legal representative Huang Yue and registered capital of 80 million yuan. Its main business is the processing and sales of seed products and other dried fruits and nuts, including pumpkin seeds, pine seeds and sunflower seeds. Nut products such as pistachios; Pumpkin seeds, pumpkin noodles and other pumpkin seed series comprehensive utilization products and other products such as beans and miscellaneous grains. The company mainly exports, and the data show that its export income once accounted for 80% of its main income, and its products were sold to Germany, the Netherlands, the United States, Canada, Australia and South Korea. According to Liaoning Zhenlong, the top five customers of the company in 2013 were all abroad.

National business daily reporter noted that based on Liaoning Zhenlong’s own business situation, the company faces many risks:

First of all, because the company’s main raw materials are agricultural products such as pumpkin seeds and nuts such as pine seeds, the cost of raw materials accounts for 90% of the main business cost, so when the output of raw materials needed for production is affected by climate, planting area and other factors, it is inevitable that the company’s purchase price will fluctuate greatly. This year-by-year cost change from 2011 to 2013 disclosed by Liaoning Zhenlong can be seen.

Secondly, because of the consideration of raw material planting and other factors, Liaoning Zhenlong needs to store raw materials, and the fourth quarter of each year to February of the following year is the centralized procurement period of raw materials. Seasonal centralized procurement is a remarkable feature of the company’s raw material procurement, and the proportion of raw material inventory amount to raw material procurement amount is about 30%. This kind of seasonal purchase is large, and the raw materials are stored for a long time. The company has the risk of deterioration and damage of raw materials due to insufficient storage space, abnormal climate or lax storage management.

In addition, because Liaoning Zhenlong mainly exports, the change of exchange rate will undoubtedly have an impact on the company. According to the data disclosed by the company, the exchange losses from 2011 to 2013 were 2,710,800 yuan, 1,694,900 yuan and 9,563,500 yuan respectively, which will undoubtedly affect the company’s profitability. At the same time, because the products are mainly exported, the company also faces the risk of changes in the export tax rebate policy.

Agricultural stock fraud is "more impulsive"?

Interestingly, as an agricultural enterprise, Liaoning Zhenlong is not an isolated case, and many agricultural enterprises have made frauds before.

After consulting the public information, the reporter of national business daily found that as early as 1994, Yinguangxia, known as the "first blue chip in China", had inflated profits by 772 million yuan from 1998 to 2001, and its share price (after being reinstated) rose from around 2.5 yuan in 1998 to nearly 25 yuan at the end of 2001. After the fraud incident, its share price plummeted again, falling short of 0.5 yuan.

Lantian shares, the "first agricultural stock in China" listed in June 1996, once created the "myth" of the capital market with its "excellent performance". The fact is that in 1999 and 2000, the company’s fictitious operating income was 3.69 billion yuan (actually only 64 million yuan) and its fictitious net profit was 940 million yuan (actual loss).

In 2005, Fengle Seed Industry, which had been listed for 8 years, was found to have been faked for 6 years, with fictitious main income of 180 million yuan and inflated net profit of 40.06 million yuan.

In 2006, Grassland Xingfa was listed for 9 years, and accumulated inflated net assets of 1.415 billion yuan, and at the same time fabricated operating income and costs.

In 2011, Green Land became the first case of small and medium-sized board fraud, which also alarmed the market with inflated assets and revenue.

From 2008 to 2011, Wanfushengke accumulated inflated income of about 740 million yuan and inflated net profit of about 160 million yuan, which was called "the first stock of fraud on GEM".

According to Ruilin’s investment research, many agricultural stock frauds are worthy of market consideration: First, the infrastructure construction, raw material procurement and sales involved in the business activities of agricultural enterprises mainly involve individual farmers and small farmers’ cooperative organizations. This determines that the trading objects of such enterprises are extremely scattered, and the trading means need to use a lot of cash, and their business flow and cash flow are not as clear and strict as those of other industrial and commercial enterprises, which has caused fundamental difficulties in auditing; Second, in order to encourage the development of agricultural production and agricultural products processing industry, the state has implemented many preferential tax policies, and the tax rate of agriculture is very low, even some areas are completely tax-free, which will greatly reduce the tax cost of fraud. However, industries without tax incentives need to pay more than 10% of sales. In order to make fraud, companies in these industries must pay a lot of real money to pay taxes for several years, and the cost of fraud is high; Third, the operating profit rate of agricultural enterprises is generally low, and if the market is slightly disturbed, enterprises may lose money, and the profit pressure of enterprises is greater than other enterprises. Moreover, the cyclical characteristics of agricultural enterprises, especially aquaculture, are very obvious, and it is difficult for enterprises to maintain stable profit growth. In order to maintain a good image of sustained profit, companies have a stronger impulse to falsify.