Juewei’s Three-Year Investment Record: Hefu Noodle Losses and a RMB 160 Million Exit Gain

This is an English adaptation of a FoodBud historical article originally published on August 26, 2023.

On August 22, 2023, Juewei Food received a warning letter from the Shanghai Stock Exchange. The letter cited violations involving information disclosure, governance procedures, and responsible personnel’s duty performance. The issues included undisclosed co-investments with related parties and failure to disclose related parties and related-party transactions as required.

What the Exchange Flagged

Undisclosed related-party co-investment

Juewei Food’s wholly owned subsidiary Shenzhen Wangju Investment Co., Ltd. participated in Hunan Si Yi Wu Private Equity Fund Enterprise (Limited Partnership), subscribing for a 65.35% share.

In August 2019, Juewei director Wang Zhenguo entrusted Peng to hold limited-partnership interests in Hunan Liangshi Shengyou Enterprise Management Consulting Partnership, which then subscribed for interests in Hunan Si Yi Wu. In September 2019, Chen, the son of Juewei director Chen Geng, invested RMB 20 million in Hunan Si Yi Wu for a 4.4% subscribed share.

These were related parties investing alongside Juewei Food in Hunan Si Yi Wu and should have been treated as related-party transactions. Juewei did not identify or disclose them as such, nor did it complete the required review procedures.

Failure to disclose related parties and related-party transactions

On March 9, 2021, Hunan Si Yi Wu, Shanghai Xinxiang Enterprise Development Partnership, and Shanghai Ganxiang Enterprise Development Partnership acquired equity from the original shareholders of Changsha Caiyun Agricultural and Sideline Food Products Co., Ltd., a Juewei supplier. Their respective acquired stakes were 15.5%, 20%, and 17%.

After the transfer, Juewei had close links with Changsha Caiyun through Shenzhen Wangju and through directors, supervisors, and relatives indirectly holding Changsha Caiyun shares via partnerships. The disclosed links included:

• Shenzhen Wangju held 65.35% of Hunan Si Yi Wu.
• Chen, son of director Chen Geng, held 4.4% of Hunan Si Yi Wu.
• Wu, wife of then board secretary Peng Gangyi, held 15% of Shanghai Xinxiang.
• Xie, wife of director Wang Zhenguo, held 52.94% of Shanghai Ganxiang.
• Huang, wife of director Jiang Xingzhou, held 5.88% of Shanghai Ganxiang.
• Peng, brother of supervisor Peng Hao, held 17.65% of Shanghai Ganxiang.

Under the substance-over-form principle, Changsha Caiyun should have been identified as a related party. Juewei did not recognize Changsha Caiyun as a related party until September 25, 2021, when former CFO Peng Caigang became a supervisor at Changsha Caiyun. From March 9 to September 25, 2021, Juewei did not classify RMB 85.2053 million of transactions with Changsha Caiyun as related-party transactions and did not complete the relevant review and disclosure procedures.

Irregular handling of store receipts, franchise fees, and management fees

From January 2013 to July 2018, Juewei collected a total of RMB 21.0707 million in store operating receipts, franchise fees, and management fees through employees’ personal accounts. The funds were not deposited into company accounts, constituting operating fund occupation. Juewei recovered the full amount from the responsible personnel only on March 17, 2023.

Investment Portfolio Details Disclosed Earlier

Juewei had already issued an announcement in July 2023 clarifying some of these violations to the Shanghai Stock Exchange. That announcement also disclosed parts of its investment layout.

As of the end of 2022, Juewei had 17 external investments where its shareholding was below 20%, with total investment of nearly RMB 1 billion. The highest-cost investment was Hefu Noodle. Juewei had previously exited part of its Hefu Noodle position, recovering RMB 200 million of investment principal and generating RMB 160 million in investment income.

Hefu Noodle had more than 400 stores by the end of 2022. Its revenue for 2020, 2012, and 2022 was RMB 1.1 billion, RMB 1.73 billion, and RMB 1.46 billion respectively, according to the original article. Across those three years, annual net losses exceeded RMB 200 million; in 2022, the net loss was close to RMB 300 million.

Juewei also had 12 investments where its shareholding exceeded 20%, with total investment cost of RMB 1.85 billion. These were mainly cooperative funds.

Over the previous three years, Juewei generated RMB 1.946 million of gains from exiting Zhaimen and RMB 160 million of gains from exiting Hefu Noodle.

A Loss-Making Exit: Chongqing Fuling Lameizi

Chongqing Fuling Lameizi Pickles Co., Ltd. received investment from Juewei in 2018. In 2019, the company recorded RMB 3 million in net profit.

In 2020, during post-investment management, Juewei found that the company had external guarantees and asset-transfer matters that had not been disclosed to shareholders. Juewei decided to limit losses and recover its investment. As a result, the sale price for the equity was below book value, creating an investment loss.

Note: IPO, investment, exit-gain, and loss figures are historical and reflect the article’s 2023 disclosure context.