Anxiety of ST Aokang, "the first stock of men's shoes": internal control failure and transformation dilemma

　　 21st Century Economic Reporter Zhu Yiyi reports from Hangzhou

After 12 years of A-share listing, the former glory of "China's first men's shoe stock" is no longer brilliant.

After the huge loss of 374 million yuan in 2022, ST Aokang (Rights protection) (603001. SH) In 2023, it did not reverse the decline and continued to lose 93 million yuan. In the first quarter of 2024, the company's performance did not improve, and its revenue and net profit decreased by 15.34% to 759 million yuan, and the net profit attributable to the parent company decreased by 44.66% to 23 million yuan.

In addition to the anxiety about the growth of the main business, the company's internal control problems are gradually exposed: because the actual controller of Aokang and its related parties occupy the funds of the listed company, the financial report of 2022 was issued with a negative opinion by the accounting firm, and the company wore the "ST" hat in April 2023.

On the evening of May 21, ST Aokang issued an announcement again reminding that the company's shares were subject to other risk warnings.

At the same time, ST Aokang and its controller, Wang Zhentao, were also investigated by the CSRC due to suspected information disclosure violations.

On May 16, the above investigation "boots" landed.

According to the Administrative Punishment Decision of Zhejiang Securities Regulatory Bureau, Wang Zhentao, the actual controller of Aokang, illegally occupied nearly 1 billion yuan of the listed company's payment for goods from 2021 to April 2023, and the company did not disclose the relevant information truthfully, accurately and completely in the financial reports from 2021 to the first half of 2023. In response, the listed company and its actual controller Wang Zhentao received a fine of 3 million yuan respectively.

　　 The actual controller occupies nearly 1 billion of the listed company's payment for goods

A "Decision on Administrative Punishment" issued by Zhejiang Securities Regulatory Bureau opened the scene of internal control chaos of Aokang.

It was found that from 2021 to April 2023, Wang Zhentao, the chairman and actual controller of Aokang, organized and instructed relevant employees to occupy the funds of the listed company in violation of regulations.

From 2021 to 2022, under the organization and arrangement of Wang Zhentao, Aokang transferred the company's funds through a third party to Wenzhou Ouhainan White Elephant Rufei Shoes and Clothing Store controlled by Wang Zhentao and Aoguang Shoes and Clothing Store in Yongjia County, which constituted the non operating capital occupation of the actual controller and its related parties.

Of which, the cumulative amount incurred in 2021 is 167 million yuan, accounting for 4.82% of the company's current net assets; The cumulative amount incurred in 2022 is 95 million yuan, accounting for 3.23% of the company's current net assets.

Not only that, from 2021 to April 2023, Wang Zhentao used the influence of the listed company to negotiate with dealers to let them remit the payment for goods to the bank accounts of Ouhainan White Elephant Rufei Shoes and Clothing Store in Wenzhou City and Aoguang Shoes and Clothing Store in Yongjia County under their control, resulting in a delay in the time for dealers to collect payment to the listed company. This act belongs to the transfer of resources or obligations between the listed company and related parties, and constitutes a related transaction.

Of which, the cumulative amount incurred in 2021 is 501 million yuan, accounting for 14.45% of the company's current net assets; The cumulative amount incurred in 2022 is 364 million yuan, accounting for 12.37% of the company's current net assets; The accumulative amount incurred in the first half of 2023 is 103 million yuan, accounting for 3.46% of the company's current net assets. It is calculated that Wang Zhentao, the actual controller of the company, occupies 968 million yuan of the listed company's payment for goods in total.

Based on this, Zhejiang Securities Regulatory Bureau believes that Wang Zhentao, the chairman and actual controller of Aokang, Wang Jinquan, the general manager, and Weng Heng, the secretary of the board and chief financial officer, should be mainly responsible for the above violations, and they should be fined 3 million yuan, 800000 yuan, and 800000 yuan respectively; In addition, listed companies also received a fine of 3 million yuan.

In fact, the violation of the actual controller of Aokang has been followed before.

At the beginning of 2023, Tianjian Certified Public Accountants audited the Company's 2022 financial report and issued a negative opinion, It mentioned that "the Company's actual controller and related parties have large amount of funds occupied by the Company, and the accountant cannot obtain sufficient and appropriate audit evidence on the accuracy and completeness of the funds occupied, the commercial essence of other capital transactions, and the impact of related transactions on the Company".

From April 27, 2023, the Shanghai Stock Exchange will implement other risk warnings on the company's shares, and the stock abbreviation will be changed from "Aokang International" to "ST Aokang".

Then, in June 2023 and March 2024, ST Aokang successively received two warning letters from Zhejiang Securities Regulatory Bureau, which revealed that "in 2022, Aokang Group, the controlling shareholder of Aokang, will occupy the funds of listed companies by borrowing from the company through its partners and dealers" "There are defects in the internal control related to fund payment and dealer management of listed companies, and the financial personnel of Aokang Group and listed companies are confused".

As for the process of Aokang Group's occupation of funds of listed companies, ST Aokang disclosed more details when replying to the inquiry letter of Shanghai Stock Exchange in June 2023.

According to the company's statement one by one, there will be 40 capital transactions between Aokang Shares and Aokang Group in 2022. From March 16, 2022 to November of the same year, the largest amount of capital will be 20 million yuan.

