High growth tu Yu bottleneck in Oriental Gardens: 5.1 billion inventory puzzle to be solved

Words like their people. Sometimes financial statements, like words, reflect the character and appearance of the person who wrote it. In recent years Oriental Garden (002310.SZ) The performance of the hurricane, as the company chairman He Chao General high profile. However, three quarterly reports show that the third quarter of this year's net profit fell by 72%, making accustomed to the company's high growth investors surprised. However, some insiders believe that the company's performance beyond the normal growth after Tu yu "bottlenecks", carefully combed after a few accidents, and in anticipation. Those aged raking 2010.5 annual report to 2014.5 Annual report, Oriental Garden 1-6 months of sales revenue from 549 million yuan, grew to 2.296 billion yuan, Rose 4 times times; however, the closing inventory balance was from 590 million yuan, increased to 5.487 billion yuan, increasing by more than 9 times times. For the industry, the stock of 45% of the company's total assets buried in the inventory, I am afraid is not able to be used for future recognition of income and achieve profits of the "Honey", and may be "landmines." April 2013, Lanzhou New area second Lake Land was awarded the award of Quality engineering, Lanzhou City Landscape Association will be "Quality Engineering Award" awarded to by the Oriental Garden construction of the new zone, Lake second project. According to the Lanzhou Evening News, Lake second, Lanzhou, was completed in April 2013. The Oriental Garden Bulletin also showed that the project was completed in 2013. However, the project Progress Bulletin as at October 27, 2014 shows that the project still has 114 million inventories-the outstanding balances that have been completed. Less than a year of normal settlement cycle, has been six months late. (The settlement, as stated in this article, refers to the settlement and is listed as accounts receivable, not payment settlement) financial professionals in the "First financial daily" reporter interviewed, said that if the Oriental Garden Lanzhou second Lake project is only a few delays, then, the company nearly three years still outstanding inventory, I'm afraid the risk is not just a matter of losing time value. With the Oriental Garden 2012 on the completed Zhuzhou Shennong City project as an example, the company in the project to confirm the total income of 529 million yuan, the total contract amount of only 420 million yuan, the cumulative settlement of 422 million Yuan, party A has paid 418 million yuan. As far as the settled part is concerned, the basic debts have been owed. But 106 million of inventories are still on the books, and in the end of 2012 to October 27, 2014, nearly three years later, the accounts were kept in stock, motionless. and Zhuzhou Shenlong City project completed the same, there are Datong's Wen Yinghu project. At the end of 2012, the Oriental Garden in the Datong Yinghu project, there are 287 million yuan inventory has not yet settled, this figure in the inventory of the Sanchen quarter, until October 27, 2014 announced the project progress, has not increased, also never reduced. So the question is, for the garden industry, what is the normal settlement cycle? The answer to this question can be found in the company bulletin: the general process of settlement needs to be 3-6 months, and the final settlement of the project by the Supervision Unit audit, Third-party Audit, Financial Department audit confirmation process, the entire settlement cycle of six months to one year (see Oriental Garden 2013Project progress announcement for the year October 15). The three projects cited above have exceeded the company's own definition of a six-year normal settlement cycle. Lying in inventory for a long time? In particular, it is necessary to point out that the construction of engineering enterprises in the inventory, the particularity of its financial treatment lies in the completion of the progress of the settlement of income and costs, but not with party A or the owner of the settlement procedures, can not carry forward as accounts receivable, inventory does not with the income and cost of The steps are as follows: first, according to the actual cost of the collection of construction costs, included in the inventory, and then in accordance with the completion of the progress of recognition of income, fees, contract margin; Oriental Garden Financial Statements Note also notes that the company determines the percentage of completion of the construction contract based on the proportion of the actual contract cost incurred to the contract, and when the contract construction content changes, resulting in a change in the expected gross income and projected total cost, the company will adjust the estimated gross income and estimated total cost, And to calculate the percentage of completion according to the adjusted amount, adjust the operating income and operating cost that should be confirmed during the current period. In accordance with the current accounting standards and the notes mentioned above, inventories of the three items are already reflected in income and profits on the one hand, but on the other hand, they are not reflected in the accounts receivable. A registered accountant, who declined to be named, pointed out that the project construction enterprises, long-term ledger inventory of three kinds of possibilities: one is due to the cause of party a (or the owner), the project settlement schedule is really slow, resulting in the project settlement is not up to completion time, which is normal. However, if the ledger time exceeds the normal settlement time in the industry, it is an anomaly. In another case, the construction party thinks that the cost and revenue incurred are the same, but party a or the owner does not accept the settlement formalities, that is, there are objections or disputes between the two parties; the last one is that party A or the owners do not know this part of the