Reported to owe tens of millions in loans and not yet repaid. Jiecheng Co., Ltd. states that it does not meet the disclosure standards.

Economic Observer (reporter) Zhang Bin

As of the end of September 2020, Jicheng Co., Ltd. (300182, stock forum) (300182.SZ), which has participated in investments in film and television works such as Wolf Warrior 2, Operation Red Sea, and A Good Show, still has RMB 258 million in cash and cash equivalents on its books.

However, now an insider, Zhao Quan, told Economic Observer that Jicheng Co., Ltd. has tens of millions of yuan in overdue due loans that have not been repaid.

The materials provided by Zhao Quan on March 4, 2021 show that in 2020 Jicheng Co., Ltd. borrowed RMB 30 million from a Beijing education company, which is one of its content cooperation partners, and borrowed RMB 25 million and RMB 30 million respectively from a Tianjin technology company and a Beijing investment management company. Among these, the RMB 25 million loan that Jicheng Co., Ltd. borrowed from the Tianjin technology company has already been repaid; the other two loans remain unpaid.

In addition, the loan agreement between the aforementioned Beijing education company and Jicheng Co., Ltd. provided by Zhao Quan to Economic Observer shows that if Jicheng Co., Ltd. repays late, Jicheng Co., Ltd. and its wholly owned subsidiary, Xinjiang Juxiu Cultural Media Co., Ltd. (hereinafter “Xinjiang Juxiu”), agree to expand the “exclusive cooperation in the field of mobile intelligent terminal education” stipulated in the “Content Cooperation Agreement” to “exclusive cooperation in the education field.”

Loans due in the tens of millions have not been repaid

The loan agreement provided by Zhao Quan to Economic Observer shows that in 2020 Jicheng Co., Ltd. reached short-term loan agreements with the three companies mentioned above, and the total loan amount was RMB 85 million. Among them, in the loan agreement between Jicheng Co., Ltd. and the Beijing education company, Jicheng Co., Ltd.’s actual controller, Xu Ziquan, assumed joint and several liability as a guarantor for the repayment obligation; Xinjiang Juxiu expanded its scope of authorized areas toward the Beijing education company (the “exclusive cooperation in the field of mobile intelligent terminal education” expanded to “exclusive cooperation in the education field”); in the loan contract with the Tianjin technology company, in addition to Jicheng Co., Ltd., the borrower also included Beijing Jicheng Shiji Digital Technology Co., Ltd., which is wholly owned by Xu Ziquan; in the loan contract between Jicheng Co., Ltd. and the Beijing investment management company, Xu Ziquan and Jicheng Co., Ltd.’s wholly owned subsidiary, Jicheng Huashiwangju (Changzhou) Cultural Media Co., Ltd. (hereinafter “Huashiwangju”), assumed joint and several liability as guarantors.

According to the materials provided by Zhao Quan, after these three loans became due in January 2021, the aforementioned Beijing education company, Tianjin technology company, and Beijing investment management company each commissioned law firms to issue payment demands to Jicheng Co., Ltd., but at that time they did not receive repayment.

Zhao Quan said that the three companies have initiated judicial proceedings against Jicheng Co., Ltd. this year. The “Application for Property Preservation” submitted by the three companies provided by Zhao Quan shows that Jicheng Co., Ltd., Beijing Jicheng Shiji Digital Technology Co., Ltd., and the relevant accounts or assets of Xu Ziquan are all facing the risk of being frozen by judicial authorities.

An official from Jicheng Co., Ltd.’s office related to the board of directors (董办) admitted to Economic Observer reporters that there indeed are judicial lawsuits involving these companies, but because the amount in dispute does not meet the information disclosure standards for companies listed on the Growth Enterprise Market, no announcement has been made.

On March 5, Zhao Quan stated that at present, Jicheng Co., Ltd. repaid the RMB 25 million loan to the Tianjin technology company in February; the Beijing education company and the Beijing investment management company have not received repayment.

Operating performance declines

Jicheng Co., Ltd.’s 2020 third-quarter report shows that as of the end of September 2020, the company had RMB 258 million in cash and cash equivalents on its books, while its short-term borrowings were RMB 1.33B, and non-current liabilities due within one year were RMB 469 million; total short-term debt was RMB 1.8B.

