KPMG resigned as auditor the night before the 361 degree share price crash

 KPMG resigned as auditor the night before the 361 degree share price crash

This is in stark contrast to its August 20 share price performance, when it rose 24 per cent in a single day of 361 degrees, just before its mid-term results were announced. In the next three months, the stock price performance of 361 degrees was relatively stable. In this context, its todays slump has triggered many conjectures.

Some investors believe that the sharp decline of 361dus stock price today is directly related to its sudden announcement of auditor change. On the evening of November 13, 361du announced that due to the failure of KPMG and the company to reach consensus on the annual audit service fee for the financial year ended December 31, 2019, KPMG had resigned as the auditor of the company, and the board of directors decided to appoint Dahua mashiyun certified public accountants Co., Ltd. (hereinafter referred to as Dahua mashiyun) as the new auditor of the company Division, effective November 13, 2019, to fill a temporary vacancy after KPMGs resignation.

At present, there is no explanation for the 361 degree drop in the stock price. By the end of the trading day, its share price had risen to HK $1.35, and its decline narrowed to 15.63%. Its latest total market value was HK $2.791 billion, more than HK $500 million more than that of the previous trading day.

Share price plummeted after announcement of auditor change

As no more sensitive information has been released by 361d recently, investors who focus on 361d have directly linked todays share price plunge to their replacement auditors.

Although the public information did not disclose when the 361d company and KPMG started to cooperate, the reporter found that KPMG had been the auditor of the company as early as its listing in 2009. Therefore, the commercial marriage that the two sides have maintained for several years has suddenly come to an end. Is it the reason for the expenses as stated in the announcement, or is there another secret? For a while, all kinds of speculation in the market has been rampant.

Although it is common for listed companies to change auditors, there are still some sensitivities, which depends on the reasons for the change and the changes. Generally speaking, the common reasons for the change of listed companies (auditors) include the failure to reach an agreement on audit fees, or the auditors failure to issue or negative opinions due to accounting problems, etc. On the afternoon of November 14, a senior auditor told the international financial news that it is a common phenomenon to change auditors due to cost issues, which is also often used by listed companies as a general reason for disclosing relevant announcements.

There is evidence to follow. The reporter noted that as early as may 2019, global digital creative announced that KPMG had resigned as the auditor of the company because the contracting parties failed to reach an agreement on the audit fee for the year ending March 31, 2019.

Coincidentally, four months later, Aihua mortgage credit announced KPMGs resignation for the same reason.

If KPMG resigns as a 361d auditor only because of the cost, it is unlikely that it will be involved in the financial statements, which is also a common concern in the market, so the companys share price will plunge sharply. Shen Meng, director of Xiangsong capital, told reporters.

On November 14, the reporter of the international financial news contacted 361du and relevant KPMG (China) leaders respectively on the specific details of the service fee between 361du and KPMG. The company is not responding at this time. At noon on November 14, 361dus relevant leaders responded in this way. On the afternoon of the same day, KPMG (China) also told reporters that it was inconvenient to answer because of the customer information involved.

People who used to work for shorting institutions told the international financial news that in the United States, listed companies often change audit firms and are generally questioned. In the past, one of its concerns in studying a listed company was whether it had changed two auditors in the short term.

In fact, 361 degrees is not the only case that the stock price of an enterprise plummeted due to the change of auditors.

In October 2016, Hu Du, who is located in the middle and high-end mens wear market, announced that due to the query of the companys financial data, KPMG, its auditor, made an evaluation on the required expansion procedures and communicated with the company on the relevant costs. However, the two parties failed to reach an agreement on the audit costs in 2016. Under the recommendation of the audit committee, Kaiyuan Xinde certified public accountants Co., Ltd Replaced KPMG and was appointed as the new auditor of the company. The announcement revealed that in the morning of the next day, the share price of hudu fell by more than 14%.

In addition, Fengsheng holding, headquartered in Nanjing, has experienced a similar situation. On December 6, 2018, the board of directors of the company proposed to dismiss Ernst & young as the auditor of the group and appoint lo Bingxian Yongdao as the new auditor of the group on the grounds that it could not reach an agreement with Ernst & Young on the audit fee in 2018. However, at that time, the insiders believed that the companys removal of the groups auditor at the key node in the early stage of performance disclosure might be due to abnormal business conditions. For this reason, its share price fell for several consecutive trading days, with a drop of nearly 20% in the month.

361du is in transition

361du is one of the representatives of Chinese sports brands. As early as 1983, its predecessor, Huafeng shoes factory, was established. In 2009, after overcoming the financial crisis and the lack of experience in the capital market, 361 degrees sounded the listing bell on the Hong Kong Stock Exchange and became another Jinjiang shoe company going to Hong Kong for listing.

Although it started in Jinjiang like Anta, the market performance of 361 degrees is far behind that of the latter. In 2018, 361 degree achieved revenue of about 5.187 billion yuan, an increase of 0.6% year on year; operating profit of about 782 million yuan, a decrease of about 20.85% year on year; equity holders should account for profit of about 304 million yuan, a decrease of about 33.48% year on year. By the end of 2018, 361du group has opened 5539 core brand stores. In the first half of this year, 361dus performance improved, with a turnover of about 3.237 billion yuan, a year-on-year increase of 7.3%; gross profit of about 1.323 billion yuan, a year-on-year increase of 5.3%; and equity holders should account for about 367 million yuan, a year-on-year increase of 9.7%.

Antas stride is very big. In 2018, Anta sports business revenue increased by 44.4% year-on-year to 24.1 billion yuan; net profit attributable to shareholders of listed companies increased by 32.9% year-on-year to 4.1 billion yuan. This is Antas fifth consecutive year of double-digit performance growth. In the first half of this year, Antas revenue increased by 40.3% to 14.81 billion yuan, while shareholders share of profit increased by 27.7% to 2.48 billion yuan.

Some insiders told the international financial news that compared with Antas buy buy buy expansion strategy, 361 degrees used to be more cautious in business layout and relatively conservative in brand investment.

At present, among the Hong Kong listed sports brands including Anta, Li Ning, Tebu and China trend, the market value of 361 degrees is at the end.

In fact, in order to seek further development, 361du has started to transform and reshape its brand. Before that, it announced the project of basketball entering the community, and planned to build a basketball playground in the community in multiple first and second tier urban communities, as well as a professional coach team for young basketball fans. According to the previously announced plan, 361du will achieve the target scale of 1000 basketball courts in the next three years.

Zhu agile, senior vice president and chief marketing officer of 361du group, said in an interview with the international financial news that 361du would provide consumers with an integrated experience platform, while basketball is only the first step. Next, it may try a similar layout in running, training, football and other fields. First, I firmly believe that the Chinese market needs a local sports brand with high cost performance and popular with mainstream consumers. Second, the future sports consumption is a very comprehensive sports consumption. China has great potential in this respect. Dont just focus on shoes and clothes, and being a platform that can provide consumers with overall experience is also one of the development directions.

At present, it is difficult to judge whether the stock price collapse on November 14 will bring some impact on the 361 degree business operation.

(international financial news reporter Chen Xiaofei and Ma Yunfei)

Source: editor in charge of international financial news: Yang bin_nf4368