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Yangtze Business Daily News● Yangtze Business Daily reporter Shen Yourong

The "first online game stock" Zhongqingbao (300052.SZ) and its actual controller Zhang Yunxia were filed a case by the China Securities Regulatory Commission.

On the evening of August 9, Zhongqingbao issued an announcement stating that recently, the company and its actual controller Zhang Yunxia received a "Notice of Case Filing" issued by the China Securities Regulatory Commission. The China Securities Regulatory Commission decided to file a case against the company and its actual controller Zhang Yunxia for suspected illegal and irregular information disclosure.

Zhongqingbao did not disclose in the announcement what the case against it involved. Previously, Zhang Yunxia was taken coercive measures by the relevant departments, and it was not disclosed until nearly eight months later.

Zhongqingbao's operating conditions are worrying. The company has undergone industrial transformation. In addition to the gaming business, it also involves cloud service business, digital twin and cultural tourism business. In the past four years, the company has continued to lose money, with a cumulative loss of about 300 million yuan, and it still failed to turn a profit in the first quarter of this year.

The Yangtze Business Daily reporter noticed that in the gaming industry, which requires continuous investment in research and development, Zhongqingbao's R&D investment has shrunk significantly. In 2023, the company's R&D investment was 48.7569 million yuan, while in 2013, 10 years ago, the R&D investment was about 151 million yuan.

As of the end of the first quarter of 2024, Zhongqingbao had only about 26 million yuan in cash.

Regulatory attention becomes the norm

Zhongqingbao is a company that is the focus of regulatory authorities and a long-term focus of their attention.

On the evening of August 9, Zhongqingbao announced that the company and its actual controller Zhang Yunxia received a "Notice of Case Filing" issued by the China Securities Regulatory Commission. The China Securities Regulatory Commission decided to file a case against the company and its actual controller Zhang Yunxia for suspected illegal and irregular information disclosure.

As for what the matter involved, Zhongqingbao did not disclose it. The market speculated that it might be related to the previous delayed disclosure incident.

On July 26, Zhongqingbao announced that the company had received a notice from its actual controller Zhang Yunxia in the early stage. Due to the existence of a debt dispute case, she was suspected of refusing to execute the judgment and ruling during the settlement of the civil dispute case. The Shenzhen Public Security Bureau Futian Branch took compulsory measures on December 29, 2023 and received the "Decision on Bail Pending Trial". Recently, the company received the "Decision on Not Prosecuting" and "Decision on Lifting Bail Pending Trial" issued by the People's Procuratorate of Futian District, Shenzhen, provided by Zhang Yunxia. The main content of the "Decision on Not Prosecuting" is that after review by the People's Procuratorate of Futian District, Shenzhen, the contents of the arbitration award involving the relevant debt dispute have been fully fulfilled. It was decided not to prosecute Zhang Yunxia and to lift the bail pending trial measures against Zhang Yunxia.

The actual controller of the company was once arrested for refusing to execute a judgment or ruling, but Zhongqingbao did not disclose it and only disclosed it nearly eight months later. This clearly indicates illegal or irregular information disclosure.

On the night when Zhongqingbao released its listing announcement, the Shenzhen Securities Regulatory Bureau issued a decision letter to order Zhongqingbao to correct its mistakes. The Shenzhen Stock Exchange also sent a regulatory letter to Zhongqingbao.

On July 30, Zhongqingbao disclosed a rectification report.

It is not known whether the case filed by the CSRC against Zhongqingbao and Zhang Yunxia is related to this incident. Previously, the market was curious about why Zhongqingbao delayed the disclosure of information about this major incident for nearly eight months.

Zhongqingbao has frequently violated regulations in terms of information disclosure and other aspects.

In September 2021, Zhongqingbao announced the launch of a metaverse game "Master of Brewing", which attracted the attention of the capital market and caused a sharp rise in stock prices. Subsequently, the Shenzhen Stock Exchange issued two letters of concern. The first letter required the company to disclose in detail the specific content and issues related to the concept of the metaverse, and explain whether the company and related parties have engaged in hot spots, market manipulation, and illegal trading of company stocks. The second letter required the company to explain the basis for the calculation of the planned R&D investment in "Master of Brewing", whether it is sufficient and reasonable, and whether it matches the goal of building games related to the metaverse.