The cash ratio refers to the ratio of a company’s cash to its current liabilities, reflecting the company’s ability to realize assets immediately and showing the company’s ability to repay due debts right away. The higher the cash ratio, the better the company’s payment capacity is generally considered; a cash ratio of above 20% is generally regarded as good.

Judging from Jicheng Co., Ltd.’s cash ratio in recent years, as of the end of 2016 and the end of 2017, this ratio was 55% and 29%, respectively. However, starting in 2018, Jicheng Co., Ltd.’s cash ratio sharply declined; as of the end of 2018, the end of 2019, and the end of the 2020 third-quarter report period, the cash ratio was 11%, 4%, and 7%, respectively.

In addition, the performance indicators of Jicheng Co., Ltd. over the past two years have declined across the board.

In 2019, Jicheng Co., Ltd. recorded its first loss since its listing; that year the company’s revenue was RMB 3.65 billion, down 28.3% year over year; its attributable net profit recorded a loss of RMB 2.38 billion, down 2,641.87% year over year.

On the evening of January 29, 2021, Jicheng Co., Ltd. released a 2020 performance forecast, stating that the company expected its 2020 net profit loss to reach RMB 330 million to RMB 480 million. The main reason was that its downstream customers had a longer collection cycle, and the company expected to accrue impairment provisions for various assets of RMB 680 million to RMB 830 million.

The performance forecast immediately drew the exchange’s attention through a letter of inquiry. On February 1, 2020, the Management Department of the Shenzhen Stock Exchange’s ChiNext Board issued a letter of inquiry, asking Jicheng Co., Ltd. to provide supplementary explanations on the specific circumstances of bad debt provisions for accounts receivable corresponding to the performance forecast, including the names of the relevant customers, the amount of accounts receivable, the formation time and reasons, aging, the specific circumstances of bad debt provisions accrued in prior years; whether the method of provision has changed significantly compared with prior years; the specific circumstances of other assets expected to have impairment accrued; the specific time when impairment indicators first appeared; the basis, calculation process, and reasonableness for this impairment provision; the adequacy and reasonableness of impairment provisions for the above assets in both the prior period and the current period; and so on.

Jicheng Co., Ltd. replied that in 2020 it accrued asset impairment of RMB 680 million to RMB 830 million, including bad debts for dramas such as The Legend of the Huo Qubing and A Good Show totaling RMB 150 million to RMB 190 million, and inventory impairment of RMB 300 million to RMB 340 million, etc. (of which drama-related inventory impairment was RMB 270 million to RMB 300 million, and technology segment inventory impairment was RMB 30 million to RMB 40 million).

Suspicion surrounding content cooperation in the education sector

Jicheng Co., Ltd. was listed on the ChiNext Board in 2011. Its main business quickly expanded from audio and video technology to multiple areas including film and television content production and distribution, new media copyright operations, and digital education. In the digital education business, Jicheng Co., Ltd.’s cooperation partners include education channels such as iQiyi, Youku, Tencent, Xiaomi TV, and Huawei Video.

In its 2019 annual report, Jicheng Co., Ltd. stated that the company’s digital education business has developed rapidly, and it has been promoted, rolled out, and piloted in primary and middle schools across more than 40 cities. Its smart education cloud platform is an overall platform that integrates education management, campus teaching, online learning, and joint cultivation between school and family, covering more than 6,000 primary and middle schools, and providing regular and intelligent teaching services for nearly 10 million teachers and students as well as parents.

Zhao Quan told reporters that the aforementioned Beijing education company has long been a cooperation partner of Jicheng Co., Ltd. in its digital education business. The loan agreement reached between the company and Jicheng Co., Ltd. shows that if Jicheng Co., Ltd. repays late, Jicheng Co., Ltd. and its wholly owned subsidiary Xinjiang Juxiu agree to expand the “exclusive cooperation in the field of mobile intelligent terminal education” stipulated in the “Content Cooperation Agreement” to “exclusive cooperation in the education field.”

If the borrower defaults, does Jicheng Co., Ltd., according to the contract, lose its exclusive right to utilize copyrights in the education field? Do its cooperation agreements in the education field with entities such as iQiyi/Youku/Tencent (i.e., “You-Ai-Teng”) and Huawei need to be renegotiated? An official from Jicheng Co., Ltd.’s board office did not reply and stated that the matter is handled by the company’s legal affairs department.

(At the request of the interviewee, Zhao Quan is a pseudonym.)

(Editor: Ji Liya HN003)

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