Chung Fu’s Delisting Crisis Ⅰ: Repeated Financial Reporting Errors Bring Delisting Closer!

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Preface

Chung Fu (1435.TW), founded by GuoZhang Huang in 1961, initially focused on textiles. In 1970, anticipating industrial changes, Huang expanded operations by acquiring 20,000+ square meters of land in Zhongli District, Taoyuan City. Over 60 years, this land became a highly valuable asset, potentially worth billions when sold. Consequently, the stock hit a 2022 Q1 peak of 70.8 yuan.

However, since Q2 2022, repeated financial report delays and an auditor’s inability to opine on the 2022 annual report led to a trading suspension on April 10, 2023. Amidst this crisis and stagnant financials, over 20,000 small shareholders are anxious; and thus aroused their most-caring questions: Will management continue or have the company be delisted? This article explores Chung Fu’s recent ownership events, delves into report delays, and underscores timely reporting and governance’s importance.

What Happens If Financial Reports are Delayed?

Timely financial disclosure reflects a company’s transparency and provides investors with vital information for informed decisions. The Financial Supervisory Commission (FSC) actively promotes transparency and timeliness in corporate financial reporting.

Per the Securities Exchange Act, Article 36, Section 1, companies issuing securities must, unless exempted by the competent authority due to exceptional circumstances:

1. Announce and report annual financial reports within three months of the fiscal year-end, including signatures or seals from the chairman, managers, and the chief accountant, auditor’s certification, board approval, and supervisor acknowledgment.
2. Announce and report quarterly financial reports within forty-five days after the end of each fiscal quarter, including signatures or seals from the chairman, managers, and the chief accountant, auditor review, and board submission.
3. Monthly operational status reports must be announced by the 10th day of each month.

When companies can’t meet reporting deadlines, they should request an extension from regulators. The TWSE may suspend trading while evaluating the situation. If a company’s stock remains suspended and it fails to provide qualified financial reports within six months, it risks delisting.

In Chung Fu’s case, it initially faced trading suspension in August 2022 for not reporting Q2 financials on time. Early this year, it encountered a second suspension for not delivering ‘qualified’ financial reports for 2022. What caused the delays, and what does ‘qualified’ reporting mean?