On the evening of September 19th, four listed companies - Fudan Fuhua, Sico Ruida, Juewei Food Co.,Ltd., and Creative Information - announced that their stocks would be subject to Special Treatment (ST) risk warnings due to financial fraud. The simultaneous ST designation of four companies set a new record for recent ST implementations.
However, Juewei Food Co.,Ltd.'s violation stands out particularly. While other companies were inflating profits, this braised food giant took the opposite approach - from 2017 to 2021, Juewei Food failed to recognize revenue from franchise store decoration services, resulting in under-reported annual revenues. The under-reported amounts accounted for 5.48%, 3.79%, 2.20%, 2.39%, and 1.64% of the publicly disclosed annual revenues respectively.
Five consecutive years of "hiding wealth" potentially concealed hundreds of millions in cumulative revenue. The operational method is particularly intriguing. Peng Caigang, then Chief Financial Officer of Juewei Food, arranged for finance department employees to lend their personal bank accounts, failing to properly account for franchise store decoration business. Through employee personal accounts, massive decoration fees operated completely outside the listed company's system.
Was this a misunderstanding of accounting standards, or deliberate "off-balance-sheet circulation"?
The suspension date is set for September 22, 2025, with implementation beginning September 23, 2025. After implementation, the company's A-share name will change from "Juewei Food" to "ST Juewei."
For an industry leader with annual revenue of 6 billion yuan and a market cap that once exceeded 60 billion yuan, the ST designation is particularly conspicuous. However, the uniqueness of "reverse fraud" makes this incident controversial - is a company that under-reported revenue a violator or a victim?
**New Regulatory Normal: Comprehensive ST Designations**
Four listed companies receiving ST designations simultaneously is extremely rare in the A-share market, all due to financial information disclosure violations - an area that companies might have previously considered a 'technical issue' has now become a regulatory focus.
Previously, Dongfang Communication faced forced delisting for fabricating business and inflating revenue by 432 million yuan and profits by 314 million yuan from 2019 to 2022, foreshadowing this development.
Under previous standards during the Kangmei Pharmaceutical era, this wouldn't have been significant - Dongfang Communication had over 1.6 billion yuan in bank deposits and wealth management products, while Kangmei Pharmaceutical's 89 billion yuan fraud didn't prevent its survival.
However, since 2020, the boundary has shifted. Previously, violations typically resulted in fines plus market bans for responsible parties with low fraud costs. Now, even single-year fraud that seriously impacts investor decisions can result in "immediate delisting."
Interestingly, Fudan Fuhua inflated profits by 81.06 million yuan, Sico Ruida inflated revenue by 9.96 million yuan, and Creative Information over-reported revenue by nearly 400 million yuan - all traditional "inflating upward" cases. Only Juewei Food took the opposite approach, failing to recognize franchise store decoration business revenue from 2017 to 2021, resulting in under-reported annual revenues.
Regulatory treatment remains consistent. Whether inflating or deflating, any financial information distortion results in immediate ST designation.
The suspension date is September 22, 2025, with implementation beginning September 23, 2025, changing the company's A-share name from "Juewei Food" to "ST Juewei." There's no buffer period between the evening announcement and Monday's suspension.
Penalty details reveal the violation's severity. Dai Wenjun, then Chairman and General Manager, knew about the company's actual management of franchise store decoration business but failed to implement standardized management or incorporate it into the listed company's operational and accounting systems. The Chairman's knowledge without incorporation indicates this wasn't simple accounting processing error.
Peng Caigang, then Chief Financial Officer, arranged for finance department employees to lend personal bank accounts, failing to standardize franchise store decoration business accounting. Using employee personal accounts crosses the bottom line of financial regulations.
The penalty amounts appear modest but carry significant deterrent effect. Hunan Securities Regulatory Bureau's proposed decision: order Juewei Food to make corrections, issue warnings, and impose 4 million yuan fine; warn Dai Wenjun and impose 2 million yuan fine; warn Peng Caigang and impose 1.5 million yuan fine; warn Peng Gangyi and impose 1 million yuan fine. Total penalties of 8.5 million yuan, compared to some hundred-million yuan fines, aren't shocking.
However, the ST "stigma" effect far exceeds the fines themselves - it means the company is officially labeled a "problem enterprise."
