Hongjiu Fruit (06689.HK), once crowned the "Fruit First Stock," is now teetering on the brink of delisting. Recently, Hongjiu Fruit announced that the Listing Committee of the Hong Kong Stock Exchange (HKEX) has decided to cancel its listing status. Despite submitting a written request to the Listing Review Committee for further review of the delisting decision, the company has been suspended since March 2024 for failing to disclose financial reports, exceeding the HKEX's stipulated 18-month suspension period. Coupled with issues such as executive involvement in legal matters and significant debt, the prospects for resuming trading seem bleak. Business strategy expert Huo Hongyi stated that Hongjiu Fruit's delisting crisis is fundamentally the result of a long-term mismatch between its "high-growth narrative" and "low-quality governance." "On one hand, there have been systematic failures in internal control and compliance mechanisms; on the other hand, the business is heavily reliant on high-priced imported fruits, compounded by a heavy asset operation model characterized by 'high prepayments and long receivables.' In a context where consumer behavior is becoming more rational and industry price volatility is increasing, this easily leads to a 'profit on the books, cash in hand' dilemma. Once cash flow breaks, the cascading effects will quickly spread. The recent regulatory decision has pushed the company to the brink of delisting, serving as both a corrective measure for a single enterprise and a wake-up call for the industry." **Delisting Alarms Raised** According to the announcement, the HKEX Listing Committee cited five primary reasons for the delisting: Hongjiu Fruit has not completed the investigation and taken appropriate remedial measures; it has failed to demonstrate the integrity, capability, and proper oversight of the company management and individuals significantly impacting its operations; it has not completed the internal control review or corrected its deficiencies; it has not published any outstanding financial performance; and it has not appointed any independent executive directors, company secretary, or authorized representative. Official information indicates that Hongjiu Fruit was founded in 2002, focusing on the full industrial chain operation of high-end imported and high-quality domestic fruits, becoming the largest durian distributor in the country. In September 2022, the company listed on the HKEX at a price of HKD 40 per share, with a market capitalization exceeding HKD 67 billion, and founder Deng Hongjiu's family entered the Hurun Rich List with a wealth of HKD 8.5 billion. However, in just three years, the company's market value evaporated by over HKD 64 billion, with its share price falling to only HKD 1.74 at the time of suspension—a staggering drop of 95.65% from the issue price. The turning point came in 2024. During the audit of the 2023 annual report, KPMG discovered that the company's advance payments surged from HKD 1.264 billion at the end of 2022 to HKD 4.47 billion at the end of 2023. In the fourth quarter alone, it paid HKD 3.42 billion to 34 newly established suppliers, accounting for 76% of the total advance payments for the year. Many of these suppliers were newly established in 2023, with some having registered capital below HKD 1 million, zero social insurance participants, and even addresses highly overlapping with Hongjiu Fruit's subsidiaries, raising suspicions of being "shell" companies. The rationale behind the flow of funds has further raised concerns. In January 2024, Hongjiu Fruit continued to pay HKD 1.52 billion in advance payments to these suppliers, receiving only HKD 450 million in goods that month. By the end of January 2024, the balance of relevant advance payments still stood at HKD 4.2 billion. After failing to obtain reasonable explanations and sufficient audit evidence, KPMG resigned as the auditor in April 2024. Although the company later hired Zhonghui Anda as the new auditor, as of October 2025, the 2023 annual report remained unpublished, which became a key basis for the HKEX's designation of non-compliance with listing rules. Management crises have posed additional challenges. In April 2025, Deng Hongjiu and several executives, including Jiang Zongying, were taken into criminal detention over alleged loan fraud and VAT invoice fraud. In May, although the restrictions on most personnel were relaxed, core management's integrity was already in question; on May 30, three independent non-executive directors resigned en masse, leading to the dissolution of the audit committee and the failure of external supervision mechanisms. As of the time of publication, Hongjiu Fruit had not responded to inquiries regarding how to address the current multifaceted crises and its future development strategy. Huo Hongyi believes that the company's top priority should be to improve its governance structure before reorganizing its business. "Firstly, to restore fundamental credit, the abnormal transactions must be clarified, cooperation is needed with judicial investigations and audit procedures, financial statements must be reported, and the three lines of defense—independent directors, audit committee, and internal control systems—must be rebuilt, prioritizing risk control in key areas like supplier admission, credit approval, and payment processes. Secondly, cash flow must be repaired by reducing inventory, collecting receivables, and trimming prepayments, disposing of non-core assets in batches, negotiating for longer upstream payment periods, and optimizing downstream settlements. If necessary, investors may need to be brought in for restructuring. Thirdly, business logic should be restructured to reduce reliance on a single highly volatile category, while enhancing capabilities in standardized sourcing, cold chain timing, and digital fulfillment." **Struggling Under Internal and External Pressure** Hongjiu Fruit's rise is closely tied to its "end-to-end" supply chain model. This model involves direct procurement from foreign source bases and precise geographical planning. The company has transformed the previous distribution system, changing the previously secondary and tertiary markets for imported fruits into a primary market and has collaborated