Falsely inflated profits by over 85 million yuan! Dahua Intelligent and related responsible persons face fines exceeding 17 million yuan; next week they will be labeled "ST"

On February 27, Dahua Intelligent announced that the company and relevant responsible persons received a “Preliminary Administrative Penalty Notice” issued by the Fujian Securities Regulatory Bureau.

This notice revealed recent vulnerabilities in Dahua Intelligent’s information disclosure and financial accounting: the company not only concealed a major equipment transaction worth nearly 800 million yuan for a long time but also artificially inflated profits by 85.76 million yuan in the 2023 annual report, accounting for nearly a quarter of the total profit for that period.

The Fujian Securities Regulatory Bureau plans to issue warnings to Dahua Intelligent and five key executives, including the company’s chairman, and proposes fines totaling 17.8 million yuan.

On the same day, Dahua Intelligent stated that its stock will be suspended for one day starting from the market opening on March 2, 2026 (Monday), and will resume trading on March 3 (Tuesday). After resumption, the company’s stock will be officially subject to “Other Risk Warning,” and the stock abbreviation will change from “Dahua Intelligent” to “ST Dahua.”

85.76 Million Yuan Profit Inflation in 2023 Annual Report

According to the investigation by the Fujian Securities Regulatory Bureau, Dahua Intelligent’s information disclosure and financial reporting have serious “black holes” in the books.

First, on December 2, 2021, Dahua Intelligent’s controlling subsidiary, Fujian Fumi Technology Co., Ltd. (“Fumi Technology”), signed a “Fujian Fumi Technology Co., Ltd. Fume Display Material Bonding Project Equipment Sale and Purchase Contract” with Kunshan Zhiqimei Material Trading Co., Ltd. (now renamed Kunshan Hengxuan Trading Co., Ltd.).

The contract stipulated that Fumi Technology would purchase polarizer automatic bonding machines and glass substrate cleaning machines, with a total amount of about 795 million yuan, accounting for 58.57% of Dahua Intelligent’s latest audited net assets. On August 15, 2023, the parties signed a supplementary agreement to terminate the contract.

According to relevant regulations, Dahua Intelligent should have disclosed this major contract and its progress in a timely manner, but the company has not done so to date.

More seriously, Dahua Intelligent made false statements in its 2023 annual report. Investigations showed that, without transferring control of subsidiaries Zhongshan Desheng Financial Leasing Co., Ltd. (now renamed Zhongshan Dezhi Enterprise Management Co., Ltd.) and Qingdao Rongjia Safe Printing Co., Ltd. (now Qingdao Rongjia Real Estate Management Services Co., Ltd.), Dahua Intelligent prematurely recognized disposal gains from these subsidiaries. This alone caused the 2023 annual report to artificially inflate profits by about 61.12 million yuan, accounting for 17.33% of the total disclosed profit for that period.

Additionally, the Fumi Industrial Park Fume Display Material Bonding Project did not promptly transfer fixed assets, and the Fumi Module Project failed to properly account for project suspension and land sales, resulting in an overstatement of profits by approximately 24.65 million yuan in the 2023 annual report.

In total, these two major violations led to a cumulative profit inflation of about 85.76 million yuan in the 2023 annual report, representing 24.32% of the company’s disclosed total profit for that period.

Facing Over 17 Million Yuan in Total Fines

The Fujian Securities Regulatory Bureau determined that Dahua Intelligent’s actions涉嫌违反证券法. Based on relevant laws and regulations, the bureau plans to order the company to correct its violations, issue a warning, and impose a fine of 6 million yuan.

Meanwhile, the company’s core management faces personal fines totaling 11.8 million yuan.

Specifically, Chen Rongsheng, then Chairman and General Manager of Dahua Intelligent, was warned and fined 3.5 million yuan for signing major contracts and supplementary agreements without proper disclosure and failing to organize accurate financial accounting for subsidiary disposals and projects; Zhang Gaoli, then Director, Deputy General Manager, and Board Secretary, was warned and fined 2.8 million yuan; Wang Jingyu, then Director and Chief Financial Officer, was warned and fined 2.5 million yuan; Zeng Zhongcheng, then Director and General Manager, was warned and fined 2.2 million yuan; Huang Qiqing, then Independent Director and Chair of the Audit Committee, was warned and fined 800,000 yuan.

In addition to the hefty fines, Dahua Intelligent stated that, according to the “Shenzhen Stock Exchange Listing Rules,” because the facts stated in the China Securities Regulatory Commission’s Administrative Penalty Notice show that the company’s disclosed financial indicators in the annual report contain false records, the Shenzhen Stock Exchange will implement “Other Risk Warning” on the company’s stock.

Dahua Intelligent’s stock abbreviation will change to “ST Dahua.” To facilitate this process, the company’s stock will be suspended for one day on March 2, 2026, and will officially resume trading with a “帽子” (risk warning) on March 3.

The company stated that on January 24, 2025, it held a board and supervisory meeting to approve the correction and retrospective adjustment of previous accounting errors, and has retroactively adjusted relevant financial statements.

Dahua Intelligent promised that once conditions are met, it will promptly apply to the Shenzhen Stock Exchange to lift the “Other Risk Warning.” “The company will take this as a warning, learn from the lessons, strengthen internal governance, improve compliance awareness among directors and senior management, enhance risk prevention, strengthen business monitoring and financial management, further enforce internal control systems, continuously improve operational standards, improve information disclosure quality, and genuinely safeguard the legitimate interests of the company and all shareholders.”