Losses exceed 60 million! This listed company has been ordered to demolish a project built without prior approval.

　　Previously, ST Huifeng (002496), along with its chairman and general manager, Zhong Hangen, were referred by the Public Security Bureau to the People’s Procuratorate in connection with a suspected environmental pollution case, and Zhong Hangen was released on bail pending further investigation. Now, there has been new progress in this matter.
　　On May 14 this year, the Jiangsu Provincial Department of Environmental Protection conducted an on-site inspection of ST Huifeng and found that the company is located within the service area of the centralized heating network in the Dafeng Port Petrochemical New Materials Industrial Park. However, the company’s newly commissioned project—using high‑concentration COD wastewater to produce water‑coal slurry for incineration and generating steam as a byproduct (with an annual processing capacity of 30,000 tons of high‑concentration COD wastewater)—continues to rely on water‑coal slurry–fired boilers, which is inconsistent with relevant laws and regulations, industrial policies, and park planning requirements calling for “implementation of centralized heating and use of clean energy.”
　　On the evening of September 17, ST Huifeng announced that it had recently received an Administrative Penalty Decision from the Jiangsu Provincial Department of Environmental Protection, which ordered the confiscation of facilities that use highly polluting fuels, mandated the dismantling of the coal-water slurry boiler used in the project, and imposed a fine of RMB 30,000.
　　In addition, the Jiangsu Provincial Department of Environmental Protection found that environmental protection facilities required to accompany another production project of ST Huifeng had been completed but had not yet undergone acceptance inspection, while the main project had already been put into operation, in violation of relevant regulations. The department ordered ST Huifeng to make corrections within three months and imposed a fine of RMB 800,000.
　　ST Huifeng stated that, under the aforementioned administrative penalty, the company is required to dismantle its newly commissioned project for producing steam as a byproduct from the incineration of water‑coal slurry made from high‑concentration COD wastewater. The company’s disposal plan is as follows: ① Dismantle the connecting pipelines, electrical wiring and circuits, the steam‑byproduct system from water‑coal slurry incineration, as well as key equipment such as the wastewater‑to‑water‑coal‑slurry unit, coal‑handling facilities, and analytical instruments; ② Retain and repurpose the civil engineering works and existing buildings; ③ Demolish and subsequently reuse other ancillary facilities.
　　As of August 31, the project has accumulated investments totaling RMB 99.1055 million. The losses incurred from the demolition cannot yet be accurately quantified; the estimated loss rate ranges from 60% to 90%, corresponding to a loss amount of RMB 59.4633 million to RMB 89.195 million. This is expected to have a significant impact on the company’s financial performance for the current year.
　　Against the backdrop of increasingly stringent environmental inspections, chemical manufacturers have come under heightened regulatory scrutiny. As the world’s largest producer of prochloraz technical grade, ST Huifeng has seen its environmental compliance issues surface one after another this year.
　　Prior to the penalties imposed this time, the Ministry of Ecology and Environment had dispatched an inspection team in March to conduct a special oversight mission targeting the company’s severe environmental pollution and the local authorities’ inadequate implementation of corrective measures following the central environmental inspection. The company has committed serious environmental violations, including the illegal disposal of hazardous waste, unauthorized transfer and storage of hazardous waste, long-term clandestine discharge of highly concentrated toxic and harmful wastewater, and the malfunctioning of pollution-control facilities.
　　On May 2, as part of environmental remediation efforts in the chemical industrial park, ST Huifeng’s subsidiaries—Huatong Chemical, Jialong Chemical, and Zhicheng Chemical—suspended production for rectification. Meanwhile, the company and relevant management personnel received administrative penalty notices from the environmental protection authorities, and Xi Shenghu, Chairman of Huatong Chemical and Deputy General Manager of the company, was arrested on suspicion of the crime of polluting the environment.
　　That month, the local environmental protection bureau issued a notice to ST Huifeng ordering a suspension of production for remediation, requiring the company to halt operations at all production facilities except the environmental‑protection workshop in order to eliminate environmental safety hazards. It was only three months later that the compliant formulation workshop was permitted to resume production on a trial basis. According to ST Huifeng, at the time of the resumption announcement, the formulation workshop accounted for 17.79% of the parent company’s revenue in 2017.
　　Ultimately, the company’s production and operations were severely disrupted due to a shutdown for rectification of environmental compliance issues, leading to the imposition of an “Other Risk Alert” on its stock and the addition of an “ST” designation.
　　Now, following another severe blow, ST Huifeng’s performance this year may struggle to return to its 2017 levels. In the first half of the year, the company posted sharp declines in both revenue and net profit, down 7.48% and 58% year over year, respectively. The losses exceeding RMB 60 million stemming from the aforementioned projects ordered for demolition account for at least 60% of its RMB 98 million net profit attributable to shareholders in the first half.

Source: Securities Times · eCompany