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August 10, 2020
On the evening of the 9th, Kingfa Technology issued an announcement stating that the company’s subsidiary, Guangdong Kingfa Technology Co., Ltd. (abbreviated as Guangdong Kingfa), signed a US$975 million KN95 mask contract with a US company. Because the term was about to expire, the company has not received the seller’s payment according to the order. 40% of the payment, the contract order has actually been terminated.
On May 17, the company’s board of directors passed a resolution, agreeing that the holding subsidiary Guangdong Jinfa signed the "Goods Sales Contract" with the buyer, stipulating that within the term of the goods sales contract, Guangdong Jinfa will sell KN95 to the buyer in accordance with the goods sales contract and the buyer’s specific purchase order. Masks, the contract period is three months. This purchase order stipulates that within 3 working days from the date of receipt of the proforma invoice provided by Guangdong Jinfa, the buyer shall pay Guangdong Jinfa an upfront payment of 40% of the order amount. The buyer has not paid the payment as agreed in the order so far after the seller has agreed to a proper extension.
The company said that recently, the company’s business department tried to discuss with the buyer over the phone or other means on whether the contract was fulfilled, but the buyer did not respond effectively. The company wrote to the buyer on August 4 to inquire whether it still intends to continue to perform the contract order, and asked it to reply to the seller in writing before August 7. Failure to reply after the deadline will be deemed as no longer fulfilling the contract order. Up to now, the company has not received a valid written response from the buyer.
The company stated that the three-month performance period for the purchase order for this transaction is about to expire, and the company has not received the 40% upfront payment that the buyer should pay according to the order. After the seller contacted the seller many times and sent letters in writing, the buyer did not respond effectively to matters such as whether the contract order should continue to be fulfilled or delayed. In addition, since the conclusion of the contract, it has spanned three months. Affected by factors such as changes in the global epidemic, the supply and demand of the goods market and prices have also undergone certain changes.
The company analyzed that according to the contract, the seller did not need to deliver the goods to the buyer without receiving the upfront payment due from the buyer, and the buyer did not express the willingness to continue to perform the contract after the seller’s written confirmation. The contract order has not been fulfilled by the buyer and the contract order has actually been terminated.
Regarding this particularly major contract, Kingfa Technology issued an announcement on the evening of May 17 and disclosed that the company said that the total net profit expected to be generated from the smooth performance of the contract accounted for more than 50% of the company's audited net profit for 2019. Have a positive impact on the company’s operating performance. Regarding the buyer of the contract, the company stated that it was unable to disclose the specific name and financial data of the other party due to trade secrets and the confidentiality clause of the contract signed by both parties.
On May 22, the company stated in the progress announcement of this special major contract that due to the fund collection and large payment process, the buyer will be slightly delayed in the early payment of 40% of the order amount. The company has agreed to its application for delayed payment. And require it to complete the payment as soon as possible.
On June 10, the company issued an announcement stating that so far, the company has not received payment from buyers. After the company responded to the letter, it kept communicating with the buyer and discussed specific issues such as the collection of funds and the large-amount payment process, and strived to achieve the goal of payment as soon as possible. According to the buyer’s feedback, the transaction is planned to be paid through a trust fund. Fund collection and large-value payments involve more authorization procedures and legal compliance reviews, which affected the progress of the payment. The buyer said that its professional team is still speeding up Advance the payment process.
According to the Securities Times, on the afternoon of August 9, the relevant person in charge of Kingfa Technology stated in an interview with reporters that the order was strictly in accordance with the contract. Because the other party did not pay the initial deposit, the order has not yet started production.
The stock price has doubled this year. How will the stock price go today?
In the company's 2020 semi-annual performance increase announcement, it is estimated that the net profit attributable to shareholders of listed companies in the first half of 2020 will be 2.345 billion to 2.446 billion yuan, an increase of 1.835 billion to 1.936 billion compared with the same period of the previous year. Yuan, a year-on-year increase of 360%~380%. According to the company, in the first half of 2020, the gross profit margin of modified plastics products will increase steadily, the sales volume of fully biodegradable plastics and special engineering plastics products will increase steadily, and the operating profit will increase. At the same time, the company has increased the production lines of anti-epidemic materials and products such as meltblown materials, meltblown cloths and masks, which has a positive effect on the company's performance.