This rapid ST designation reflects profound changes in the current regulatory environment. Under comprehensive registration system implementation, information disclosure authenticity becomes the foundation of market operation. The CSRC maintains comprehensive "zero tolerance" for fraudulent issuance, resolutely preventing "diseased companies" from "breaking through barriers" during issuance and listing, protecting investor legitimate rights from the source.
Juewei's case demonstrates this "zero tolerance" applies not only to inflation but also concealment - any form of information distortion receives equally severe punishment.
For the market, Juewei's ST designation sends a clear signal: under the new regulatory system, there are no gray areas or accommodation spaces. Financial authenticity is an untouchable red line - regardless of company size, brand reputation, or justification strength, violations result in immediate ST designation.
This "mechanized" execution may lack human touch but represents a necessary path for market maturation.
**The Gray Area of Decoration Fees**
Juewei's downfall occurred precisely in the franchise industry's tacit "unspoken rule" - decoration business. In franchise operation models, decoration fees often represent larger profit sources than franchise fees. Industry-wide practices involve headquarters recommending "designated" decoration companies with prices typically 20%-30% above market rates, with this difference representing hidden profits.
Many franchise brands directly place decoration companies outside their systems, with actual controllers establishing separate companies for operation, keeping profits completely outside listed company systems. From this perspective, Juewei appears relatively "transparent" - at least decoration business operated internally, with problems only in revenue recognition.
From 2017 to 2021, Juewei Food failed to recognize franchise store decoration business revenue, accounting for 5.48%, 3.79%, 2.20%, 2.39%, and 1.64% of corresponding years' publicly disclosed revenues. Based on these proportions, five years' cumulative decoration-related revenue might reach hundreds of millions.
The key issue isn't where this money went, but whether it should count as listed company operating revenue. From Juewei's prospectus, the company clearly listed revenue categories including only "franchise fee management income" without mentioning decoration payments. This indicates that during IPO, both the company and intermediary institutions believed decoration business didn't belong to main revenue categories.
This understanding might have been industry consensus then - decoration payments made by new franchisees to franchise committees (self-governing organizations), then arranged by committees for unified decoration, resembled mutual assistance among franchisees rather than listed company business operations.
Peng Caigang, then Chief Financial Officer, arranged for finance department employees to lend personal bank accounts, failing to standardize franchise store decoration business accounting - this detail is crucial. Using employee personal accounts is indeed irregular, but under franchise committee operation models, this might have been a "convenient" operational approach.
If decoration payments weren't considered company revenue, managing through independent accounts seems reasonable.
**Investor Divergence: Fundamental Difficulties vs. ST Arbitrage Gaming**
Juewei's ST news created subtle divergence among investor groups - not simple bullish/bearish positions, but different judgments about "distressed turnaround" possibilities.
The most realistic problem is apparent: in the first half, Juewei Food's fresh product category contributed 2.112 billion yuan revenue, directly decreasing by 500 million yuan from the previous year's 2.612 billion yuan, declining over 19%.
More concerning, Juewei operates only 10,838 stores, compared to officially reported 15,950 stores at end-2023, a reduction exceeding 5,000 stores. Net closure of over 5,000 stores in one and a half years isn't normal optimization but systematic contraction of the franchise system.
As of June 2025, Juewei Food's contract liabilities were 143 million yuan, declining 9.4% year-over-year. Contract liabilities represent "received payments pending delivery" indicators, with declines directly reflecting reduced franchisee purchasing enthusiasm.
Franchise management income in the first half was 27.12 million yuan, significantly down from the previous year's 34.02 million yuan, further confirming dual decline in franchisee quantity and quality.
Single-store operational efficiency deterioration is more obvious. Based on current store numbers and revenue scale calculations, single-store monthly average sales have dropped from over 30,000 yuan at peak to around 20,000 yuan. Against rising rent and labor costs, this figure means many franchise stores operate at micro-profits or losses.
To stimulate sales growth, Juewei Food invested heavily in marketing in the first half, spending 92.31 million yuan on advertising and promotion, increasing over 14.2 million yuan year-over-year. However, results show high marketing investment failed to reverse the decline. Sales expense ratio climbed from the previous period's 8.9% to 10%, with declining marketing efficiency further squeezing profit margins.
However, precisely in this predicament, some investors see "reverse opportunities." ST-induced passive selling pressure might create short-term oversold opportunities - public funds must clear ST stock positions due to compliance requirements, and such selling unrelated to fundamentals often causes irrational stock price declines.
For investors believing Juewei can remove ST designation within a year, the current situation might represent good risk-reward entry point. This is called "fake ST."
