By the end of September 2021, Huida Sanitary Ware had borrowed 358 million yuan in the new growth period, and the asset-liability ratio was 36.48%, an increase of 4.55% over the end of last year.

Wang Zixi, a researcher at the Investment Times.

A few days ago, HUIDA Sanitary Ware Co., Ltd. (hereinafter referred to as HUIDA Sanitary Ware, 603385.SH) issued a notice that the second instance judgment of the Guangzhou Municipal Intermediate people's Court (hereinafter referred to as Guangzhou Intermediate Court) showed that HUIDA Sanitary Ware, within the range of principal and interest of 19.98 million yuan, assumed supplementary liability for the debts involved in the dispute over the entrustment contract of Guangzhou Iron and Steel Trading Center Co., Ltd. (hereinafter referred to as Iron and Steel Company) v. the defendant.

According to the preliminary calculation of HUIDA Sanitary Ware, this lawsuit will reduce the company's net profit of 2021 by about 36 million yuan. As of the above announcement date, the company is preparing relevant materials and intends to apply to the Guangdong Provincial High Court for retrial within the legal time limit.

It is worth noting that the company's three-quarter report shows that its estimated liability is 38.444 million yuan by the end of September 2021, an increase of 36 million yuan compared with 2.444 million yuan at the end of June. Although the liability is expected to be a liability subject, which will not affect the current profit, if the lawsuit is finally "settled", it may have an impact on the annual net profit index of HUIDA Sanitary Ware.

Even excluding litigation, the company's net profit growth is not optimistic. Quarterly report shows that in the first three quarters of this year, HUIDA bathroom revenue and home net profit increased by 27.30% and-1.54% compared with the same period last year. The net profit rate and the comprehensive gross profit margin were 8.36% and 28.77% respectively, down several percentage points from the same period last year. In fact, these two profit indicators have been on a downward trend since 2019.

In addition, by the end of September 2021, Huida Sanitary Ware had borrowed 358 million yuan in the new growth period; the asset-liability ratio was 36.48%, an increase of 4.55% over the end of last year. In previous years, the company's long-term borrowing targets were zero. For litigation and performance growth, the company's liquidity and other issues, "Investment Times" researchers e-mail communication outline to the relevant departments of the company, but as of the press release has not received a reply.

In the secondary market, the third quarterly report disclosed the day, that is, October 22, shortly after the opening of Huida bathroom closed to the limit of 9.28 yuan / share (no rights, the same below). However, compared with the year's high of 12.86 yuan per share, it still fell by nearly 30%, with a total market capitalization of less than 3.6 billion yuan. Whether the subsequent share price can come out of the rising market may also be related to whether the profit side of the company can be greatly improved.

Share price trend of HUIDA Sanitary Ware since the beginning of this year (RMB / share)

The impact of litigation is 36 million yuan?

The Investment Times researcher noted that the lawsuit by HUIDA Sanitary Ware may date back to 2013. According to the announcement, on October 28, 2013, the Huangpu District people's Court of Guangzhou City (hereinafter referred to as Huangpu District Court) was sued by Shanghai Shenxie Trading Co., Ltd. (hereinafter referred to as Shenxie Trading Co., Ltd.), Wu Siguo, Hu Chenkang, Shanghai Huida Ceramics Co., Ltd. (hereinafter referred to as Shanghai Huida), Wu Zusheng contract dispute case, it was ruled that the Shenxie Company paid the steel company a total of 8.24 million yuan in payment and agency fees as well as liquidated damages. The defendant Wu Siguo and Shanghai Huida bear joint and several liability for liquidation.

On March 10, 2014, the Huangpu District Court also decided on the contract dispute between the iron and steel company v. Shanghai Lizhong material Co., Ltd. (hereinafter referred to as Lizhong Company), Ye Qijin, Wu Guifang, Shanghai Huida and Wu Zusheng, the defendant Lizhong Company was ordered to pay a total of 8.1 million yuan in payment and agency fees to the iron and steel company and liquidated damages, and Ye Qijin and Shanghai Huida were jointly and severally liable for guarantee.

After the judgment came into effect, the above-mentioned person subject to execution failed to perform his obligations, so the iron and steel company applied to the Huangpu District Court for compulsory enforcement, and in the process of execution, the iron and steel company applied to the court on the grounds that the company was suspected of withdrawing capital contribution. Request additional Huida Sanitary Ware as the person to be executed in the case.

According to Xinpi, Shanghai HUIDA was once a subsidiary of HUIDA Sanitary Ware holding Co., Ltd., which was established on November 12, 2003 with a registered capital of 20 million yuan. At the time of its establishment, the shareholders were Huida Sanitary Ware and Li Kaiyuan (former deputy general manager of a listed company), which held 90% and 10% respectively. On August 13, 2007, HUIDA Sanitary Ware transferred its 90% stake in Shanghai HUIDA to a third party, and has since ceased to hold its stake in Shanghai HUIDA.

