(Yicai Global) Feb. 7 -- Shares of Changfang Group, a Chinese maker of light-emitting diode lighting products, remained subdued today even after the company revealed a financial scandal at its key subsidiary. 

Changfang shocked the stock market when it disclosed late yesterday that its lamp unit Kami Safe had tried to hide irregularities by burying 337 boxes of accounting materials in an over 200 cubic meter pit. 

But the statement did not move Changfang's share price [SHE:300301], which closed at CNY1.90 (30 US cents) today, unchanged from yesterday’s closing price. 

Changfang Group, which owns Kami Safe, recently received notice of an official investigation from the China Securities Regulatory Commission because the subsidiary refused the regulator's check, per the statement.

Shenzhen-based Changfang bought into Kami Safe in 2015 when it was valued at CNY880 million (USD129.6 million) after it gradually increased its ownership to 100 percent. The unit remained under the management of its founder Li Dichu. 

Changfang said that in 2021 it discovered dubious accounting practices at Kami Safe, which had exaggerated its receivables by almost CNY700 million between 2020 and 2021. 

The parent firm tried to remove Li from office last June as he had refused to cooperate with an internal investigation, but Li fought the move and tensions rose. 

A tip-off received on July 1 last year claimed Li had hidden accounting documents, Changfang said in the statement, adding that police managed to intercept a carload of materials the same day. Then on Nov. 1, the police dug up 337 boxes of financial records near Kami Safe's Jiangxi plant. The hole was about nine meters long and five meters deep. 

The financial records were for the period between 2013 and 2021, including raw figures for costs, income and wages. But much of the information was illegible as the paper had been damaged after being buried. 

Changfang said in a statement on Jan. 30 that it expects a net loss of between CNY160 million and CNY230 million (USD23.6 million and USD33.9 million) for 2022, with revenue of between CNY680 million and CNY780 million.

Kami Safe said its revenue was CNY352 million in the first half of 2022, making up 80.9 percent of Changfang's total. Its revenue in 2021 was CNY760 million, making up 47.5 percent of the total for Changfang.

Editor: Tom Litting