　　 Although the above occupied funds and interests have been returned, the related party transactions have been stopped, and Tianjian Certified Public Accountants has issued a standard unqualified opinion on the audit of the company's 2023 financial report, Aokang shares stressed that "no application has been made to the Shanghai Stock Exchange to revoke other risk warnings of the stock, and there is still uncertainty whether the approval of the Shanghai Stock Exchange can be obtained in the future."

　　 When is the company expected to take off the hat? On May 24, the reporter of 21st Century Business Herald contacted the relevant personnel of Aokang, who only said that "the relevant content shall be subject to the announcement information".

It should be noted that Wang Zhentao also controls another A-share pharmaceutical listed company Kanghua Biology (Rights protection) (300841. SZ), Kanghua Biology also disclosed the above-mentioned Administrative Punishment Decision in a recent announcement.

However, Kanghua Biotech stressed that "the subjects involved in the above administrative punishment decisions are Wang Zhentao, Aokang Shares and their related personnel, which have nothing to do with Kanghua Biotech and have no direct impact on the normal business activities and financial status of Kanghua Biotech."

　　 Transformation dilemma

Before the exposure of internal control problems, Aokang once had the aura of "the first Chinese men's shoes".

Aokang was founded in 1988 and has been established for 36 years. The company landed on the main board of Shanghai Stock Exchange in April 2012 and has been listed on A-share market for 12 years.

Unfortunately, listing is the peak.

In the year of listing, Aokang's net profit attributable to the parent company reached 513 million yuan, which can be called the peak of performance; Moreover, in terms of the domestic market share of leather shoes at that time, Aokang brand achieved a market share of 6.79% for men's shoes, ranking first, and 2.35% for women's shoes, ranking eleventh.

However, with the rising trend of leisure sports in recent years, the demand for sports shoes and leisure shoes has increased, which has impacted the market of traditional leather shoes to some extent.

According to the research data of China Economic Industry Research Institute, from 2016 to 2021, the output of domestic leather shoes dropped from 4.618 billion pairs to 3.524 billion pairs.

Wang Zhentao, chairman of Aokang, also sighed in an interview in 2017, "How many young people still wear leather shoes?"

Aokang, which is well aware of the difficulty of leather shoes business, began to expand the category of sports shoes and look for new growth points of performance.

The 21st Century Business Herald reporter found that in 2015, Aokang established a long-term strategic partnership with the American sports and leisure brand "SKECHERS", and obtained the right to expand the operation of SKECHERS brand stores in mainland China and the right to use SKECHERS and other logos.

Then in the second half of 2018, Aokang reached a strategic cooperation with the German fashion sports brand "Puma".

At present, Aokang has not only laid out its own brands "Aokang" and "Kanglong", but also operated agency brands "SKECH" and "Puma".

　　 In the transformation of the company's multi brand strategy, the income contribution of agent brands seems to be less than expected.

　　 From the perspective of revenue contribution, from 2019 to 2023, SKECH brand achieved revenue of 239 million yuan, 294 million yuan, 368 million yuan, 264 million yuan and 311 million yuan respectively, contributing only about 10% to the overall revenue.

　　 During the same period, Puma's income contribution was lower, and it was included in the list of "other brands".

　　 From 2019 to 2023, "other brands" including Puma achieved revenue of 97 million yuan, 120 million yuan, 127 million yuan, 145 million yuan and 171 million yuan respectively.

A shoe and clothing industry practitioner told the 21st Century Business Herald reporter that "young consumers pay attention to personality, fashion, comfort and functionality. The sports and leisure trend of the shoe and clothing industry in recent years is the embodiment of this demand."

Based on this, Aokang Group relaunched the track of men's leather shoes and explored to create "more comfortable men's leather shoes".

In December 2022, the company official announced Chen Weiting as the image spokesperson of Aokang brand, and launched Aokang sports shoes for the first time, launching three series of "breathable", "ten thousand steps" and "clouds".

In addition to expanding new categories, Aokang also made strategic investment abroad to boost its performance.

As early as 2015, Aokang invested in Lanting Jishi (LITB. US), a cross-border e-commerce listed company.

In June 2015, Aokang shares, through its wholly-owned subsidiary, Aogang International (Hong Kong) Co., Ltd., received about 24.55 million shares (including ordinary shares and American depositary shares) of Lanting Jishi in cash at about $77.34 million, accounting for 25.66% of the outstanding ordinary shares of Lanting Jishi.

Since then, through a series of actions such as issuing additional shares, share repurchase and employee exercise, Lanting Jishi has changed its shareholding ratio accordingly. By the end of 2023, Aokang indirectly held 24.55 million shares of Lanting Jishi, accounting for 11%.

However, the performance of Lanting Jishi, favored by Aokang, is not stable, and it will lose money from 2022 to 2023.

In this regard, in 2021, Aokang will withdraw 66.612 million yuan of impairment provision for long-term equity investment of Lanting Jishi; In 2022, Aokang will recognize investment income of -42.7173 million yuan to Lanting Jishi.

After various diversified attempts, Aokang still urgently needs to get out of the loss dilemma.

In 2022, Aokang suffered its first loss 10 years after its listing, and the net profit attributable to the parent company was 374 million yuan. In 2023, the company will continue to lose 93 million yuan.

In contrast, those who are both A-share listed companies of old brand shoes Red Dragonfly (603116.SH) In 2023, the company will turn losses into profits and realize a net profit attributable to the parent company of 52 million yuan.

However, they are both in the footwear industry Hassan Shares （603958.SH）、 *ST Tianchuang (603608. SH) also has troubles. In 2023, it will lose 500 million yuan and 30 million yuan respectively.