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Guangzhou Yichang Technology Co., Ltd. (hereinafter referred to as "E-Chang Technology”，002420.SZ）。

Recently, Yichang Technology released its 2024 semi-annual report. In the first half of the year, the company not only turned losses into profits, but also increased its net profit by 6217.42%. However, the surge in performance was due to the low base and government subsidies. At the same time, the net cash flow generated by its operating activities in the first half of the year was less than the same period last year, only -36.5771 million yuan.

The actual controller of Yichang Technology is 60-year-old female billionaire Xiong Haitao, who is also the chairman of Sichuan Dongcai Technology (601208.SH) and BeijingGaomeng New Materials(300200.SZ), and together with her husband Yuan Zhimin, she controls a company with a market value of 16 billion yuan.Kingfa Technology(600143.SH). Therefore, Yichang Technology’s related parties are large and complex, and its transactions with related parties also account for a large part of the company’s operations.

A staff member from Yichang Technology's securities department told the China Times reporter that because Jinfa Technology's plastic particles are nationally famous, and Hefei JAC Yichang is ahead of the company in some technologies in automotive interior and exterior parts, it is necessary for the company to purchase raw materials from these related parties.

Turning losses into profits

In the first half of this year, Yichuang Technology's operating income was 1.199 billion yuan, a year-on-year increase of 8.07%, and its net profit was 70.3897 million yuan, a year-on-year increase of 6217.42%.

Although net profit increased 62 times, Yichuang Technology's operations did not seem to have improved much.

In terms of operating income, the operating income of Yichang Technology's three main businesses (new energy, automobiles, and home appliances) did not increase much in the first half of this year. The new energy business achieved operating income of 145 million yuan, which was the same as the previous year. The automotive industry achieved an operating income of about 408 million yuan, an increase of nearly 110 million yuan year-on-year, and the home appliance industry achieved an operating income of about 366 million yuan, a decrease of nearly 50 million yuan year-on-year. The gross profit margin of the home appliance industry increased by 3.18% year-on-year, the automotive industry increased by 1.71%, and the new energy industry decreased by 7.73%.

The biggest contributor to the surge in performance is government subsidies. In the first half of the year, the government subsidies included in the current profit and loss of Yichang Technology were 14.1352 million yuan. The disposal of subsidiaries is another major contributor. In the first quarter of 2024, Chongqing Yixiang, a subsidiary of Yichang Technology, entered bankruptcy liquidation procedures. Because the impairment of long-term equity investments had been fully accrued in the previous period, it was deemed to be disposed of at zero consideration in the consolidated financial statements, and thus an investment income of 98.5309 million yuan was recognized.

However, Yichang Technology also suffered a lot of losses in the first half of the year. For example, it previously had 70.4562 million yuan of accounts receivable from Chongqing Yixiang, which could not be recovered due to the latter's bankruptcy liquidation, so all of them were recognized as investment losses. In addition, it made provisions for 19.1224 million yuan of estimated liabilities due to sales rebates, quality claims, customer defaults, and after-sales repairs.

In addition, Yichuang Technology has 22 cases that did not meet the major litigation disclosure standards, involving 595.473 billion yuan.

Related-party transactions

Related-party transactions play a vital role in Yichang Technology's business.

Yichang Technology has four business segments, namely, thermal management of new energy vehicle power batteries, auto parts, medical consumables, and home appliances. Among them, auto parts contributed the most operating income in the first half of the year, which is also Yichang Technology's traditional business, followed by home appliances, new energy business ranked third, and medical consumables ranked the least. Yichang Technology's most important related party is Kingfa Technology. It is understood that Xiong Haitao, the actual controller of Yichang Technology, and Ning Hongtao, the current chairman, both serve as directors of Kingfa Technology.

Kingfa Technology's main business is the research and development, production and sales of new chemical materials. Its main products include modified plastics, environmentally friendly high-performance recycled plastics, fully biodegradable plastics, special engineering plastics, carbon fiber and composite materials, light hydrocarbons and hydrogen energy, polypropylene resins, styrene resins and medical and health polymer materials products.

From the annual reports of Yichang Technology over the years, we can see that Jinfa Technology is both its raw material supplier and its customer. In 2021, 2022 and 2023, Yichang Technology spent 46.0911 million yuan, 62.271 million yuan and 57.6916 million yuan respectively on purchasing goods from Jinfa Technology, and the revenue from selling goods to Jinfa Technology was 74.2083 million yuan, 7.4642 million yuan and 2.3499 million yuan respectively.

