Summary of Key Points
Tianji Shares has been issued an "Other Risk Warning" (with its stock ticker changed to "ST Tianji") due to financial fraud by its subsidiary, Xinte Chemical, which was acquired in 2023. The fraud involved the premature recognition of revenue to inflate profits, and the company has also received a fine of 5.55 million yuan. This incident stems from the pitfalls inherent in the high-price acquisition of Xinte Chemical: unmet performance commitments and a lack of control over the performance-based agreements, which ultimately led to the financial misstatement. Although Tianji Shares' main business (lithium hexafluorophosphate) has seen a recent improvement in performance, the ST designation, compensation obligations, and issues with subsidiary management continue to pose challenges, serving as a cautionary tale for companies considering mergers and acquisitions as a means of expansion.
Direct Trigger: Xinte Chemical's Manipulation of Numbers to Meet Targets
After being acquired by Tianji Shares in September 2023, Xinte Chemical resorted to fraudulent tactics in November and December to fulfill its annual performance target of 45 million yuan:
- Fraud Methods: The company had customers sign delivery orders in advance (even signing on its own behalf) and issued invoices before the goods were actually delivered, counting these fictitious transactions as revenue for the year.
- Consequences of the Fraud: As a result, Tianji Shares' revenue was inflated by 13.65 million yuan, and its profit increased by 6.85 million yuan (13.3% of the reported profit for that period).
- Penalties: The company was fined 2 million yuan, and four responsible individuals (including the chairman and Xinte's sales director) were fined a total of 3.55 million yuan, amounting to a total fine of 5.55 million yuan.
The Hidden Perils of the Acquisition
The acquisition of Xinte Chemical by Tianji Shares for 460 million yuan in 2023 was problematic from the outset:
- High Premium Risk: The assessed value of Yuxiang Trade, the parent company of Xinte Chemical, was 468 million yuan, nearly four times its actual asset value (a 398% increase). The Shenzhen Stock Exchange questioned the fairness of the pricing at the time, but the company's response did not lead to further investigation.
- Unmet Performance Commitments: Xinte Chemical promised a cumulative net profit of 150 million yuan from 2023 to 2025, but actual profits for those three years were only 82.46 million yuan (39.57 million yuan in 2023, 17.10 million yuan in 2024, and 25.79 million yuan in 2025), falling short of the targets each year.
- Lack of Control over Performance-Based Agreements: The company claimed it was difficult to strictly monitor the performance period, which allowed Xinte Chemical to commit fraud openly. Although Tianji Shares has taken control of its finances now, the losses have already been incurred.
A Gradual Process of Regulatory Discovery
Tianji Shares' issues were not suddenly exposed but were gradually uncovered by regulatory authorities:
- January 2026: The company received a regulatory letter pointing out three major problems: irregular goodwill impairment tests (e.g., unfounded forecasts of future sales), inaccurate financial accounting (failure to pay employees their full wages), and violations in information disclosure (secret loans granted without announcement).
- February 2026: The company revised its financial reports after self-inspection, but was immediately placed under investigation by the Securities Regulatory Commission for suspected violations of information disclosure laws.
- July 2026: Tianji Shares received a penalty notice detailing all aspects of the fraud and identifying the responsible individuals.
Performance Recovery Cannot Overcome the ST Label: Challenges from Industry Cycles and Additional Pressures
Tianji Shares' main business, lithium hexafluorophosphate (a key component for lithium battery electrolytes), is highly subject to market fluctuations:
- Performance Volatility: Prices dropped significantly in 2023, resulting in a 90% decrease in profit; the company incurred a loss of 1.36 billion yuan in 2024 (of which 985 million yuan was due to goodwill impairment); demand improved in 2025, turning losses into profits; for the first half of 2026, it forecasted earnings of 220-260 million yuan.
- Impact of the ST Label: The stock price hit the daily limit down after being labeled as ST, damaging investor confidence. The company also faces claims for over 60 million yuan from Xinte Chemical's former shareholders due to unmet performance commitments and must strengthen its control over the subsidiary to prevent similar issues in the future.
A Warning to the Industry: Don't Overlook Risks in Mergers and Acquisitions
This case serves as a reminder to all companies considering expansion through acquisitions:
- Be Cautious with High Premiums: Excessively high valuation estimates during acquisitions may hide underlying risks, such as the target company's poor profitability.
- Strictly Monitor Performance-Based Agreements: Do not neglect to supervise subsidiaries just because performance targets have been set; financial and operational activities must be closely monitored.
- Compliance Is Essential: Financial fraud not only results in fines but also leads to a ST designation, which can severely impact a company's valuation and financing capabilities, outweighing any potential benefits.
In summary, the experience of Tianji Shares illustrates that mergers and acquisitions are not a shortcut but can be fraught with risks. Corporate expansion should be approached with caution and compliance as the top priority.