--- title: "Kedi Dairy's 'Twists and Turns': Penalized for Financial Fraud" description: "Kedi Dairy (stock abbreviation 'ST Kedi') announced it received a prior notice of administrative penalty and market ban from the CSRC Henan bureau for allegedly inflating profits and violating information disclosure rules. The company faces a 600,000 yuan fine, while its chairman Zhang Qinghai faces a 900,000 yuan fine and a 10-year market ban. The notice reveals that from 2016 to 2018, Kedi Dairy inflated revenue by 836 million yuan and profits by 298 million yuan." author: "New Distribution" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2021-09-24" language: "en" canonical: "https://xinjignxiao.com/en/articles/kedi-dairy-s-twists-and-turns-penalized-for-financial-fraud-c1af6bc1/" markdown: "https://xinjignxiao.com/en/articles/kedi-dairy-s-twists-and-turns-penalized-for-financial-fraud-c1af6bc1.md" original_source: "https://mp.weixin.qq.com/s/ED1m7Rxf-N_49lfNXHqVgQ" translation: "https://xinjignxiao.com/zh/articles/%E7%A7%91%E8%BF%AA%E4%B9%B3%E4%B8%9A-%E4%B8%80%E6%B3%A2%E4%B8%89%E6%8A%98-%E4%B8%9A%E7%BB%A9%E9%80%A0%E5%81%87%E8%A2%AB%E7%BD%9A-c1af6bc1.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/kedi-dairy-s-twists-and-turns-penalized-for-financial-fraud-c1af6bc1/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # Kedi Dairy's 'Twists and Turns': Penalized for Financial Fraud > Kedi Dairy (stock abbreviation 'ST Kedi') announced it received a prior notice of administrative penalty and market ban from the CSRC Henan bureau for allegedly inflating profits and violating information disclosure rules. The company faces a 600,000 yuan fine, while its chairman Zhang Qinghai faces a 900,000 yuan fine and a 10-year market ban. The notice reveals that from 2016 to 2018, Kedi Dairy inflated revenue by 836 million yuan and profits by 298 million yuan. Source: China Business Journal (ID: FMCG-CLUB) Recently, Kedi Dairy (stock abbreviation "ST Kedi") announced that it received the "Prior Notice of Administrative Penalty and Market Prohibition" (hereinafter referred to as the "Notice") from the Henan Regulatory Bureau of the China Securities Regulatory Commission. According to the Notice, due to alleged illegal facts such as inflating profits and violating information disclosure rules, Kedi Dairy is proposed to be fined 600,000 yuan, and the company's chairman Zhang Qinghai is proposed to be fined 900,000 yuan and banned from the securities market for 10 years. The document shows that starting from the second year after Kedi Dairy's listing, in 2016, 2017, and 2018, the company inflated revenue by 836 million yuan and profits by 298 million yuan over three consecutive years. Regarding the penalty, a reporter from China Business Journal contacted Kedi Dairy's board secretary office. A staff member stated that the company's operations are currently normal, and the election time for the new chairman will be announced in the future. Meanwhile, other senior management vacancies at Kedi Dairy will be gradually filled. Looking at Kedi Dairy's growth trajectory, it can be described as "full of twists and turns." In 2016, Kedi Dairy launched "Little White Milk," which, due to its high quality and low price, swept the liquid milk market and gained consumer recognition. At that time, financial reports showed that continuous performance growth brought profits from Little White Milk. However, in 2019, the incident of dairy farmers demanding unpaid wages tore away the "veil" of Kedi Dairy's performance growth. The funding gap of Kedi Dairy and its parent company Kedi Group began to emerge, and Zhang Qinghai, the founder who started as a farmer, was dragged into the whirlpool of public opinion. This Notice confirmed Kedi Dairy's financial fraud and its illegal provision of funds to the major shareholder Kedi Group, bringing this incident to a close with Chairman Zhang Qinghai stepping down from the listed company. **Behind the Hype** In 2015, Kedi Dairy officially entered the capital market. As a regional dairy company in Henan, it did not attract much attention in the industry at the time. Industry insiders recognized Kedi Dairy in 2016 when its Little White Milk quickly became popular, prompting other companies to follow suit. The emergence of Little White Milk showed the market, which was then facing overcapacity in raw milk and price wars in high-end liquid milk, that consumers had demand for another type of product. At that time, Kedi Dairy's chairman