Black technology: a super empire spanning two worlds

Chapter 345 [The Better-than-Expected Third Quarter Report]

The date is Wednesday, October 16th.

Lingjing Technology Headquarters, Chairman's Office.

"Come in." Xiao Yu responded and looked up to see Yun Shu walk in. She exchanged a glance with Xiao Yu and said, "The company's third-quarter financial report is out, as is Likang Technology's third-quarter financial report. Zhou Chengyang emailed me a copy of the third-quarter data, which I printed out."

After she finished speaking, she placed the two financial statements on her desk. Xiao Yu glanced at them and then picked up the one from Likang Technology to take a look.

Likang Technology's total operating revenue in the third quarter was RMB 10.19 billion, up 570.39%; net profit was a loss of RMB 1415.17 billion, a year-on-year decrease of 188789.39%.

In September, the sales volume of Liuguang Xingyu lifelike dolls reached more than 3157 million units. With the accompanying revenue, the total sales volume reached 5715 billion yuan. The company's cash flow also increased dramatically, and now it has more than 430 billion yuan in cash reserves.

Based on the 30/70 profit split with Lingjing Technology, Likang Technology will receive 437.26 billion yuan in net profit from the Flowing Star Language lifelike dolls it sold in the first quarter.

The third-quarter financial report only showed revenue of around 10 billion yuan, and 2 million yuan of that revenue came from Likang Technology's original core business. The popularity of "Liuguang Xingyu" also boosted the company's previous business.

However, the net profit in the third quarter was a huge loss of over 1415 billion yuan.

The reason why Likang Technology's third-quarter report is like this is because the sales of the "Liuguang Xingyu" product have not yet been reflected in the third-quarter financial report. The product adopts the "pay first, then deliver" model, which is actually a pre-sale model, no different from real estate pre-sales.

According to the Accounting Standards for Business Enterprises, pre-sale revenue is not directly included in the revenue of the current period's financial statements for accounting purposes. For tax purposes, the estimated gross profit is calculated based on the estimated gross profit margin and included in taxable income.

When a company receives advance payments, it does not recognize revenue because it does not meet the revenue recognition principle. Instead, it records the amount as a liability in advances from customers and recognizes revenue only when the products are delivered to the buyer.

Similarly, for pre-sale business, the profits from the pre-sale stage are not included in the current period's profits, nor are they reflected in the current period's financial statements.

In the third quarter, Likang Technology pre-sold more than 3157 million units of Liuguang Xingyu, with a total revenue of 5715 billion yuan. Of these, only 45,000 units were delivered and confirmed in the third quarter, with a confirmed revenue of just over 800 million yuan. Only these 800 million yuan were reflected in the third quarter report, so the revenue in the third quarter was around 1 billion yuan.

The company's balance sheet showed an additional 5706 billion yuan in liabilities in the third quarter. Only after the more than 3175 million "Flowing Star Words" corresponding to this liability are delivered and revenue is recognized can this liability be reversed into the company's real revenue and profit, and reflected in the current financial report.

The amount of goods delivered and confirmed in the current period will be reflected in the current period's financial statements.

Likang Technology will then ramp up its production capacity, and its expenditures will also increase exponentially because the production target is huge and the time is tight.

“According to its financial report, production capacity is still a bit slow.” Xiao Yu finished reading the document, put it down, and then looked up at his beautiful assistant before adding, “Go and urge Zhou Chengyang later. It’s too slow. He needs to speed it up. At this pace, the production capacity target cannot be achieved.”

Yun Shu nodded: "Okay, I understand."

Xiao Yu then picked up his company Lingjing Technology's third-quarter report and took a look.

According to the third-quarter financial report, Lingjing Technology's total revenue was 4796.76 billion yuan, a year-on-year increase of 173.59%; net profit was 2202.37 billion yuan, a year-on-year increase of 287.83%; and the company's cash reserves exceeded 1 trillion yuan.

Lingjing Technology's net profit margin exceeded 40% for the first time, reaching 45.91%, compared to the previous fluctuations of around 30%.

The reason, of course, is that the "Flowing Star Language" lifelike doll product sold extremely well and became a phenomenal bestseller. Lingjing Technology took 70% of the net profit, but did not bear the operating costs, manufacturing costs, marketing costs, etc., all of which were borne by Likang Technology.

