(Yicai Global) Jan. 31 -- Chinese seafood company Zoneco Group Co. expects to post a huge operating loss, in stark contrast to positive net profits reported in its first three quarterly reports, in an event that bears an uncanny resemblance to a similar financial crisis that befell the company back in 2014.
The Dalian-based firm predicts an operating loss of CNY530 million to CNY720 million for the year, allegedly due to damages to seabed shrimp scallop stock in some areas which were discovered during a year-end stocktake, the company said in a press briefing yesterday.
Yicai Global found second-largest shareholder Hedao No.1 Securities Investment Fund already divested almost two million shares in Zoneco Group Co. [SHE:002069] between Nov. 13 and Dec. 19. The firm's shares are currently trading at CNY7.73, down 1.15 percent.
The discovery of damages to seabed shrimp scallop stock and a reversal in the full-year forecast from a profit of up to CNY530 million to a loss of CNY720 million sounds like a repeat of the company's situations in 2014.
That year, the company revealed CNY812 million of losses in its third-quarter report, claiming that a rare cold water current had wiped out all of its scallop stock worth some CNY700 million.
The incident attracted a lot of media attention, with local farmers saying that they did not hear of any cold water currents. Zoneco conducted an on-site investigation with investors to dispel their doubts. However, it was very difficult to investigate what actually happened, one financial specialist pointed out.
China Securities Regulatory Commission's office in Dalian could not find any evidence of fraud on the part of the fishery firm nor was there evidence that its largest shareholder, Changhai County Zhangzidao Investment and Development Center, had embezzled company funds. However, inquiries exposed deficiencies in the firm's decision-making, information disclosure and accounting systems, and it was ordered to make rectifications.
In response, chairman Wu Hougang slashed his monthly salary to CNY1 effective in Dec. 2014 and promised to pay CNY100 million to cover part of the losses. A CNY120 million staff stock ownership scheme was also introduced.
The company was labeled a special treatment stock due to the heavy losses in 2014 and 2015.