ESG Negative List Sample Observation: Huifeng Shares "Capital Trust Crisis"

Nanzhi think tank, twenty-first Century economic report, southern responsibility investment action research team launched the ESG survey of listed companies. Based on the three dimensions of environment, social responsibility and corporate governance, the evaluation system of A share listed companies was formulated respectively. 100 positive observation lists and 20 negative observation lists were formed respectively.

This period focuses on 002496.SZ, which focuses on environmental negative observations, and explores the secrets of its value trends.

In the first half of March, faifeng shares just announced that it had received the approval of the government of Yancheng City for the resumption of production, and agreed that some of its products should be resumed. The specific products included 3000 tons of prochlorazine per year, an annual output of 1000 tons of two tiennong crude drug projects, an annual output of 1000 tons anti lodging ester project and so on.

It was nearly two years after 2018, when the company was punished by the environmental protection department.

"After being punished, the company has been rectify for a long time, and environmental protection has been investing." In March 27th, the relevant person in charge of Huifeng shares responded to an interview with the economic report reporters in twenty-first Century.

Along with environmental indicators, the information disclosure of Huifeng shares is also illegal.

"The capital market will eventually premium the ESG rating of the best listed companies, and the ESG investment concept is highly consistent with the long-term value investment concept." Wang Deying, deputy general manager of Boshi fund, said in an interview.

A body escaping from the big play

Hui Feng trading partner A (000553.SZ) gave feedback from the twenty-first Century economic report that the regulation of environmental issues is a prerequisite for cooperation between the two sides.

"The acquisition of Huifeng subsidiary is partly due to its strong production strength and R & D capability on several important raw materials, and on the other hand, its business advantages in China are conducive to the rapid expansion of our domestic business." In March 27th, a person told a business reporter in twenty-first Century.

"Hui Feng's environmental problems are also being rectify according to the requirements, which is actually one of the prerequisites for the acquisition of related assets." The source pointed out.

This also means that environmental issues will have a long-term impact on the sustainable operation of listed companies.

According to the reporter's statistics, the environmental problems brought about not only the market value of Huifeng's share but also the gradual decline of investment institutions.

In February 28, 2018, Huatai Securities pointed out that the company's performance in 2017 was in line with expectations, and at the same time maintained the "overweight" rating on Huifeng holdings.

This is the last report of the seller's organization before the outbreak of "environmental protection gate".

Earlier in 2017, Huatai Securities, Northeast Securities, CITIC Securities and many other institutions issued a tracking report on Huifeng shares, giving "buy" or "overweight" rating.

The story did not run according to the planning of the seller's organization.

In March 2018, Huifeng shares were exposed by the media that its wholly owned subsidiary, Huatong chemical, stopped production because of environmental problems. Subsequently, the company said in its initial response that Huatong chemical was only temporarily suspend production, and the chairman and the executives were only following the investigation.

Subsequently, the Ministry of ecology and environment announced that all the problems of Huifeng share were put on the stage. At that time, according to the Ministry of ecology and environment, according to the report of the masses, the inspector group of the Ministry of ecology and environment organized a special inspection of the serious environmental pollution and the ineffective rectification of the central environmental protection inspector in mid and late 3 2018. Inspectors directly pointed out that the environmental violations of Huifeng shares were serious. It includes illegal disposal of hazardous waste, illegal transfer and storage of hazardous waste, long-term discharge of high concentration toxic and harmful waste water, and abnormal operation of pollution control facilities.

Another problem that caused widespread concern in the market is that, in response to the on-site inspection by the inspectors, Huifeng shares also temporarily made up the accounts of hazardous waste management and provided false statements.

Twenty-first Century economic report combing reporters found that, starting in March 7, 2018, Huifeng shares price down all the way, until April 25, 2018 reached the low point of this round of decline. In April 25, 2018, Hui Feng shares closed at 3.02 yuan, the stock price fell more than 40% compared with the closing price of 5.26 yuan in March 6th, and its market value shrank by more than 3 billion yuan.

The trigger factor at that time was Huifeng company because of the environmental problems, some workshops and subsidiaries were shut down for rectification, and many times received enquiries from the Shenzhen Stock Exchange, and the company and related executives were all punished by the environmental protection department. Subsequently, on suspicion of illegal disclosure of information, Huifeng shares were investigated by the SFC.

Investment institutions are scrambling to escape. At that time, a billboard data showed that an institutional seat sold 16 million 98 thousand and 800 yuan, and the overall net sales reached 57 million 578 thousand and 800 yuan.

Judging from the market value index, in the beginning of 2018, the market value of Hui Feng shares was about 10 billion yuan, and then went to dark for two years. According to the latest data, the market value of Hui Feng shares has been less than 4 billion yuan, and none of the top ten tradable shareholders has an institutional investor.

In recent years, A share market listed companies frequently explode, most of which are related to the financial fraud of listed companies, the personal integrity and integrity of executives, and the inadequate handling of corporate environmental protection. These problems are precisely the focus of ESG. Yang Yuebin, a fund manager of AXA, pointed out.

Missing environmental protection

Huifeng company is a pesticide enterprise with the capacity of producing synthetic raw materials, processing and compound preparations. It is a leading R & D and industrialization base for raw materials such as raw material, raw material, bromo benzonitrile and fluorozolium. The main products include pesticide herbicides, insecticides, fungicides and preparations, crop regulators, microbial agents and other varieties.