In other words, the portion of the payment received by Lingjing Technology represents 100% of its net profit growth.

For Likang Technology, it's considered a pre-sale payment and doesn't appear in the current financial report. However, for Lingjing Technology, it's a different story. It's not a pre-sale payment but rather an account payable to Likang Technology. The money is directly transferred to Lingjing Technology in the current period, and it's reflected in Lingjing Technology's third-quarter report as 100% of its revenue and net profit.

This sum is approximately 1020 billion yuan, and this amount is reflected as an expense in Likang Technology's current financial statement. Therefore, Likang Technology's loss of over 1400 billion yuan in the third quarter was due to the payment of this expense and investments in expanding production capacity. Lingjing Technology's net profit for the first half of this year was 2435.53 billion yuan, and its net profit in the third quarter almost equaled the first half's total net profit for the entire year, only 233.16 billion yuan less than the first half.

In the first three quarters of this year, Lingjing Technology's revenue exceeded one trillion yuan, reaching 12330.44 billion yuan, and its net profit in the first three quarters reached 4637.9 billion yuan.

Finally, Xiao Yu finished reading the financial report, put it down, and asked Yun Shu, "Has Likang released its third-quarter report yet?"

Yun Shu immediately replied, "The company has already announced today that it will release its third-quarter financial report tomorrow morning."

After thinking for a moment, Xiao Yu made a decision and said, "Then let's release Lingjing Technology's third-quarter report two days later, during this weekend."

Yun Shu nodded: "Okay."

Likang Technology announced today that it will release its outstanding third-quarter results tomorrow, and the company's stock price rebounded further today, rising by more than 15 points to reach 1555.92 yuan, with its market value recovering to 7235.02 billion yuan.

The capital market is also paying close attention to Likang Technology's third-quarter financial report, as investors are very concerned about whether the product is profitable or not.

……

The following day, Thursday, October 17th.

Around 9 a.m., Likang Technology officially released its third-quarter financial report before the market opened, attracting widespread attention.

一些看不懂财报的股民都懵圈了，怎么才收入10个亿出头？流光星语在9月份狂销3100多万单，怎么着收入也不应该低于5000亿吧？还有这净利润怎么会爆亏1400多个亿？
Most stock market investors don't really understand financial statements, nor do they want to. They usually just look at revenue, net profit, operating cash flow, and that's about it.

The listing of Likang Technology on the Beijing Stock Exchange blocked the trading of most retail investors, but it did not completely eliminate retail investors; there were still some large retail investors with substantial funds.

After the financial report was released, many retail investors who were watching said they couldn't understand it. Some investors who had trading privileges on the Beijing Stock Exchange and had bought shares of Likang Technology yesterday thought it was a major negative and chose to sell immediately.

As a result, Likang Technology opened 7.73% lower today, and even its neighbor Lingjing Technology opened 1.22% lower.

However, as time went on, at 9:30, Likang Technology opened without any pullback, and immediately went from low to high, surging straight up and showing a short squeeze. The opening price was the lowest price of the day.

In just one minute, the stock turned red and rose, and continued to climb. Institutional funds and investors who understood the financial report were snapping up shares. They were delighted when they saw the large gap down at the open, as they were able to pick up shares at such a low price.

Around 9:52 AM, major market data software platforms pushed out the following messages:
[Likang Technology's stock price surged in early trading, rising over 24%. As of press time, the stock price reached 1935 yuan, a new historical high, with a current trading volume of 137 billion yuan.]

Just as the market data software popped up a news alert, a massive 6 million yuan buy-in occurred in the trading room of Likang Technology, pushing the stock price up to 2022.70 yuan, a 30.00% increase, hitting the daily limit.

Within that minute, the trading volume rapidly expanded to 17.23 billion, and the order book on the board reached 85.81 billion, directly locking in the daily limit up.

After hitting the daily limit, Likang Technology's total market value further increased to 9405.55 billion yuan, and it remained locked at the limit throughout the day without ever opening again.

Those who panicked and sold during the bidding period were slapping their thighs in disbelief. Many investors were also bewildered: how could a company that lost over 1400 billion yuan in a quarter still manage to hit the daily limit? Those who had this question clearly didn't understand Likang Technology's third-quarter report. Those who truly understood it realized that this third-quarter report was absolutely explosive, exceeding expectations on an epic scale.

……

(End of this chapter)