Juewei Food Co., Ltd. (Juewei Food) shocked the market by misreporting 700 million yuan in revenue over the past five years. This move has sparked speculation and led to the company’s suspension for one day.
In the announcement titled “Notice of Receipt of the Administrative Penalty Advance Notice from the Hunan Regulatory Bureau of China Securities Regulatory Commission” released by Juewei Food on September 20, it was revealed that from 2017 to 2021, the company failed to confirm the revenue from franchise store decoration business. This resulted in underreporting of operating income in the annual reports, with percentages ranging from 1.64% to 5.48% of the disclosed annual operating income for each corresponding year. The company did not truthfully disclose its operating income in the annual reports from 2017 to 2021.
Cumulative calculations show that Juewei Food understated its operating income by over 700 million yuan during the said period. As a result, the company was fined 4 million yuan, while responsible individuals were fined between 1 million and 2 million yuan each.
The announcement stated that the company’s stock would be subject to additional risk warnings (ST). Trading was suspended throughout September 22, and upon resuming on September 23, the stock symbol was changed to “ST Juewei.”
The discrepancy in reported revenue between Juewei Food and other companies engaged in fraudulent activities has sparked various speculations in the market. According to a report by “New Consumer Goods Research Insights” on September 22, in the context of intensifying competition and slowing growth in the braised products industry, Juewei Food’s actions may have been aimed at smoothing out performance, concealing actual growth rates, and paving the way for future performance projections. There are also speculations regarding “benefit transfer” and “regulatory evasion.” Juewei Food implemented a decoration model for franchise stores which included “unified design by headquarters, unified bidding, designated suppliers.” While requiring franchisees to renovate their stores every four years, the company failed to confirm these revenues for an extended period, with funds channeled into various “franchisee committees” accounts and payments made to renovation companies from these accounts. Due to the detachment of these accounts from the listed company, there theoretically exists an arbitrage space where “overpayment to suppliers circulates back to internal personnel.”
Industry insiders believe that Juewei Food’s understatement of income for five consecutive years was not a random error but a long-term exploitation of financial oversight loopholes in the franchise model.
Founded on December 17, 2008, Juewei Food is a company engaged in the chain operation of leisure food, with its headquarters located in Hunan Province. Its flagship product, Juewei Duck Neck, has earned the company the nickname “Duck Neck King” in the industry.
Over the past two years, Juewei Food has experienced a significant decline in performance. In 2024, the company’s net profit attributable to shareholders was 227 million yuan, a 34% decrease year-on-year.
According to the semi-annual report released by the company on August 29, in the first half of this year, Juewei Food recorded an operating income of 2.82 billion yuan, down by 15.57% year-on-year; a net profit of 175 million yuan, down by 40.71% year-on-year; and a non-GAAP net profit of 133 million yuan, down by 52.60% year-on-year.
The company’s performance in the second quarter of this year showed a more pronounced decline, with an operating income of 1.319 billion yuan, a 19.80% decrease year-on-year; a net profit of 55 million yuan, down by 57.65% year-on-year; and a non-GAAP net profit of 27 million yuan, down by 78.08% year-on-year.
The semi-annual report attributes the decrease in revenue in the first half of the year to a drop in sales volume during the reporting period.
According to a news report by Jiemian News on September 21, since 2022, the number of Juewei Duck Neck stores has been decreasing. As of now, there are 10,725 Juewei Duck Neck stores. Based on Juewei Food’s financial reports up to the end of June 2024, the total number of mainland Juewei Food stores was 14,969. Calculations show that over the past year, the number of its stores has decreased by 4,244.