Chongqing Hongjiu Fruit Co. Ltd., recognized for its leading position in China's fruit market, is navigating through financial instability, marked by the suspension of its shares in March and the resignation of its auditor, KPMG, in April. The company, which had prided itself as China's "number one fruit stock," has encountered challenges following a decline in durian prices, attributed to e-commerce price wars and an oversupply situation.
The company's financial strain became evident with the delay in publishing its 2023 annual results and subsequent announcements regarding its interim results for the first half of 2024, now under the scrutiny of its new auditor, Zhonghui Anda CPA. In efforts to sustain operations, top executives, including Founder and Chairman Deng Hongjiu and executive director Jiang Zongying, have pledged shares to raise over $200 million.
Hongjiu, at its IPO in September 2022, stood as China's largest durian distributor, boasting an "end-to-end" supply chain. The company's revenue from durian sales in 2022 constituted 26.3% of its total revenue, highlighting its significance in the market. However, the durian market witnessed a significant price drop in May, with a 50% reduction in some instances, exacerbating Hongjiu's financial woes.
The "celebrity effect" has been a double-edged sword for the durian market, attracting more capital and investors but also leading to increased supply from countries like Vietnam, the Philippines, and Malaysia. This, coupled with the rise of e-commerce platforms and live-streaming sales, has intensified competition and pressured prices further.
Hongjiu has attempted to adapt by venturing into e-commerce and exploring direct-to-consumer sales, moving beyond its traditional B2B model. Despite these efforts, the broader economic slowdown in China and weakened consumer sentiment have posed additional challenges, particularly for premium fruits like durians and dragon fruits.
The company's financial disclosures have raised concerns, with unexplained advance payments to suppliers and ballooning accounts receivable through allegedly non-existent companies. Hongjiu's last financial report for the first half of 2023 showed a revenue increase but a decline in net profit, alongside a significant jump in impairment losses on trade receivables.
As Hongjiu works towards issuing its 2023 annual report and 2024 interim report, the industry watches closely, with the company's future hanging in the balance amidst these financial and operational challenges.
Source: Bamboo Works