Zhang Qinghai revealed that the average daily production and sales of Little White Milk in 2017 exceeded 400 tons. The revenue from ambient dairy products, to which Little White Milk belongs, was 815 million yuan, accounting for 65.8%. The 2017 financial report showed that Kedi Dairy's revenue grew by more than 50%, and net profit also increased by 41.56%. Against the backdrop of sluggish growth in the entire dairy industry, Kedi Dairy's rapid progress was undoubtedly eye-catching. A review of the financial reports of A-share listed dairy companies at that time revealed that in 2017, Kedi Dairy's profitability ranked only behind Yili and Guangming. The Notice shows that from 2016 to 2018, Kedi Dairy's revenue was 805 million yuan, 1.239 billion yuan, and 1.285 billion yuan, respectively, with inflated revenue of 336 million yuan, 210 million yuan, and 290 million yuan. Net profit was 89 million yuan, 127 million yuan, and 129 million yuan, respectively, with inflated net profit of 118 million yuan, 68 million yuan, and 112 million yuan. Due to the popularity of Little White Milk at the time, there was little industry skepticism about Kedi Dairy's performance. However, at that time, local dairy farmers told reporters that Kedi Dairy had begun to delay payments to some farmers. The root of these problems lay in the private placement guarantee agreement signed after Kedi Dairy's listing. According to a report by Securities Market Weekly, in 2016, Kedi Group, the major shareholder of Kedi Dairy, signed a private placement guarantee agreement with investors. At the end of December 2016, Kedi Dairy's private placement was officially implemented. However, Kedi Dairy's stock price subsequently fell continuously. After the one-year lock-up period expired, despite Kedi Dairy implementing a 10-for-9 bonus issue (every 10 shares converted to 9 additional shares) in April 2017, which reduced the private placement cost to around 7 yuan, the stock price still fell to a low of 2.55 yuan in 2018. The market price fell below the private placement price, causing all capital involved in the private placement to suffer losses. Kedi Group signed a liquidity support (cash replenishment) and difference compensation commitment agreement (i.e., a guarantee agreement) with Xiaocun Asset Management Company, but Kedi Group defaulted, refusing to provide cash replenishment and refusing to execute the difference compensation. In 2018, Xiaocun Asset filed a lawsuit for the first time. Kedi Group first coordinated to have Xiaocun Asset withdraw the lawsuit, then refused to execute the installment payment agreement it had signed. Kedi Group, the major shareholder of Kedi Dairy, and actual controller Zhang Qinghai failed to make up the difference, leading to litigation. Against this backdrop, in 2018 and 2019, Kedi Dairy planned to spend 1.5 billion yuan to acquire Kedi Quick-Frozen, which attracted widespread attention in the capital market, and regulatory authorities issued letters questioning the move. During these events, the Shenzhen Stock Exchange repeatedly inquired about Kedi Dairy's abnormal actions, and Kedi Dairy consistently replied that there were no violations, and it repeatedly insisted on acquiring Kedi Quick-Frozen and initiating private placements. "The acquisition of Kedi Quick-Frozen and the financial fraud by Kedi Dairy actually converge on one reason: the stock price was too low, failing to meet the expectations promised to investors, resulting in investor losses. Therefore, Kedi Dairy had to boost the stock price through mergers and favorable performance to alleviate the conflict," said Shen Meng, executive director of Chanson Capital. However, it is worth noting that the agreement with investors was signed by Kedi Group, not Kedi Dairy, which meant Kedi Group needed to compensate investors for their losses. This relates to the issue mentioned in the Notice that Kedi Dairy illegally provided funds to Kedi Group multiple times. In 2019, after the incident of dairy farmers demanding unpaid wages, Kedi Dairy was placed under investigation by the China Securities Regulatory Commission due to suspected violations of laws and regulations, in accordance with the relevant provisions of the Securities Law of the People's Republic of China. As the investigation progressed, the huge funding gap in Kedi Dairy and Kedi Group was gradually confirmed by regulatory authorities. After regulatory intervention, the illegal facts of Kedi Dairy's inflated profits and