Oil industry equipment firm Shandong Molong shares plunge 14pc after surprise warning of losses

Firm faces delisting from Shenzhen Stock Exchange if it posts three consecutive annual losses. It posted a 259.6m yuan loss in 2015

PUBLISHED : Friday, 03 February, 2017, 4:46pm
UPDATED : Friday, 03 February, 2017, 10:50pm

Shares in Shandong Molong Petroleum Machinery plunged as much as 15.6 per cent on Friday despite its board apologised for warning it would post a significant net loss for last year, three months after saying it expected to record a profit.

The Shouguang-based maker of oil drill pipes and drilling machine parts now expects to post a net loss of between 480 and 630 million yuan for the 12 months to December 31, it said in a filing to Hong Kong’s stock exchange on Friday. It also said that it faces delisting risk from the Shenzhen Stock Exchange.

Under mainland listing rules, firms can be put under delisting procedures after they post three consecutive annual losses, while those that have reported losses two years in a row are obliged to warn investors of the delisting risk it faces.

Its shares ended the day down 13.83 per cent at HK$2.43.

“Due to the economic situation at home and abroad, the operating performance of the company has dropped significantly, and has made provision for impairment of inventories, receivables, goodwill and other related assets,” it said in the statement.

“The board extends sincere apologies to investors for any inconvenience caused by this revision of the

results forecast.”

While its product demand “slightly recovered” last year, it remained low, and although Molong’s output and sales volume have risen from 2015, selling prices have “fallen sharply and have been unstable”, it added.

The warning is in sharp contrast to its previous forecast issued in its third quarter results late in October, when it predicted full-year net profit to be between 6 and 12 million yuan, which was supposed to be a major turnaround from a loss of 259.6 million yuan booked in 2015.

After it reported a net profit of 2.3 million yuan for last year’s first nine months, it appears the management has now decided to book huge asset write-downs in the fourth quarter, which caused the about-face in its results forecast.

The company had booked asset impairment losses of 80.8 million yuan in 2015, of which 52.6 million yuan were on inventory.

The day after it issued the profit turnaround alert on October 26, its shares had closed at HK$3.91, their highest in 16 months.

That October forecast was based on the “on development of new products, expanded markets, and achieving good progress in them” ... besides having “deepened the technology reform, increased product finish rate and ensured improvement in product quality”.

The expected turnaround was notwithstanding last year’s “huge fluctuations in prices of raw materials and a sharp decline in product prices”, it said at the time.

Its asset write-downs in last year’s fourth quarter were despite crude oil price staging a significant rebounded from US$35 a barrel in last year’s first quarter to US$51 in the first quarter, and further gains to around US$55 in recent weeks, bolstering oil producers’ confidence to raise project spending.

Analysts expect Chinese state-backed oil majors to increase their investment in exploration and production projects this year, on the back of an oil price recovery that has made more of their projects economically viable.

CNOOC, the dominant producer in offshore China, last month said it would raise its spending this year to between 60 and 70 billion yuan on its projects, up from about 50 billion yuan last year.