with major domestic supermarket chains to shorten the distribution path. According to its official website, the company has established 16 processing plants in Thailand and Vietnam for direct sourcing, covering 300 cities across the country through 57 sorting centers and building an efficient distribution network. This model once enabled the company to capture over 12% of the domestic durian distribution market. However, Hongjiu Fruit relies on a prepayment model to secure supplies, meaning it must make full advance payments to upstream procurement while offering 3 to 6 months of credit to downstream customers like supermarkets. This mismatch of "payment before goods" and "goods before payment" leads to long-term capital being tied up on both ends of the supply chain. Jiang Han, a senior researcher at Pango Think Tank, points out: "The high prepayment model can help lock in quality sources but also carries multiple risks. If suppliers fail to fulfill contracts, it directly impacts regular operations. In terms of cash flow, the coexistence of high prepayment and long receivables results in significant advance outflows and slow returns, leading to continued negative cash flow and operational difficulties, which can adversely affect subsequent procurement and supplier relationships. From a market perspective, this model weakens the company's ability to respond to market fluctuations, making it challenging to adjust strategies flexibly amidst intensified competition." As Jiang noted, Hongjiu Fruit's operational cash flow has been negative for several consecutive years. Financial statements show a net outflow of HKD 4.06 billion from 2019 to 2022, with an additional HKD 314 million net outflow in the first half of 2023. Meanwhile, receivables surged from HKD 3.86 billion in 2021 to HKD 9.35 billion in the first half of 2023, making up 92.4% of current assets, and the collection cycle totaled 188.5 days. The company's cash on hand was merely HKD 557 million, while bank loans increased to HKD 2.776 billion, resulting in a doubling of asset-liability ratio compared to when it went public. Moreover, Hongjiu Fruit faces the risk of highly concentrated shareholding. According to Tianyancha, Deng Hongjiu holds 32.41% of the shares, Jiang Zongying holds 9.04%, and his nephew Yang Junwen holds 0.21%, with the family together controlling over 40% of the company and occupying core positions, reflecting a clear family-oriented characteristic. In contrast, at industry-leading company Baiguoyuan, founder Yu Huiyong holds only 22.15% of the shares, with the management primarily composed of professional managers. Huo Hongyi emphasized, "Family businesses are not inherently inefficient; many world-class companies operate as family firms. However, Hongjiu Fruit's high degree of trust in its key positions, systemic weaknesses in independent directors and internal control mechanisms, coupled with a lack of thorough due diligence in major transactions, are closely related to its overly concentrated family governance structure. In this model, once critical individuals act improperly, the enterprise is easily drawn into a governance crisis characterized by ineffective mechanisms." At the same time, the fruit retail industry is undergoing profound changes. E-commerce platforms are promoting "direct sourcing from farms + direct shipping" models, significantly compressing intermediate links, while emerging formats like community group buying and fresh e-commerce are achieving zero inventory turnover through "pre-sale + next-day delivery" models to capture market share with competitive pricing. In this context, leading companies in the industry have collectively fallen into difficulties. Financial reports indicate that Baiguoyuan transitioned from profit to a loss of HKD 386 million in 2024, and by the first half of 2025, the number of stores had decreased by 27% compared to the same period last year; Fresh Horticulture is also facing a shareholding freeze crisis, compelling it to shelve its listing plans. Chinese food industry analyst Zhu Danpeng analyzes that in the future, there is very limited potential for increasing profits per box or per kilogram in the fruit industry. Consumers are becoming increasingly rational, and their purchasing decisions display new characteristics: they weigh quality-to-price ratios when price-performance ratios are similar or revert to price-performance considerations when quality-price ratios are close. Additionally, with the maturation of planting technologies, many premium and imported fruits have successfully undergone local cultivation, creating effective alternatives to high-end fruits and further intensifying market competition. Huo Hongyi advises, "Platforms that aggregate demand must transform into standardized infrastructures for 'demand aggregation—coordinating orders from farms—cold chain direct shipping—digital fulfillment.' Fruit companies need to proactively switch their 'value positions.' Firstly, treat platforms as tools for traffic and fulfillment rather than price competitors. Turn heavy asset warehousing and quality grading into open services, cooperating with platforms for front warehouses, grading, secondary processing, and localized cold chains to earn 'efficiency profits' through B2B services. Secondly, become operators of industrial belts at the farm end, jointly establishing standardized planting, post-harvest processing, and brand co-creation with platforms, replacing layer upon layer wholesale with standard and quality control for premium prices. Thirdly, provide customized combinations for gifts, corporate welfare, and premium fresh goods with rapid fulfillment and after-sales guarantees, making quick response capabilities and customer service non-price-based advantages. Fourthly, use data to drive production and sales in reverse. Real-time flow consumption, return, and loss data from the platform back to farms, dynamically adjusting harvest rhythms and specifications to reduce turnover loss and price pressure." "The platform connects, and traditional distribution companies need to build a moat in professional capabilities; this is not a game of zero-sum but rather of collaborative coexistence." Huo Hongyi further remarks.
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