Hunan Huasheng Share's Acquisition Target Company's Multiple Financial Issues Receive Accountant Verification and Explanation

Tianjian Certified Public Accountants recently conducted a prudent review of the financial matters involved in the inquiry letter regarding the application of Hunan Huasheng Co., Ltd. for issuing shares and paying cash to acquire assets, as well as raising supporting funds and related-party transactions, and issued a special explanation. This explanation provides detailed responses on various aspects, including the target company Shenzhen Yixin Technology Co., Ltd. (hereinafter referred to as “the target company”)’s history, revenue recognition, customers and revenue, procurement, costs and gross profit margin, accounts receivable, liquidity, non-current assets, other financial issues, Dongguan Huoqi, and other matters.

Litigation Status of the Target Company and Its Impact

As of the date of the explanation, the target company is involved in 7 litigation cases. Among them, a service contract dispute (involving 31.9376 million yuan) where the target company filed as plaintiff against Yun Guang Internet and its shareholders has been judged in the first instance, requiring the defendant to pay 23.0395 million yuan plus penalties, but the defendant has appealed. Another case where China United Network Communications Co., Ltd. Wuhan Branch sued the target company has been withdrawn. The remaining five cases are in the first instance, either not yet heard or pending judgment.

Consolidated quantitative estimates show that if all the above lawsuits are lost, the target company’s net assets and current period profit would each decrease by 2.313 million yuan, accounting for 0.48% of the latest audited net assets and 18.24% of net profit, respectively. The auditors believe that these losses are within the target company’s capacity to bear and will not significantly affect its ability to continue operations.

Revenue Recognition Policies and Compliance

The target company’s revenue mainly comes from AIDC integrated services, intelligent computing center solutions, and other businesses. In AIDC integrated services, server hosting, bandwidth access, and IP address services are obligations fulfilled over a period, while other supporting value-added services are obligations fulfilled at a point in time. The intelligent computing center solutions and hardware sales are point-in-time obligations, and computing power services are period-based obligations.

The auditors found that the target company’s revenue recognition policies comply with the “Enterprise Accounting Standards” and do not differ significantly from comparable companies in the industry. Regarding delayed invoicing during the reporting period (estimated unbilled revenue at each period-end of 49.4259 million yuan, 76.6347 million yuan, and 77.6287 million yuan), the auditors noted that such delays are procedural delays caused by industry reconciliation processes. The target company has completed supplementary invoicing within a reasonable period and obtained a tax authority certificate confirming no major tax violations.

Customer and Revenue Composition Analysis

During the reporting period, revenue from the target company’s AIDC integrated services accounted for over 89%, with server hosting revenue increasing annually, from 59.12% in 2023 to 72.64% in the first half of 2025. The server hosting business is divided into wholesale and retail models. In the first half of 2025, wholesale clients contributed 36.04% of revenue, retail clients 63.96%.

Regarding customer concentration, the top five customers’ revenue proportions were 30.01%, 23.52%, and 31.38% in each period, below the industry average. The auditors believe that the dispersed customer base results from the target company’s focus on retail-type business targeting small and medium-sized clients, which is consistent with industry practices.

The power structure of server cabinets in the hosting business continues to optimize, with high-power cabinets (>6.6KW) increasing from 7.73% in 2023 to 35.34% in the first half of 2025, driving the average monthly unit price per cabinet from 50,350 yuan to 55,840 yuan.

Cost and Gross Profit Margin Changes

During the reporting period, the gross profit margins of the target company’s main business were 21.39%, 31.32%, and 32.50%, showing an upward trend year by year. This is mainly due to increased deployment of self-built intelligent computing centers (from 37.62% in 2023 to 66.32% in the first half of 2025) and the rising proportion of high-power cabinets.

Self-built server hosting services have significantly higher gross margins than leasing models, at 40.27% and 12.18% in the first half of 2025, respectively. The auditors analyzed that the target company’s gross margin is lower than the industry average mainly due to the influence of high-margin companies in the industry and the company’s current growth phase. By the end of the reporting period, margins have basically aligned with other comparable companies, except for Runze Technology.

Accounts Receivable and Liquidity Risks

At each period-end, the target company’s accounts receivable balance was 124 million yuan, 141 million yuan, and 178 million yuan, with receivables turnover rates of 2.19, 1.92, and 1.64 times per year, respectively, below the industry average. The auditors pointed out that the decline in turnover rate is mainly due to some business net method accounting, specific customer debts, and business scale expansion. After excluding these factors, the indicators are within a reasonable industry range.

As of June 2025, the target company’s short-term loans and long-term loans were 8.13815 million yuan and 101 million yuan, respectively, with cash and cash equivalents of 2.70622 million yuan. The auditors believe that the company’s operating cash flow is healthy, interest coverage is high, bank credit lines are sufficient, and there is no significant liquidity risk.

Non-current Assets and Depreciation Policies

The target company’s fixed assets mainly consist of machinery and electronic equipment, with book values of 301 million yuan, 322 million yuan, and 325 million yuan at each period-end. Construction-in-progress includes projects such as the Nansha intelligent computing center in Guangzhou and the Zixing intelligent computing center Phase I. The Haikou intelligent computing center has not yet been capitalized due to ongoing electrical infrastructure and high-density cabinet modifications but has begun hosting cabinets.

Depreciation policies for fixed assets are consistent with industry peers, with no signs of impairment. Right-of-use assets mainly relate to leased operational premises, with recognition and accounting treatment in accordance with “Enterprise Accounting Standards No. 21—Leases.”

Other Important Matters

Regarding Dongguan Huoqi, the auditors confirmed that the sale of “computing power pool project graphics workstations” equipment and related services to Dongguan Huoqi in 2024 is commercially reasonable, genuine, and fairly priced. The gross profit margin for this transaction is 14.67%, consistent with industry comparables.

Regarding accounting treatment adjustments, mainly involve switching from gross to net recognition for computing power services and hardware procurement, transferring prepayments to other receivables and provisioning for bad debts, and adjusting depreciation of idle non-production equipment to administrative expenses. The reasons for these adjustments are reasonable and comply with accounting standards.

Additionally, the auditors reviewed government grants, inventory, R&D expenses, share-based payments, and tax risks, concluding that the related treatments are in accordance with accounting standards and there are no major irregularities.

Tianjian Certified Public Accountants stated that, after review, the target company’s accounting treatments comply with enterprise accounting standards, with true and accurate financial data, no major financial risks, and no substantial obstacles to this transaction.

Click to view the original announcement>>

Disclaimer: The market involves risks; investment should be cautious. This article is automatically published by an AI model based on third-party databases and does not represent Sina Finance’s views. All information herein is for reference only and does not constitute personal investment advice. Please refer to official announcements for actual details. If you have questions, contact [email protected].