information disclosure violations were revealed, and Zhang Qinghai was banned from the securities market for 10 years. Regarding Kedi Dairy's three consecutive years of financial fraud after listing, independent dairy analyst Song Liang believes that 2014 to 2015 was a peak period for dairy companies to go public. Most dairy companies listed during that period are currently in a difficult situation. Similar to Kedi Dairy is Huangshi Dairy, which is also a typical family business that diversified shortly after listing. The reason is simple: after listing, companies found that the valuation of the dairy industry in the capital market was generally low. To meet investors' expectations, they began to develop diversification or increase assets, hoping to raise the market value of the listed company. **Current Status of the Kedi System** After the funding problems emerged, Kedi Group, which encompasses agriculture, quick-frozen food, bottled water, convenience stores, and other businesses, fell into an operational crisis. Many of its industries were once shut down, and the bankruptcy reorganization of Kedi Group is still ongoing. According to the statistics in the Notice, from 2016 to 2019, Kedi Dairy provided multiple funds and guarantees to Kedi Group. In a June 2020 announcement, Kedi Dairy stated that "the major shareholder Kedi Group non-operationally occupied 1.865 billion yuan." The above funds ultimately ended with Kedi Dairy issuing an announcement acknowledging that the major shareholder Kedi Group had illegally occupied the funds. In June 2020, Kedi Dairy announced that during a self-inspection, it discovered that the controlling shareholder Kedi Group had non-operationally occupied company funds. As of the disclosure date of this announcement, the balance of non-operational occupation of company funds by the controlling shareholder Kedi Group was 1.865 billion yuan. Subsequently, in December 2020, Kedi Dairy announced that creditor Wei Junping submitted a bankruptcy reorganization application on the grounds that Kedi Group "cannot pay off all debts," "obviously lacks solvency," and "still has reorganization value." The court accepted the bankruptcy reorganization of the controlling shareholder Kedi Group. Regarding the reasons for the current situation of the Kedi system, a former employee of Kedi Group told reporters that after Kedi Dairy went public, Kedi Group began to lay out a convenience store business, mainly by attracting individual convenience stores to join, and mainly concentrated in the surrounding areas of Zhengzhou. According to Kedi Group's plan, it intended to use the convenience store channel to open up its quick-frozen and dairy business channels, consolidating its market position in Henan. By the time of the crisis in 2018, the number of convenience stores had exceeded 1,000, but according to multiple confirmations, these stores did not achieve positive profits but instead incurred losses, and some franchisees even protested to Kedi Group over unpaid wages. Meanwhile, Kedi Group also laid out large agricultural industries in Northeast China and other places. Tianyancha shows that Kedi Group established a wholly-owned subsidiary, Heilongjiang Kedi Damofang Food Co., Ltd., in 2014, but deregistered it in 2016. In the same year, Kedi Group established two subsidiaries in Heilongjiang: Wudalianchi Non-GMO Soybean Development Co., Ltd. and Wudalianchi Green Soybean Development Co., Ltd. It is reported that Kedi Group's agricultural project layout in Northeast China was completed by 2019, but the group's personnel in Henan know little about the operating conditions of these industries. It is worth noting that on December 28, 2018, due to an operational error by Kedi Dairy's financial staff, 200 million yuan was mistakenly transferred to the account of Henan Kedi Damofang. After discovering this, Kedi Dairy immediately requested Kedi Damofang to return the funds, and Kedi Damofang returned the funds to Kedi Dairy the next day (December 29, 2018). Financial reports show that as of the latest third quarter of 2021, ST Kedi only turned a profit. In fiscal year 2019, Kedi Dairy's revenue was only 566 million yuan, and in fiscal year 2020, the performance forecast revenue was about 480 million yuan. Currently, its performance is even worse than before listing. **Are you "watching" me?** --- ## Copyright and AI use This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL. Contact: zhaobo258@gmail.com · +86 158 5481 7671