With regard to the request of the iron and steel company, the Huangpu District Court ruled that the additional HUIDA Sanitary Ware as the person subject to the above-mentioned case should bear additional liability for the debt of Shanghai HUIDA within the range of 19.98 million yuan of withdrew capital contribution, and rejected other requests of the iron and steel company. However, HUIDA Sanitary Ware and Iron and Steel both filed an enforcement objection to the enforcement ruling. On January 25, 2021, the Huangpu District Court ruled that Huida Sanitary Ware should not be added as the person subject to execution.

The iron and steel company appealed to the Guangzhou Intermediate Court because it did not accept the civil decision. Recently, the Guangzhou Intermediate Court of second instance ruled that HUIDA Sanitary Ware should assume supplementary liability for the debts borne by Shanghai HUIDA within 15 days from the date of service of the judgment. According to the judgment of the second instance, according to the preliminary calculation of HUIDA Sanitary Ware, the net profit of this lawsuit is expected to be reduced by about 36 million yuan in 2021.

A researcher at the Investment Times noted that the company's three-quarter report showed that the company's estimated debt was 38.444 million yuan by the end of September 2021, an increase of 36 million yuan from 2.444 million yuan at the end of June. As the estimated liabilities belong to the liability category, the profits will not be affected in the current period. However, if the above case "settles down", it will inevitably have an impact on the profits of HUIDA bathroom.

Profit indicators are weakening

As one of the early enterprises engaged in the production and operation of sanitary products in China, HUIDA sanitary ware products include sanitary ware, ceramic tiles and integral sanitary ware, with "Huida" and "Dufini" two core brands. However, in recent years, the profitability of HUIDA bathroom is not ideal.

According to Wind data, from 2018 to 2020, the company's revenue was 2.9 billion yuan, 3.21 billion yuan and 3.218 billion yuan, respectively, an increase of 5.52%, 10.70% and 0.24% over the same period last year, while its net profit was 239 million yuan, 329 million yuan and 307 million yuan, with a year-on-year growth rate of 5.38%, 37.78% and-6.58%.

According to the third quarterly report of 2021, in the first three quarters of this year, the company achieved revenue of 2.839 billion yuan, an increase of 27.30% over the same period last year; net profit of 227 million yuan, down 1.54% from the same period last year; and net profit of 186 million yuan after deduction, down 4.32% from the same period last year. Judging from the data, the deviation between revenue growth and profit growth is becoming more and more obvious, while the weighted average return on equity during the period is 6.01%, which is also 0.65 percentage points lower than the same period last year.

According to profit indicators, in the first three quarters of this year, the net profit rate and comprehensive gross profit margin of HUIDA Sanitary Ware were 8.36% and 28.77%, respectively, down 2.12% and 4.66 percentage points from 10.48% and 33.43% in the same period last year. Even from the annual data, in 2019 and 2020, the two indicators were 10.79% and 33.03%, 9.86% and 31.33%, showing a downward trend.

Among the various expenses, except for sales expenses and financial expenses, the company's management expenses and R & D expenses increased to 202 million yuan and 125 million yuan respectively, an increase of 40.13% and 33.29% over the same period last year. The financial expenses are-610700 yuan, mainly because the interest income during the period exceeds the interest expenses, which is about 577900 yuan.

The Investment Times researcher noted that in the first three quarters, the net cash flow generated by the operating activities of HUIDA sanitary ware was-235 million yuan, down 145.60% from the same period last year. In response, the company said that it was mainly due to an increase in the payment of notes due and payable. In fact, since the beginning of this year, the cash flow generated by the company's operating activities has shown a continuous outflow, with a net outflow of 108 million yuan, 29 million yuan and 98 million yuan respectively in the first, second and third quarters, under pressure on the hematopoietic capacity.

In addition, it is worth noting that by the end of September 2021, the loan for the new growth period of HUIDA Sanitary Ware was 358 million yuan, while the debt index was zero in previous years. Lease liabilities and long-term payables also increased by 7.0448 million yuan and 3.6846 million yuan respectively, and the company's asset-liability ratio was 36.48 percent, an increase of 4.55 percent over the end of 2020. Judging from the data, the pressure on the company to repay debt has increased, the profit index has weakened, and it remains to be seen whether the year-on-year growth rate of net profit for the whole year can become positive.

Changes in year-on-year growth rate of revenue and return net profit of HUIDA Sanitary Ware in recent years (%)