New energy bus maker halts production.
2024-07-06 Business Trend Analysis

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New energy bus maker halts production.

Without business orders, a new energy bus company with an annual design capacity of 8,000 vehicles had to choose to temporarily suspend production.

On the evening of August 23, Longzhou Shares (002682) announced that its controlling subsidiary, Dongguan Zhongqi Hongyuan Automobile Co., Ltd. (hereinafter referred to as "Zhongqi Hongyuan"), which mainly produces new energy buses, has extended its suspension of production from June 1 to November 30. Longzhou Shares emphasized that in recent years, the business income of Zhongqi Hongyuan has accounted for a very small proportion of the company's consolidated business income, and the impact of this suspension of production on the company's business income is relatively small.

The reporter noticed that when the new energy bus project under Zhongqi Hongyuan was founded in 2014, it was planned that after the project was completed, it would achieve an annual production capacity of 8,000 various types of passenger vehicles, with an annual sales amount of about 5.2 billion yuan after the project was fully put into production.

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Production suspension since January

Zhongqi Hongyuan mainly produces new energy vehicle products such as pure electric city buses, pure electric business passenger vehicles, and pure electric logistics vehicles ranging from 6 to 12 meters. Longzhou Shares introduced that in recent years, affected by factors such as the slowdown in the renewal of the new energy bus market, Zhongqi Hongyuan's operating performance has been less than ideal, and its business income has been at a low level.

In fact, Zhongqi Hongyuan had already implemented a temporary suspension of production since January 1 of this year, and this new round of temporary suspension of production announcement is a supplementary disclosure. Longzhou Shares did not announce this situation before, but only briefly stated in the semi-annual performance forecast that "the company's controlling subsidiary, Dongguan Zhongqi Hongyuan Automobile Co., Ltd., temporarily suspended production due to not winning any projects, and its business income and business profit were basically the same as the same period last year."

Longzhou Shares stated that the suspension of production by Zhongqi Hongyuan since January was to alleviate operational difficulties and reduce labor costs. Also, because Zhongqi Hongyuan did not have business orders and production arrangements in the short term, the suspension of production by Zhongqi Hongyuan was further extended.

In fact, the situation of Zhongqi Hongyuan's business income being at a low level has continued for several years. Data provided by Longzhou Shares shows that from 2021 to 2023, the annual business income of Zhongqi Hongyuan was 168 million yuan, 194 million yuan, and 6.6925 million yuan, respectively, accounting for 3.37%, 3.88%, and 0.18% of the company's consolidated business income, respectively. In the first half of 2024, when the suspension of production was in place, the business income of Zhongqi Hongyuan was only 3.711 million yuan, accounting for 0.03% of the company's share.

Although the proportion of business income is quite low, Zhongqi Hongyuan has continued to suffer large losses in recent years. From 2021 to 2023, the net profit attributable to the shareholders of the listed company of Zhongqi Hongyuan was a loss, with losses of 53.74 million yuan, 63.76 million yuan, and 98.18 million yuan, respectively. After the suspension of production, from January to June 2024, the loss was significantly reduced to 19.42 million yuan. Therefore, it is not difficult to understand the motivation for Longzhou Shares to choose to suspend the production of Zhongqi Hongyuan.

Longzhou Shares stated that during the temporary suspension of production and vacation of Zhongqi Hongyuan, a group of staff members have been arranged to stay on duty, responsible for providing service guarantees and other work during the temporary suspension of production, and will be ready to resume work and production at any time according to changes in the market environment and order conditions.Once Targeted Annual Sales of 5.2 Billion Yuan

Despite current operational difficulties, Zhongqi Hongyuan, established in 1996, enjoyed a prestigious reputation from its inception as the only complete vehicle manufacturing enterprise in Dongguan. One of the initial shareholders of the project was the Guangdong Hongyuan Group Co., Ltd., known nationwide for its basketball team. It was not until 2015 that Longzhou Shares first indirectly took a stake in Zhongqi Hongyuan.

Prior to Longzhou Shares' investment in Zhongqi Hongyuan, in 2014, the Kangmeite Hongyuan Automobile Project, with a total investment of 2.5 billion yuan under Zhongqi Hongyuan, was laid in Machong Town. At that time, upon reaching full production, the project was expected to achieve an annual production capacity of 8,000 units of various types of buses, with an estimated annual sales volume of about 5.2 billion yuan and annual tax revenue of approximately 250 million yuan upon full operation.

When Longzhou Shares took a stake in Zhongqi Hongyuan, the transaction counterparty promised that the net profits of Zhongqi Hongyuan for the fiscal years 2015, 2016, and 2017 would not be less than 39.5 million yuan, 62 million yuan, and 87 million yuan, respectively.

At that time, Longzhou Shares had warned of risks associated with this transaction, stating that under the pressure of energy and the environment, and influenced by national policies, the development of new energy buses has been rapid, becoming the future direction of automotive development and a focus and focal point for China's automotive manufacturing enterprises in the field of new energy research, development, production, and competition. The market competition is also becoming increasingly fierce, hence there are certain market risks associated with Zhongqi Hongyuan's new energy bus project.

Failure to Disclose on Time Leads to Regulatory Measures

On the same day, Longzhou Shares and related responsible personnel also received a decision letter on administrative regulatory measures from the Fujian Securities Regulatory Bureau. The decision letter pointed out that Zhongqi Hongyuan had suspended production since January 1st, and the company failed to disclose the aforementioned event as required, violating the relevant provisions of the "Information Disclosure Management Measures." The Fujian Securities Regulatory Bureau decided to issue an administrative regulatory measure ordering correction to Longzhou Shares and to take administrative regulatory measures by issuing a warning letter to the company's chairman, Chen Mingsheng, president, Lan Nengwang, and board secretary, Liu Caiwen.

It is understood that the "Information Disclosure Management Measures" stipulate that when a listed company experiences a significant event that may have a substantial impact on the trading price of the company's securities and their derivative varieties, and investors are not yet aware of it, the listed company should immediately disclose and explain the cause, current status, and potential impact of the event.

In response to this, Longzhou Shares stated that the company attaches great importance to the issues pointed out in the decision letter and will strictly rectify in accordance with the regulatory requirements of the Fujian Securities Regulatory Bureau, submitting a written rectification report within the specified time. The administrative regulatory measures will not affect the company's normal business management activities.

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