Keming Noodles, the 'first listed noodle company', released its 2018 annual report, showing revenue of 2.86 billion yuan, a year-on-year increase of 26%, net profit attributable to shareholders of 190 million yuan, up 65%, and non-GAAP net profit of 134 million yuan, an increase of 74.64%. On the first trading day after the annual report disclosure, the company's stock price once fell sharply. Sina Finance found that behind the seemingly bright report card, besides the low base of 2017 performance, there seem to be major doubts about the implementation of private placement projects, the use of raised funds, and the performance of the acquired Wugudao Chang. 1 Major Fundraising Projects Adjusted, Some Funds Idle for Over 3 Years The company's main business is noodle production. After listing on the SME board in 2012, it has been striving to improve costs and products, including extending the industrial chain upstream and optimizing product structure. In 2015, it completed a private placement, raising a total of 1.2 billion yuan, which was in place by December 31, 2015. However, several major committed investment projects were changed after the funds were raised. First, the 'Yanjin Annual 100,000-ton High-end Noodle Production Line Project' had an estimated investment of 200 million yuan and was originally scheduled to be completed by December 31, 2017. On August 17, 2017, the board of directors adjusted the project's planned completion time to December 31, 2019. According to the company's latest annual report, as of the end of 2018, the investment in the Yanjin 100,000-ton high-end noodle production line project was zero. Nearly a year and a half after the project change, there has been no progress. Since the funds were raised, they have been idle for more than three years. Second, the 'Chengdu Annual 100,000-ton Noodle Production Line Project' had an estimated investment of 220 million yuan and was also originally scheduled to be completed by December 31, 2017. On December 19, 2017, the board of directors adjusted the project's planned completion time to December 31, 2019. As of the end of 2018, the investment in the Chengdu 100,000-ton noodle production line project was only 25.76 million yuan, representing 11.7% of the total investment. Three years after the 220 million yuan raised for the project was in place, nearly 200 million yuan has been idle for more than three years. The company explained that the reasons for the projects not meeting the planned progress are that with the improvement of technology in the noodle industry, the automation level of production equipment has rapidly increased, and continuous improvements to the production process have changed equipment requirements. Equipment selection and custom procurement require a certain time cycle, thus extending the implementation period. However, even after the plan changes, there has been almost no progress. The nearly 400 million yuan raised for the above two projects, plus the surplus of about 100 million yuan from the Yanjin 100,000-ton nutritious noodle production line and the Suiping 75,000-ton noodle production line projects, and unused funds from other ongoing projects, total a balance of nearly 700 million yuan, which has been idle for more than three years since the fundraising was completed. 2 While Funds Are Idle for Wealth Management, Company Issues Bonds for Further Financing The idle portion of the 1.2 billion yuan raised from the private placement at the end of 2015 has been used for wealth management, in addition to supplementing working capital. The annual report shows that in terms of raised funds, the company received net bank deposit interest and wealth management income of 44.08 million yuan in previous years, and 29.29 million yuan in 2018. That is, Keming Noodles has accumulated income of 73.37 million yuan from idle raised funds and wealth management over three years. On one hand, 700 million yuan of raised funds have been idle for three years, earning over 70 million yuan in wealth management income; on the other hand, the company continues to issue bonds for financing. Announcements show that Keming Noodles successfully issued 400 million yuan in corporate bonds in 2018, with the purpose of 'supplementing working capital'. According to the annual report, after the funds were in place on October 19, 2018, the company actually used 232 million yuan, of which 215 million yuan was used to repay bank loans, and only 17.16 million yuan was used to pay for goods. That is, Keming Noodles has been using idle raised funds for wealth management for a long time, while also 'issuing new bonds to repay old debts'. This use of funds is indeed puzzling. 3 Wugudao Chang Continues to Lose Money and Is Insolvent, Possibly a Failed Acquisition In 2017, Keming Noodles acquired the instant noodle producer 'Wugudao Chang' and renamed it Keming Wugudao Chang Food Co., Ltd. That year, the target's net profit was -10.534 million yuan, and in the first year after acquisition, goodwill impairment was recognized, dragging down the company's performance. In fact, Wugudao Chang had been losing money before the acquisition, with net profits of approximately -192 million yuan and -33.0206 million yuan in 2015 and 2016, respectively. According to related reports, after the 2017 annual report was disclosed, at the company's shareholders' meeting held in March 2018, Keming Noodles' general manager Chen Hong stated that Wugudao Chang had turned profitable in January 2018, expected to start production on a new production line in September, and that annual revenue would grow significantly. He also publicly said, 'In the 85 billion yuan instant noodle market, Wugudao Chang only needs a small market share. For 2018, conservatively estimated, Wugudao Chang will have at least 5 million yuan in profit.' However, the actual situation was not as expected. According to Keming Noodles' latest annual report, Keming Wugudao Chang Food Co., Ltd. had revenue of 218 million yuan in 2018 and a net profit of -8.86 million yuan. After years of losses, Wugudao Chang's net assets were -52.51 million yuan, significantly insolvent. Another subsidiary, Yanjin Keming Wugudao Chang Food Co., Ltd., also lost money in 2018, with a net profit of -890,000 yuan. Given Wugudao Chang's poor performance, Keming Noodles continued to recognize goodwill impairment in 2018, following 2017, with the ending goodwill impairment provision balance reaching 23.54 million yuan. Originally, the company hoped to expand capacity, launch new products, and broaden sales channels through the acquisition of Wugudao Chang, achieving a win-win situation. But from the current actual results, it seems there is a significant gap from the company's initial expectations. Source: Sina Finance Company Watch Tips will be paid 400-2000 yuan once adopted. China FMCG + Internet Professional New Media Committed to FMCG manufacturers' transformation and upgrading and channel digital solutions