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"The off-season for tourism in Xi'an is only from 2 to 5 in the morning."

Although this statement is exaggerated, from the Big Wild Goose Pagoda and Tang Paradise in Qujiang to the Daming Palace National Heritage Park, from the "Doll Lady" to the "Tang Dynasty Secret Box", Xi'an always welcomes wave after wave of traffic.

Unexpectedly, the A-share listed company Qujiang Culture Tourism, the operator behind the above-mentioned popular attractions, recently faced the situation of its largest shareholder's equity being disposed of by judicial means.

On the evening of July 29, Qujiang Culture Tourism announced that the company received a notice from its controlling shareholder, Xi'an Qujiang Tourism Investment, that the Shanghai Financial Court will publicly conduct judicial disposal of part of its shares in the company on the Shanghai Stock Exchange's bulk stock judicial assistance execution platform on September 5, 2024.

In fact, since April this year, Qujiang Tourism has announced four times that its equity holdings have been frozen. The freezing of equity and even judicial disposal means that Qujiang Tourism has debt problems, and as a result, the asset-liability ratio of Qujiang Tourism has reached 78.17%.

In order to repay its debts, Qujiang Tourism Group has sold off its assets several times this year. However, judging from its performance, Qujiang Tourism Group has been losing money for many years, with high accounts receivable and frequent bad debt provisions, and the problem seems to be much more serious.

There is no shortage of traffic, so why is life like this?

Tang Paradise. Photo/Visual China

Selling assets to “save yourself”

Founded in 1992, Qujiang Culture and Tourism is affiliated to Xi'an Qujiang Cultural Industry Investment (Group) Co., Ltd. under the Xi'an Qujiang New District Management Committee. The company's business is mainly focused on scenic spot operations and hotel and catering. It owns "Internet celebrity" scenic spots such as Xi'an Qujiang Big Wild Goose Pagoda and Tang Paradise, Xi'an City Wall Scenic Area, Daming Palace National Heritage Park, and the national-level tourist and leisure block Datang City That Never Sleeps Pedestrian Street.

With the operating rights of popular scenic spots, Qujiang Tourism Group has no worries about the flow of tourists. Financial data shows that Qujiang Tourism Group achieved revenue of 1.504 billion yuan in 2023, an increase of 68.80% over the same period last year, of which the revenue from scenic spot operation and management business was 965 million yuan, accounting for 64.16%.

However, in contrast to the revenue growth and huge traffic, the company's operating conditions are not optimistic. Not only are the major shareholders' shares facing judicial auctions, but they are also repeatedly selling assets.

On April 19, 2024, Qujiang Culture and Tourism announced that it would transfer its 51% equity in Xi'an Shanhe Scenic Area Operation Management Service Co., Ltd. to Xi'an Shanhe Tourism Development Co., Ltd. The equity transfer price was tentatively set at 2.2868 million yuan.

On June 7, Qujiang Culture and Tourism announced that it plans to transfer 100% of the equity of its wholly-owned subsidiary Xi'an Qujiang Daming Palace National Heritage Park Management Co., Ltd. to Xi'an Qujiang Daming Palace Investment (Group) Co., Ltd. The equity transfer price was initially set at 42.0138 million yuan.

On July 2, Qujiang Culture and Tourism issued an announcement stating that the company plans to publicly list and transfer 40% of the equity and 167 million yuan of debt of its wholly-owned subsidiary Xi'an Qujiang Tangyi Investment Co., Ltd.

The pace of asset sales continues, and the reason behind this is the continued pressure of performance losses.

Following the loss in 2023, Qujiang Tourism released its semi-annual performance forecast on July 9, 2024. The company expects to achieve a net profit of -150 million to -180 million yuan in the first half of 2024, and a non-net profit of -152 million to -182 million yuan.

The main reason for the expected loss in performance is not operation, but bad debts. The company said that the expected credit loss model of accounts receivable in this period has changed compared with the same period last year, and the amount of bad debt provision has increased.

Previously, Qujiang Culture and Tourism mentioned in its response to the Shanghai Stock Exchange's inquiry that as of the end of 2023, the company's cumulative provision for bad debts reached 350 million yuan, of which 242 million yuan was newly provided for bad debts in 2023.

What does 242 million yuan mean? It is equivalent to the loss of the net profit of the four years from 2016 to 2019.

