Losses exceed 1.3 billion! Tianhai Defense is drifting further and further away

From a profit of 164 million yuan in 2017, representing a year-on-year increase of 1.11%, to an estimated loss exceeding 1.3 billion yuan in the first three quarters of this year, in just nine months. In 2017, the annual operating revenue was 1.484 billion yuan, while the total operating revenue in the first half of this year was 589 million yuan. This means that the company's losses so far this year are estimated to exceed its total annual operating revenue. This loss is absolutely beyond imagination. This is the performance report of China's first listed shipbuilding design company - Tianhai Defense.

Net profit forecast loss of 1.35 billion in the first nine months

On October 12, Tianhai Defense released a performance forecast, predicting that the net profit attributable to shareholders of the listed company from January to September 2018 will be between -1.354 billion and -1.349 billion yuan, representing a year-on-year change of -1045.00% to -1041.60%. The average net profit growth rate of the national defense and military industry is 27.73%.

The announcement states that the company made the above prediction based on the following reasons: During the reporting period, the company conducted a comprehensive assessment of its operating conditions for the first three quarters of 2018 and, based on the principle of prudence, conducted relevant accounting treatments. The details are as follows:

The company has made significant impairment provisions for goodwill of its wholly-owned subsidiaries, Jinhaiyun and Wokin Natural Gas (including Jieneng Transportation).

Based on the performance forecasts of the above subsidiaries and the latest situation in the third quarter, Jinhaiyun and Wokin Natural Gas (including Jieneng Transportation) have been affected by financial difficulties and policy environment, and the market conditions have not improved. Jinhaiyun and Wokin Natural Gas (including Jieneng Transportation) have not seen significant improvement in performance. Therefore, the company has re-tested the goodwill impairment and, out of caution and based on the test results, has made accounting adjustments. Among them, Jinhaiyun made impairment provisions of approximately 700 million yuan, and Wokin Natural Gas (including Jieneng Transportation) made impairment provisions of approximately 220 million yuan. 。

Impairment losses on some major contracts

1. Due to the impact of the financing environment on the 28,000 CMBLNG transport vessel design and construction general contracting project signed with Dalian Yintai Shipping Co., Ltd., the shipowner's project financing has not been finally resolved. Based on management's judgment, there is a risk that project payments may not be received as scheduled. Out of caution, accounting treatment was applied, resulting in an impairment loss of approximately 158 million yuan.

2. The DJHC8008 and 8009 vessels have been delivered. Although the shipowner has obtained a lease, due to the impact of the financing environment, the shipowner's project financing has not been finally resolved. Based on management's judgment, there is a risk that project payments may not be received within the contract period. Out of caution, accounting treatment was applied, resulting in an impairment loss of approximately 170 million yuan.

3. The project under the contract "CONSTRUCTION OF ONE (1) SELF-ELEVATING LIFTBOAT" signed with Centaur Marine Limited has been suspended due to reasons related to the shipowner, and there is currently no substantive progress. Based on management's judgment, there is a risk that the project cannot be implemented. Out of caution, accounting treatment was applied, resulting in an impairment loss of approximately 60 million yuan.

Bizarre reasons for losses

Tianhai Defense's explanation for the losses is as follows:

1. Ship and marine design business: Insufficient order intake in 2016 and 2017 affected the company's performance.

EPC business: Delays in the delivery of some projects led to increased costs. Also, the aging of some accounts receivable led to impairment losses, affecting the company's performance.

2. Defense equipment and related businesses:

1. Changes in military procurement methods. Highly competitive bidding accounts for the majority of procurement, resulting in a decrease in the company's single-source product orders, leading to a decline in performance. To date, Jinhaiyun's single-source product orders in the first quarter of 2018 were 14.4396 million yuan, and no single-source product orders were received in the second quarter.

2. Affected by market changes, with the deepening of military reforms, some of the company's original customers were reorganized and merged, and the company failed to obtain relevant orders, leading to a decline in performance.

3. Affected by market and industry changes, some of the original customers were reorganized and merged, resulting in delays in related orders, leading to a decline in performance.

4. The increase in military-civilian integration policies and the further opening up of civilian participation in the military. After the policy relaxation, the number of enterprises obtaining military product qualifications has gradually increased, and the number of enterprises participating in military product competition has relatively increased, leading to more intense market competition, resulting in a decline in Jinhaiyun's performance.

5. Due to the company's financing difficulties, in the first half of 2018, the company withdrew 272 million yuan from Jinhaiyun. The lack of working capital has had a certain impact on production and product delivery.

3. Clean energy business:

1. Affected by the macroeconomic situation, the tight capital chain of end users led to operational difficulties, a decrease in gas demand, and arrears from some customers. After repeated negotiations with relevant customers, Wokin Natural Gas terminated the gas supply business with these customers to avoid further advances.

2. Due to fierce competition in the gas supply market, and the company's inability to secure low-priced gas sources due to financing problems, negotiations with end customers on price increases were extremely difficult. After the price increase for end customers, some customers chose to no longer fulfill the original gas supply contract, resulting in further losses for the company.

3. Due to government environmental protection policies, some customers relocated, resulting in losses for the company. The development costs of some newly cultivated customers of Wokin Natural Gas were settled in 2018. Considering the company's financing difficulties, Wokin Natural Gas adopted a cautious attitude towards new development projects and reduced the business layout of some new projects.

Cross-border mergers and acquisitions costing over 2.5 billion yuan, dreams fading away