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Yangtze Business Daily NewsDongyi Risheng, known as the "No. 1 home improvement stock", is encountering difficulties.

On the evening of July 15, Dongyi Risheng (002713.SZ) announced that 13 million shares held by the company's controlling shareholder Dongyi Tianzheng were frozen, accounting for 9.59% of its shares. Based on the closing price on the announcement date, the market value of Dongyi Tianzheng's frozen shares was nearly 30 million yuan.

It should be noted that on June 11, Dongyi Risheng’s announcement showed that Dongyi Tianzheng held 136 million shares, of which 126 million shares were pledged, with a pledge rate as high as 93.18%.

On July 2, Dongyi Risheng’s announcement showed that Dongyi Tianzheng received a notice from the pledgee, Shanxi Securities Co., Ltd., that Shanxi Securities will reduce its holdings of its pledged defaulted stocks through centralized bidding and block trading in the secondary market, and the reduction ratio will not exceed 3% of the company’s total share capital, or 12.5861 million shares.

In recent years, Dongyi Risheng's performance has been very poor. The company's net profit loss in the first half of 2024 was between 480 million yuan and 720 million yuan. Combined with the net profit losses in 2022 and 2023, the company's cumulative net profit loss in the past two and a half years has exceeded 1.4 billion yuan.

Recently, Dongyi Risheng stated that the company's chairman Chen Hui, as the actual controller, will make every effort to promote external financing and introduce funds. The company is actively looking for external strategic investors.

The market value of frozen shares is nearly 30 million

2024 marks the tenth anniversary of the listing of Dongyi Risheng, the "No. 1 home improvement stock", but the company is currently in a dilemma.

On the evening of July 15, Dongyi Risheng issued an announcement showing that through querying the business system of China Securities Depository and Clearing Co., Ltd. recently, it was learned that part of the shares held by the company's controlling shareholder Tianjin Dongyi Tianzheng Investment Co., Ltd. (referred to as "Dongyi Tianzheng") were frozen by the court. The number of shares frozen this time reached 13 million shares, accounting for 9.59% of the shares held by it and 3.1% of the company's total share capital.

As of the close of the announcement day, the share price of Dongyi Risheng reached 2.26 yuan per share, and the market value of Dongyi Tianzheng’s frozen shares this time reached nearly 30 million yuan.

Dongyi Risheng stated that Dongyi Tianzheng is actively communicating with the court and striving to properly resolve relevant issues as soon as possible, but it does not rule out the possibility that the above-mentioned frozen shares will be forcibly executed by the court in the future. Investors are advised to pay attention to investment risks.

In the announcement, Dongyi Risheng also emphasized that the shares of Dongyi Tianzheng that were frozen this time accounted for 3.1% of the company's total share capital, which would not lead to a change in the company's actual control. The company and the controlling shareholder remain independent in terms of assets, business, and finance. The freezing of some shares of Dongyi Tianzheng will not affect the company's production and operation and corporate governance.

It should be noted that on June 11, Dongyi Risheng’s announcement showed that Dongyi Tianzheng held 136 million shares, of which 126 million shares were pledged, with a pledge rate as high as 93.18%.

On July 2, Dongyi Risheng issued a "Reminder Announcement on the Passive Reduction of Shares by the Controlling Shareholder", which showed that the company's controlling shareholder Dongyi Tianzheng received a notice from the pledgee Shanxi Securities Co., Ltd. that Shanxi Securities will reduce its pledged defaulted stocks through centralized bidding and block trading in the secondary market. Within 3 months after 15 trading days from the date of the company's announcement, the reduction ratio shall not exceed 3% of the company's total share capital, or 12.5861 million shares.

On the evening of July 15, Dongyi Risheng also issued an announcement showing that as of now, in addition to the litigation and arbitration matters that the company has disclosed, the company’s new cumulative litigation and arbitration matters have a total amount of approximately RMB 40.6054 million, which exceeds the absolute value of the company’s audited net assets in the most recent period by more than 10%, and all of them are cases involving amounts of less than RMB 10 million.