Under the influence of bad debts, Qujiang Culture and Tourism also triggered a "chain reaction" due to the "change of face" in its 2023 performance forecast.

According to the performance forecast released on January 30, 2024, Qujiang Tourism is expected to make a profit in 2023. However, on the evening of April 24, the company issued a performance forecast correction announcement showing that Qujiang Tourism's net profit turned from an estimated 17 million to 23 million yuan to a loss of about 195 million yuan.

On the day of the downward revision of performance, the Shanghai Stock Exchange issued a regulatory work letter regarding the correction of Qujiang Culture Tourism’s performance forecast, involving listed companies, directors, supervisors, senior management, intermediary institutions and their related personnel.

Bai Wenxi, vice chairman of the China Enterprise Capital Alliance, told China News Weekly that although Qujiang Cultural Tourism owns many well-known cultural and tourist attractions in Xi'an, it has taken measures to sell assets to improve its financial situation due to its high accounts receivable and loss-making performance. This "cutting off an arm to survive" approach can ease financial pressure in the short term, but it may also affect the company's long-term competitiveness and market position.

Debt collection from “our own people”?

In 2012, Qujiang Tourism Group went public through a backdoor listing with ST Changxin. Since its listing, the company's performance has been tepid. Its operating income has been fluctuating around 1 billion yuan, and its net profit has never exceeded 100 million yuan.

However, starting in 2019, Qujiang Tourism's performance declined sharply, with net profit attributable to the parent company falling from 76.1 million yuan in 2018 to 45.03 million yuan. From 2020 to 2023, only 2021 did not suffer losses. In the four years, the company's net profit loss totaled 508 million yuan, and the net loss after deducting non-operating items totaled 652 million yuan.

As one of the important reasons for the loss in performance, the large amount of bad debts is closely related to the large amount of accounts receivable of Qujiang Culture and Tourism. As the name suggests, accounts receivable is a debt right formed with the sales behavior of the enterprise and is an important current asset of the enterprise.

The problem is that Qujiang Tourism's accounts receivable have been high for a long time. According to the annual report and impairment announcement, the accounts receivable balances of Qujiang Tourism in 2021-2023 were 1.073 billion yuan, 1.220 billion yuan, and 1.455 billion yuan, respectively. It should be noted that the company's revenue in the same period was 1.365 billion yuan, 891 million yuan, and 1.504 billion yuan, respectively, and the proportion of accounts receivable to operating income was as high as 78.61%, 136.92%, and 96.74%, respectively.

A large amount of accounts receivable cannot be collected, which brings huge financial pressure. As of the first quarter of 2024, Qujiang Tourism's asset-liability ratio is 78.17%, the scale of financial liabilities is nearly 1.1 billion yuan, and the monetary funds are only 153 million yuan.

The main debtors are actually “insiders” of Qujiang Culture and Tourism.

As of the end of 2023, the top three debtors of Qujiang Culture and Tourism's accounts receivable were Xi'an Qujiang New District Public Asset Management Center, Xi'an Qujiang Daming Palace Ruins Area Protection and Reconstruction Office, and Xi'an Qujiang Cultural Industry Development Center, all of which are public institutions under the Qujiang New District Management Committee, the company's actual controller, with a total outstanding balance of 1.252 billion yuan.

The entanglement with accounts receivable from related parties stems from Qujiang Culture and Tourism’s light asset operation model.

Public information shows that Qujiang Tourism's main business is scenic spot operation and management, and all its cultural and tourism scenic spots are managed by trustees. In other words, Qujiang Tourism is the entrusted party, and these scenic spots are not its own assets.

Bai Wenxi introduced that Qujiang Culture and Tourism's light asset operation model, with the operation of historical and cultural tourist attractions as its core competitiveness, has the advantage of being able to respond quickly to market changes, reduce fixed asset investment, and improve capital operation efficiency.

But the problem is that under the light-asset operation model, the ticket revenue from the scenic spot will not flow directly into the company. What Qujiang Culture Tourism collects is the management fee paid by the relevant management department.

"This model may lead to weaker control over Qujiang Culture and Tourism's physical assets and increase the company's operating risks, especially in accounts receivable management. Once problems arise, it may put great pressure on the company's cash flow and profitability." Bai Wenxi added.