Removal conditions aren't stringent. Juewei Food states current operations are normal, will retrospectively adjust financial statements and strengthen internal control improvements. Subsequently, after formal CSRC penalty decision satisfaction for 12 months and completing financial restatement, it can apply to cancel ST designation.
Technically, as long as the company completes financial adjustments and operates standardized for one year, removal is almost certain.
Many investors note Juewei Food has never reported losses and maintains long-term dividends. Peers Huangshanghuang and Ziyan Foods' stock prices have returned to 2023 levels.
Some superstitious investors note social security funds also hold significant Juewei Food positions, considering recovery inevitable. After being investigated in August last year, by March 31, 2025, social security funds newly entered Juewei's top 5 shareholders, holding 8 million shares; by June 30, 2025, social security funds increased holdings by 2 million shares, totaling 10 million shares.
In my view, this only shows "national team" can also make judgment errors.
The real question is whether Juewei's fundamental difficulties can improve even after removing the ST designation. From revenue scale perspective, Juewei Food led four companies with 2.82 billion yuan revenue in the first half, but simultaneously had the highest revenue decline at 15.57%.
In profitability, Juewei Food ranked first among four companies with 175 million yuan net profit, but declined over 40% year-over-year. While maintaining industry leadership, the advantage is rapidly shrinking, with Zhou Hei Ya's net profit catching up to 108 million yuan, growing 228% year-over-year.
Poultry product revenue was 1.591 billion yuan, declining 20.8% year-over-year; vegetable products and other products revenue were 277 million yuan and 226 million yuan respectively, with declines of 11.6% and 14.3%.
Gross margin comparisons better expose problems. Zhou Hei Ya's first half 2025 gross margin was 58.6%, Huangshanghuang's 31.96%, while Juewei Food's was only 29.92%.
Comprehensive category declines indicate this isn't a single product issue but systematic challenge to the entire business model.
For investors, Juewei Food now represents a typical "value trap or distressed turnaround" case. Optimists believe mandatory decoration revenue recognition will improve statements, ST removal will provide stock price recovery space, current 9.2 billion yuan market cap compared to peak 60 billion yuan has fallen 85%, with negative factors exhausted and limited downside.
Pessimists point out that under consumption downgrade and industry internal competition, Juewei's ten-thousand-store system might continue shrinking, with performance facing further decline risks.
The root problem lies in different strategic choices during pandemic market pressure. Zhou Hei Ya significantly closed stores for quality improvement, developed "braised food + coconut water" new consumption scenarios, Huangshanghuang also developed second curves, while Juewei Food continued its "ten-thousand-store strategy" since 2017, frantically expanding franchisees, heavily marketing for quantity over quality.
Results stressed both supply chain and capital chain, making it difficult to pivot against economic cycles, now walking one path to the end.
Certainly, Juewei Food attempted significant equity investments in new enterprises, becoming LP, but 2.4 billion yuan investments continue losing - 94.22 million yuan loss in 2022, 116 million yuan in 2023, 160 million yuan in 2024. This completely resembles an accelerating diving enterprise.
Theoretically, Juewei Food sits at the intersection of "mature consumption" and "new consumption," representing a relatively mature and established brand, but this doesn't mean it can't work on health and youth orientation. Continuously failing to create differentiation while only focusing on harvesting franchisees - if operations don't improve, don't consider bottom-fishing such enterprises.
**Conclusion**
"Making accounts worse is also fraud - this case has significant warning significance," noted an accounting professional, indicating past regulation focused on profit inflation with insufficient attention to "profit concealment." Juewei's case demonstrates that whether inflating or deflating, any deviation from actual operating conditions deceives investors.
For investors, brand aura, scale advantages, and even social security holdings are no longer immunity cards. This case reveals another side of A-share financial fraud: when everyone guards against profit inflation, "wealth hiding" behavior might be overlooked.
For regulation, this presents new challenges. What truly warrants vigilance is Juewei's underlying fundamental difficulties - franchise system collapse, single-store profitability deterioration, expense control imbalance. Under tightening consumption environment and intensifying industry competition, these structural problems are far more deadly than ST designation.
Financial violations might be removable after one year, but business model crises have no shortcuts. Juewei Food's story reminds the market: regulatory new normal is forcing enterprises to return to transparency and standardization, while investors face the test of distinguishing true distressed turnarounds from mere value traps.
Comments