The order termination incident of Kingfa Technology is reminiscent of the previous incident of BYD's orders for masks exported to California. According to the Securities Times, on April 20 this year, BYD signed a $1 billion purchase contract for masks with the California government of the United States, but returned a $247 million advance payment because it failed to obtain NIOSH certification. The move to refund the advance payment has caused an uproar at home and abroad, and the remarks such as "American fairy jump" and "doing business with Americans are unreliable" have been raging for a while. It is understood that the 1 billion orders of BYD and the California government have not been cancelled, and the period of NIOSH certification has been postponed to the end of May. Due to the great impact of the refund turmoil, BYD responded to this by stating that the delivery of N95 mask orders was delayed, not the order was cancelled, and the delivery of disposable medical masks was not affected. The California government also added new orders. This time, BYD’s N95 masks have not been shipped. It is not a product quality issue, but a delay in NIOSH certification. This incident did not cause any loss to BYD.
In the order termination incident of Kingfa Technology, due to the fact that the buyer's information has been kept confidential, the order deadline is approaching but the buyer has not given a valid response without reason, and the order has not yet been produced, the company has no actual loss. There is still more information waiting for further mining.
According to the 2019 annual report, Kingfa Technology achieved a net profit of 1.245 billion yuan attributable to shareholders of listed companies in 2019. Previously, Kingfa Technology predicted that the net profit from the mask order with the US company would be more than 620 million yuan. As investors’ optimistic expectations for profit from the order fell through, the company’s stocks may face certain pressure at the opening of this week.
However, the particularly major contract termination incident of Kingfa Technology has already exploded among investors. Some netizens expressed optimism, saying that "it is better to cancel it now than to accrue billions of credit losses after not being able to collect money."
There are also investors who are worried about the stock price limit today, saying "the limit is waiting for you to sell, I am ready", and some netizens question the authenticity of the order.
Kingfa Technology Announcement. Source: Shanghai Stock Exchange official website
According to the announcement, on August 9, 2020, the company received the Shanghai Stock Exchange's "Letter of Supervision on the Termination of Special Significant Contracts of Kingfa Technology Co., Ltd.". The regulatory letter pointed out that in the previous period, the company announced on May 18, 2020 that it had signed a special major contract for KN95 masks worth US$975 million with a US company. The total net profit is expected to account for more than 50% of the company's audited net profit in 2019. . On August 9, 2020, the company submitted a disclosure announcement stating that the aforementioned major contract has actually been terminated.
According to the latest exchange rate calculations, US$975 million is approximately RMB 7 billion.
According to Article 17.1 of the Shanghai Stock Exchange’s Stock Listing Rules, the Shanghai Stock Exchange requires companies to:
Verify and explain the specific conditions of the previous contract conclusion, including the process of negotiation and contract signing and the main terms of the contract;
Verify and explain whether sufficient and necessary due diligence has been conducted before signing the contract, whether the credit status and performance ability of the contract counterparty have been effectively verified, and the main considerations and reasons of the counterparty have not been disclosed so far;
Supplementally disclose the specific reasons why the counterparty of the contract cannot perform the contract, the time when the company became aware of the relevant situation, and whether there is any untimely information disclosure;
Explain whether the internal control system for the evaluation of the reliability of the major contract is rigorous, and disclose the implementation of the relevant systems and the evaluation of the major contract;
Seriously perform the corresponding information disclosure obligations regarding this major contract termination, fully protect investors' right to know, and do a good job of communication with investors;
Submit a list of insider information on the above major matters for transaction verification.
According to the data, the full name of Kingfa Technology Co., Ltd. is Kingfa Technology Co., Ltd. Its business scope includes manufacturing of plastic pellets, manufacturing of degradable plastic products, manufacturing of plastic products for medical and sanitary use, and cotton spinning processing.
As of the close of last Friday, Kingfa Technology closed at 17.38 yuan per share, with a total market capitalization of 44.7 billion yuan. The stock price has risen by 140.54% this year. (Zhongxin Jingwei APP)