In addition, Yichang Technology also purchased and sold goods from Hefei Jianghuai Yichang and Gaojin Fuheng, which are also controlled by Xiong Haitao. From 2021 to 2023, it purchased goods totaling 63.454 million yuan from Hefei Jianghuai Yichang and sold goods totaling 47.3243 million yuan; it purchased goods totaling 1.2803 million yuan from Gaojin Fuheng and sold goods totaling 247,200 yuan.

A staff member of Yichang Technology's securities department told the China Times reporter: "Kingfa Technology is a leading company in the country in terms of plastic particles. We do purchase some plastic particles from Kingfa Technology, which is very necessary because it has a high cost-effectiveness and good quality."

As for selling products to Kingfa Technology, Yichang Technology had more transactions in the past few years, but fewer and fewer in the past two years. He said: "We used to make medical molds for it, but now its medical business is relatively small."

The complexity of related-party transactions can be seen from the accounts receivable and payable of Yichuang Technology.

At the parent company level, Yichuang Technology had accounts receivable of approximately RMB 892 million, accounts payable of approximately RMB 369 million, and other payables of approximately RMB 737 million at the end of the first half of the year. The accounts payable and other payables were all high, which is significantly different from the amounts at the consolidated level.

After the merger, these amounts were largely offset. At the consolidated financial statement level, Yichang Technology had accounts receivable of 608 million yuan, accounts payable of 521 million yuan, and other payables of only 97.4944 million yuan in the first half of the year.

Reclaiming a subsidiary that was once abandoned

As for Hefei JAC Echang, it will soon become a subsidiary of Echang Technology.

A staff member of Yichang Technology's securities department told reporters: "The company has issued an announcement to acquire 40% of Hefei Jianghuai Yichang's equity, and the shareholders' meeting will be held next Tuesday."

In fact, Hefei JAC Yichuang was originally founded by Yichuang Technology, Hefei JAC Automobile and Hefei Xingtong Rubber & Plastic in 2013. Yichuang Technology invested 40 million yuan at the time and held 40% of the shares, making it the largest shareholder.

Hefei Jianghuai Yichang is mainly engaged in the production and sales of automobile front and rear bumpers, side skirts, wheel eyebrows, spoilers, tailgate trims and other products. Its main customers areJAC Motors. However, around 2019, Hefei Jianghuai Yichang's performance was sluggish and it continued to lose money. In order to get rid of it and avoid the need for continued capital investment in new plant buildings, which would impose a heavy burden on the company's operations and funds, Yichang Technology sold its 40% stake to Gaojin Fuheng.

Now, Yichang Technology is going to buy it back. The reason is: "The company's automotive structural parts business and new energy business are developing rapidly. Hefei JAC Yichang has mature experience in the production and sales of front and rear bumpers, side skirts, wheel eyebrows, spoilers, tailgate trims and other products. This acquisition will supplement the company's production capacity in automotive structural parts business and new energy business."

According to Yichang Technology staff, Hefei Jianghuai Yichang is better than Yichang Technology in some aspects. "Hefei Jianghuai Yichang makes automotive interior and exterior trims, and its equipment is relatively new. In some automotive interior and exterior trim technologies, it is better than us. Considering the cost-effectiveness, we entrust it to process and then buy it back."

Behind the "flip of the hand for clouds, flip of the hand for rain" is Xiong Haitao's complex business empire. Xiong Haitao controls Yichang Technology through Gaojin Fuheng, and also controls two listed companies, Sichuan Dongcai Technology and Beijing Gaomeng New Materials. At the same time, she is also the second largest shareholder of Kingfa Technology and the wife of Yuan Zhimin, the actual controller of Kingfa Technology.

The couple started their business at Kingfa Technology. Yuan Zhimin is from Yangjiang, Guangdong, and was a middle school teacher. He founded Kingfa Technology in 1993 when he was only 32 years old. Xiong Haitao is from Mianyang, Sichuan, and worked at Changhong for many years. Later, she went to work at Konka in Shenzhen and met Yuan Zhimin. She joined Kingfa Technology in 1997 and eventually married Yuan Zhimin.

Later, the couple's business empire gradually expanded. In 2023, Yuan Zhimin and Xiong Haitao ranked 1975th on the "2023 Hurun Global Rich List" with a wealth of 11.5 billion.

However, just a month ago, Yuan Zhimin was sentenced to three years in prison for suspected insider trading and leaking insider information.

Editor-in-charge: Zhang Bei Editor-in-chief: Zhang Yuning