China High Speed Transmission: Change of Auditor Causes Delay in Publishing Results, 4.1 Trading Halt

China High-Speed Transmission (00658) has issued a supplementary announcement, stating that the expected change of auditors will lead to a delay in the release of its financial results, and the stock will face suspension on April 1. The announcement also fully discloses conflicts among parties: the major shareholder, Fengsheng Holdings (00607), insists on replacing the auditor to align with the parent company’s own audit, which has met strong opposition from the founder; meanwhile, the current auditor, Guo Wei, listed three unresolved issues before the handover, revealing that audits of abnormal transactions involving over RMB 6.6 billion are at an impasse.

In mid-January this year, Fengsheng faction successfully restructured China High-Speed Transmission’s board and gained a majority of seats. The then-chairman, Hu Jichun, was dismissed, and the company secretary was replaced. The new management immediately pushed to replace the auditor with Baichun, who is currently employed by Fengsheng. The supplementary announcement directly states that Fengsheng’s reason for insisting on the change is to ensure that the relevant audit data can also be used for the performance review of Fengsheng’s 2025 fiscal year.

The announcement discloses that founder and executive director Hu Yueming and independent director Jiang Jianhua voted against the change. Hu criticized the approach as “simply following the will of a single shareholder without regard for the overall interests of all shareholders.” However, the majority of new directors believed they could not persuade the major shareholder and passed the resolution to avoid entanglement.

Before being asked by the new board to “stop the audit work,” Guo Wei pointed out three major deadlocks involving large sums of money. The core issue concerns abnormal transactions in 2023 involving RMB 3.189 billion in receivables and RMB 3.451 billion in prepayments, which were made without board approval. The announcement states that although independent firm FTI has completed forensic investigations on this matter, Guo Wei indicated that as of the end of February, the investigation report and related supporting documents had not yet been provided.

Additionally, there are issues with inventory and prepayments related to nearly RMB 1 billion in EPC projects, as well as a full loss of RMB 423 million on investments, which lack audit working papers due to “non-cooperation from subcontractors” and “failure to obtain financial data.”