On June 28, Dongyi Risheng announced that, as of now, excluding the lawsuits with China Railway 12th Bureau Group Co., Ltd. that the company has made special disclosures on, the company has a total of 234 lawsuits and arbitration cases that have not been closed in the past 12 consecutive months, with a total amount of approximately RMB 110 million, which exceeds the absolute value of the company's latest audited net assets by more than 10%. Among them, the amount of cases where the company is the plaintiff is RMB 17.5846 million, and the amount of cases where the company is the defendant is RMB 92.2430 million.

Closing some stores to stop losses

In recent years, Dongyi Risheng's performance has been very poor.

In 2022 and 2023, Dongyi Risheng's operating income was 2.524 billion yuan and 2.934 billion yuan respectively, a year-on-year decrease of -41.18% and 16.26% respectively; the net profit was -744 million yuan and -208 million yuan respectively, a year-on-year decrease of -1041.31% and 72% respectively, and it has been in the red for two consecutive years.

Recently, the semi-annual performance forecast for 2024 released by Dongyi Risheng showed that the company's net profit attributable to shareholders of listed companies (referred to as "net profit") was a loss of 480 million to 720 million yuan, and the net profit attributable to shareholders of listed companies after deducting non-recurring gains and losses was a loss of 330 million to 495 million yuan.

Data shows that in the first quarter of 2024, Dongyi Risheng achieved operating income of 440 million yuan, a year-on-year decrease of 20.68%; net profit loss was 116 million yuan, a year-on-year decrease of 28.47%.

From this point of view, Dongyi Risheng's profit level did not improve in the second quarter, but its losses continued to expand. Moreover, the company's net profit accumulated losses in the past two and a half years exceeded 1.4 billion yuan.

In this regard, Dongyi Risheng stated that in recent years, in order to adapt to market changes and optimize the internal business structure, the company has orderly integrated and closed some stores, such as integrating small stores into large stores in the same city and closing some inefficient stores. In 2024, the company will continue to actively close some loss-making branches and stores and some high-cost, inefficient large stores to improve the company's operating conditions. The losses caused by store closures and employee resignation compensation expenses increased significantly, causing the company's losses to increase compared with the same period last year.

In the announcement, Dongyi Risheng particularly emphasized that although the company has actively taken various measures to improve operations, resolve risks, and safeguard the interests of consumers and investors, the company's unaudited parent net assets in the first quarter of 2024 were -51.5556 million yuan, which is already negative, and the negative public opinion and chain reactions caused by the closure of branches since May 2024 may have further adverse effects on the company's operations. There is still uncertainty as to whether the company's various measures to improve its sustainable operating capabilities can achieve the expected results. The company reminds investors to pay attention to the information disclosed by the company and pay attention to investment risks.

Moreover, as of the end of the first quarter of 2024, Dongyi Risheng had only 338 million yuan in cash and short-term loans of 270 million yuan. At the same time, the company's accounts receivable reached 26.4 billion yuan, a year-on-year decrease of 15.82%; accounts payable reached 651 million yuan, a year-on-year increase of 10.35%.

Moreover, as of the end of the first quarter of 2024, Dongyi Risheng's contract liabilities reached 853 million yuan, a year-on-year decrease of 19.03%, indicating that the company's operating income may decline further.

Recently, Dongyi Risheng said that the company is trying to raise funds for debt repayment by strengthening the collection of accounts receivable and promoting multi-channel and multi-form financing, including disposing of the company's office buildings, factories, warehouses and other assets, and asset mortgage loans of subsidiaries, in order to ease the financial pressure faced by the company. Chairman Chen Hui, as the actual controller, will also make every effort to promote external financing and introduce funds. The company is actively looking for external strategic investors.

●Huang Cong, reporter of Yangtze Business Daily