cost of existence, how to settle? In other words, construction enterprises unilaterally increase income and profits, long-term ledger in inventory. This part of the inventory is a virtual increase in assets, which is currently the common international accounting standards and China's current accounting standards of a disadvantage. If an enterprise uses this loophole to manipulate the financial statements, it appears to be just a virtual increase in assets that will only affect the balance sheet, but in fact, there is a huge risk to the profit statement. This is somewhat similar to the company's delay in the construction of the project into fixed assets, because carried forward as a fixed asset, each year to mention depreciation, thereby devouring profits, resulting in the financial statement book ugly. Obviously, the latter two situations make the inventory face a huge risk of price depreciation. For the second case, the construction party has incurred the cost and cost, but the other side is not admit, the final result may be all accounting for impairment of assets loss; For the third case, the construction party needs to flush back the income, cost and profit. In either case, the Oriental Garden, which has a 5.1 billion-dollar unfinished stock, is probably a hit. For the above items ledger inventory situation, Oriental Garden Dong Li Donghui in the "First financial daily" reporter in an interview, said the company should wearDisclosure has been disclosed, and for the depreciation of the preparation, he said "he is not a professional financial staff", unable to respond. Those things in the profit statement. According to the latest project progress announcement of the Oriental Garden of October 28, 2014, the key projects completed before the end of 2012, including the above two projects, total 20, totaling 879 million yuan inventory outstanding, including the above Datong Yinghu project 278 million Yuan, Zhuzhou Shenlong City Project 106 million yuan, Datong East wall Project 43 million yuan, Shandong Binzhou Garden 39 million yuan, etc. (incomplete statistics), inventory balance in the last three years has not changed. As of the first half of 2014, as much as 5.1 billion yuan in inventory (completed outstanding part), the company accumulated only 10.42 million yuan depreciation prepared. (All 2013 years) how the inventory of completed and outstanding projects should be prepared for depreciation, the company describes this in the notes to the financial statements: at the end of each period, the company carries out a value-reduction test for the completed and outstanding project items, estimating the final settlement amount based on the latest evidence obtained, If the latest evidence estimates that the amount of settlement is less than the amount of the project cumulative recognition revenue, then the estimated difference will be reduced to the current operating income, on the contrary, do not do the accounting treatment. For items that have not been reduced to the above test and have not been settled for more than 2 years, they are prepared according to the aging method. The above projects have not been settled, is there any evidence that the settlement amount should be less than the cumulative confirmed revenue? If so, the Company shall, in accordance with the corresponding difference, reduce the current operating income and profits; Even in accordance with the age of accounting, only 879 million of the inventory age has been more than 2 years, according to the 2-3-year age, the proportion of 10%, the company should also be accounted for more than 80 million asset impairment losses, not to mention the company's inventory balance has reached 510,000 yuan. Oriental Garden 2014 Three Quarterly quarterly was surprised, net profit fell 72% year-on-year. Carefully comb the report, the company's operating income has not slipped, there is also a micro-rise, the decline in profits in addition to operating costs growth of 15%, three costs (sales costs, management fees, financial costs) year-on-year growth of 28%, the most important thing is that the current period of assets impairment losses compared with the same period last year rose 112%. Quarterly reports show that the three quarter of this year, Oriental Garden, the loss of assets to reduce the value of a record of 58.66 million yuan, and the company's net profit in the quarter is only 52.11 million yuan. According to the company's interpretation, the loss of impairment of assets is not derived from the stock price is not prepared, but from the accounts receivable bad debt preparation. Data show that up to the end of June 2014, Oriental Garden Accounts receivable the largest customer for the Datong Garden Authority, the arrears of nearly 500 million yuan, accounting for the total amount of accounts receivable 13.53%. If combined with nearly three years of outstanding inventory of 287 million yuan, Oriental Garden to Datong Garden Authority accounts receivable will reach 787 million. Interestingly, October 15, 2014, the company issued a three-quarter performance forecast revision announcement, 2014 1-SeptemberThe net profit of the shareholders of the listed company was increased from 10% to 30%, which was revised to fall -20%-0. On the same day, Shanxi Province Inspection Commission announced Datong party committee secretary Fenglixiang was investigated. July 2011, Datong Urban Landscaping Construction Management Service center to tender for the second phase project of Wen Yinghu landscape construction. But in fact, as early as May 2010, the Oriental Garden has announced the "Winning results." May 2010, Oriental Garden Bulletin said, and Datong signed 1.2 billion of the Yinghu landscape construction project, which mentioned that the contract total area of 4 million square meters, of which a 800,000 square meters, that is, although pretending to tender in 2011, but Wen Yinghu two period of more than 3 million square meters green project contract, As early as May 2010, it has been designated to the Oriental Garden. (Edit: Yujia)