In November 2021, the Shenzhen Stock Exchange issued a letter of concern. The stock option incentive plan disclosed by Zhongqingbao intends to grant 10.6 million stock options to no more than 21 incentive targets, but 50% of them are granted to the company's actual controller, Chairman Li Ruijie and General Manager Li Yulun and his son. Is this reasonable and whether there is any interest transfer?

In the same month, Baode Holdings, the controlling shareholder of Zhongqingbao, received a regulatory letter for non-operational use of the listed company's funds.

At the beginning of 2022, the Shenzhen Securities Regulatory Bureau conducted an on-site inspection and found that Zhongqingbao’s three committees were not operating in a standardized manner, insider information management was not standardized, and related party management was not standardized, and ordered the company to make corrections.

Continuous losses lead to profit difficulties

Zhongqingbao, which has frequently come under regulatory scrutiny due to issues such as information disclosure and internal governance, is under great operating pressure.

Founded in 2003, Zhongqingbao is one of the earliest game companies in China engaged in online game development, operation and distribution. It entered the A-share market in 2010 and is the first game company in China to be listed on the A-share market.

After going public, the company's operating performance showed a downward trend. The net profit attributable to the parent company's shareholders (hereinafter referred to as "net profit") fell for two consecutive years in 2010 and 2011. In 2012, the company's net profit increased to 17 million yuan, but the net profit after deducting non-recurring gains and losses (hereinafter referred to as "net profit after deducting non-recurring gains and losses") was still declining.

Since 2013, Zhongqingbao has actively sought industrial breakthroughs, leveraging the functions of the capital market and promoting industrial diversification through mergers and acquisitions.

In 2013, Zhongqingbao acquired Meifeng Digital, Sumo Technology and other companies to increase its investment in its main gaming business.

In 2015, the company initiated an acquisition of 49% of the equity of Meifeng Digital, 100% of the equity of Zhongkeao, and 100% of the equity of Mingtong Information. However, the transaction of 1.746 billion yuan ended in failure because the parties involved in the acquisition were suspected of violating the law and were investigated.

In 2016, the company spent 500 million yuan to acquire 100% of the shares of Proton Internet, a subsidiary of its controlling shareholder Baode Holdings, to develop cloud service business.

Despite the diversification of industries, Zhongqingbao's operating performance has not been completely improved. In terms of operating income, the company's operating income was 324 million yuan in 2013, and by 2018, it was 334 million yuan, with no significant growth; in terms of net profit, it was 51 million yuan in 2013 and 36 million yuan in 2018.

In 2019, the company's operating income was 435 million yuan and its net profit was 45 million yuan, but its non-net profit was -4.7038 million yuan.

From 2020 to 2023, affected by various factors such as the market, Zhongqingbao continued to lose money, with net profits of 142 million yuan, 40.3733 million yuan, 58.6983 million yuan, and 55.0457 million yuan, respectively, with a total loss of about 296 million yuan. In 2023, the company's operating income fell to 259 million yuan.

In the first quarter of this year, Zhongqingbao achieved operating income of 74.8757 million yuan, a year-on-year increase of 18.24%; net profit was -10.9948 million yuan, turning from profit to loss year-on-year.

A reporter from the Yangtze Business Daily found that Zhongqingbao's R&D investment has shrunk significantly. From 2021 to 2023, the company's R&D investment was 54.5743 million yuan, 63.8995 million yuan, and 48.7569 million yuan respectively. From 2011 to 2013, its R&D investment was approximately 130 million yuan, 133 million yuan, and 151 million yuan respectively.

Zhongqingbao, which has diversified industries, is short of funds. As of the end of the first quarter of this year, the company's cash and cash equivalents were 25.9549 million yuan, and the corresponding interest-bearing liabilities were 50.9061 million yuan.

Faced with profitability problems, how should Zhongqingbao respond to get out of its operational difficulties as soon as possible?