Before 2021, the annual report of Qujiang Tourism showed that the top five debts were all management remuneration, that is, the client did not settle the management remuneration on time after receiving the operating income of the scenic spot such as tickets. This also explains why the core scenic spot revenue has increased, but the company's financial statements have shown continuous losses and rising receivables.

How to get out of this predicament?

If we want to get out of trouble, besides selling assets, strengthening the collection of payments is the top priority.

As early as August 2019, the Shanghai Stock Exchange noticed the high accounts receivable of Qujiang Culture and Tourism and issued an inquiry letter. At that time, Qujiang Culture and Tourism responded to the Shanghai Stock Exchange that there was no credit risk in the debtors and promised to strengthen communication and consultation with these units to increase collection efforts.

Bai Wenxi pointed out that as a creditor, Qujiang Culture Tourism can resolve the debt issues with the debtor through litigation. In addition to calculating the amount of bad debts, it should also strengthen negotiation and communication with the debtor, take legal measures to recover the debt, sell the claims or debt restructuring, etc.

It is worth mentioning that Qujiang Tourism Group stated in its reply to the Shanghai Stock Exchange's regulatory work letter on June 28, 2024 that the company actively communicated and negotiated with the debtors and continued to follow up on the collection. At present, the actual controller has a relevant plan, and the company is continuing to follow up on the repayment arrangement. In order to solve the company's accounts receivable problem and improve the management level, the company will no longer accept commissions for scenic spots whose management agreements have expired, and will no longer add corresponding accounts receivable.

However, in the view of Zhou Mingqi, founder of Jingjian Think Tank, an industrial economic research and consulting agency, Qujiang Tourism does have certain difficulties. Most of the company's accounts receivable are from its affiliated parties or even "sister" companies. This is different from general market-oriented behavior, and this will make the collection operation more difficult.

In fact, apart from financial issues, the company cannot “win without effort” by relying on traffic at the operational level.

Qujiang Culture and Tourism's shareholder Qujiang Tourism Investment has publicly stated that the reason for the overdue debt is the adverse impact of macroeconomic factors on the cultural and tourism industry in recent years, which has caused the debtor's operating conditions to fall short of expectations and the funds to face certain liquidity pressures.

Zhou Mingqi told China News Weekly that, unlike the light model of the tourism industry in the public's perception, the cultural tourism industry is actually closely linked to industrial development and has a heavier model. In fact, the poor effect of collecting accounts receivable is also due to the liquidity impact brought about by the real estate industry entering a downward cycle. On the other hand, although Qujiang Cultural Tourism is full of popular online products, it remains to be seen whether it can truly form a verifiable and replicable IP model. "In the process of attracting traffic, huge investments of real money are inevitable."

Although the passenger flow is large, many popular activities such as the "Secret Box of the Great Tang Dynasty" are free performances. However, the daily operation and maintenance expenses of Qujiang Cultural Tourism are not low. The operation and maintenance costs of the scenic area alone account for 35.21% of the operating costs (2023). Taking the popular scenic spot Datang Never Sleeps City as an example, according to the financial report of Qujiang Cultural Tourism, Datang Never Sleeps City Company achieved operating income of 149 million yuan in 2023, and net profit was only 850,000 yuan.

In the first quarter of this year, Qujiang Tourism achieved revenue of 401 million yuan and net profit of 2.1151 million yuan, down 76.82% year-on-year. The company said that the decline in performance was "mainly due to the increase in related costs and expenses in this period."

On the evening of August 1, Qujiang Culture and Tourism issued an announcement stating that as of the date of disclosure of this announcement, a total of approximately 70.09 million shares of shareholder Tourism Investment Group had been frozen, accounting for 61.21% of its shares and 27.48% of the company's total share capital.

"Qujiang Tourism can improve its profitability and risk resistance by strengthening cost control and expense management, optimizing product structure and market layout, actively seeking external financing or partners, and strengthening internal management and team building," Gao Dongxu, a senior analyst of the culture and tourism industry, pointed out to China Newsweek.

References:

"Holding a "trump card" scenic spot, but having to sell off assets to save itself, where did Qujiang Tourism go wrong?", 2024-07-10, Beijing News

"Behind the explosion of "Sheng Tang Secret Box": a stock that goes against the trend and is deeply trapped in liquidity difficulties", 2024-04-24, Blue Whale Finance

Author: Yu Shengmei