"ESG investment philosophy is consistent with the return on investment. For enterprises, if there are problems in ESG, such as financial problems, governance imperfections, various irregularities and so on, will eventually lead to the risk of enterprise operation, which will lead to fluctuations in stock prices. Environmental factors are an important indicator of ESG investment. Companies that appear on the negative list of environmental protection will inevitably be excluded from the pool of investment targets. Southern China, a large public fund investment director, said.

In fact, in terms of environmental violations, Huifeng shares can be regarded as "incorrigible".

According to the disclosure of the Ministry of ecology and environment in April 2018, since 2013, the Party committee government and its environmental protection department of Yancheng City and Dafeng District, where Huifeng shares are located, have received more than 130 letters and calls from senior management offices or people directly reporting environmental pollution problems in Huifeng company.

In 2016, the central environmental inspection team was also stationed in Jiangsu to hand over the masses who reported the pollution problem of Huifeng company, which violated the high concentration of waste water and illegally discharged them in rainy days. In December 2017, there were reports from the public that the hazardous waste of illegal landfill was excavated in the factory of Huifeng company, but it was not investigated and dealt with according to law. In January 2018, the people continued to report that the company used the storm in 2017. The situation of rainwater stealing high concentration wastewater.

In the end, in March 2019, the people's Procuratorate of Dongtai city of Jiangsu province filed a public prosecution because of the existence of illegal activities in the environmental protection incident and the crime of polluting the environment. Huifeng shares and 6 related personnel were prosecuted.

In fact, the current ESG provisions have been written into the relevant rules of listed companies, and the information disclosure requirements for ESG are also being gradually promoted. Many companies in the A share market have voluntarily disclosed the annual social responsibility report. ESG has also become an important investment reference index for many large investment institutions.

Against this background, the problem brought by the ESG principle is more prominent.

Feedback from investment institutions shows that listed companies with high ESG ratings have a positive positive effect on market value management and attracting long-term and foreign investors.

"The concept and vision of ESG responsible investment has been widely recognized by top financial regulators and regulators in China. Not only do international investors take the ESG factor into consideration when they invest in China's stock market, but domestic social security, pensions and other large financial institutions also want to use ESG as a new dimension to assess the listed companies being invested. Wang Deying, deputy general manager of Boshi fund, told the twenty-first Century business reporter.

Performance gap appears

"According to the relevant regulations of the state, it is necessary to meet the requirements before resuming production." In response to the twenty-first Century economic news reporter's interview, the above Hui Fung shares stressed.

The matter originated in 2018, and the pollution problem of Huifeng company was punished by the environmental protection department.

Over the past two years, the impact of environmental penalties on shutdowns has been revealed in the operation of Huifeng company.

Not long ago, the 2019 performance forecast of Huifeng shares showed that in 2019, the company achieved operating income of 1 billion 226 million yuan, down 51.32% from the same period last year, and realized a net loss of 350 million yuan attributable to shareholders of listed companies.

The workshop is still the biggest black swan.

Huifeng shares said that during the reporting period, the central heating in the park was suspended in April 18, 2019. The company temporarily stopped production of the original drug synthesis workshop which had been resumed in the early stage. At the end of the reporting period, the company's original drug synthesis workshop and some subsidiaries were still in a state of discontinued production, and the time of production was far beyond expectations.

"In 2019, we have already lost money. We can only say that we are doing well in 2020. We are definitely heading towards the direction of full recovery." Aforementioned Hui Feng shares said.

In fact, since the implementation of the production stoppage in the first half of May 2018, the preparation workshop has resumed production in September 26, 2018 and November 19th, and 8 of the 5 original products have resumed production in January 3, 2019.

In April 18, 2019, the original production workshop resumed in January 3, 2019 was shut down again.

In fact, despite the announcement of the March 3rd Huifeng company's announcement that some of the original products of the company had been resumed for production, there were still some parts of the company that had not yet resumed production, including the three subsidiaries of Jiangsu, including the Jiangsu Biotechnology Co., Ltd., Jiangsu Jialong Chemical Co., Ltd. and Lianyungang Zhicheng Chemical Co., Ltd.

The three subsidiaries were declared to be closed down in 4 and May of 2018.

Judging from its performance in 2018, Huifeng shares achieved a profit of 2 billion 519 million yuan, a year-on-year decline of 36.25%, and a net loss of 547 million yuan to the parent company. This is also the first loss year since the listing of Huifeng company.

Due to environmental protection, production and other reasons, the original value of the scrap and disposal fixed assets in 2018 was 181 million yuan, the net value was 74 million 836 thousand yuan, the provision for impairment was 144 million yuan, and the construction project also made provision for impairment reduction of 87 million 408 thousand and 700 yuan.

"During this period, the company has been upgrading according to the requirements, and has also increased investment. Now there are some workshops that need further rectification, such as plant and facilities." Huifeng shares responded.

Tracing back to the 2018 annual report, Huifeng shares also indicated that the company belongs to the pesticide industry, and pesticide production enterprises will produce waste water, exhaust gas, solid waste and noise in production and operation. But the company attaches great importance to environmental protection, and has relatively perfect environmental protection facilities and management measures. In recent years, the company has made great efforts to develop cleaner production and recycling economy and increase investment in environmental protection facilities.

This contrasts with the behavior of Huifeng shares repeatedly touting the environmental red line.

Today, Huifeng shares have been losing money for two consecutive years in 2018 and 2019. What lies ahead is the fate of risk warning and "wearing hat".

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