The proportion of inflated profits reaches as high as 82.33%! ST Dongshi received a regulatory penalty, and the company's stock was further subjected to other risk warnings.

On the evening of March 20, ST Dongshi (SH603377, stock price 3.54 yuan, market value 2.5 billion yuan) announced that the company and relevant responsible persons received the “Notice of Administrative Penalty” from the Beijing Regulatory Bureau of the China Securities Regulatory Commission (CSRC). Investigation found that in 2022, ST Dongshi artificially inflated its annual profit by nearly 19 million yuan through underreporting expenses, accounting for 82.33% of the disclosed profit for that period.

As a result, ST Dongshi’s stock will be subject to additional risk warnings starting March 23, 2026. Coupled with previous issues such as negative opinions on internal control audit reports and three consecutive years of losses, this marks the third time ST Dongshi has triggered a risk warning.

Company and Three Responsible Persons Fined

The “Notice of Administrative Penalty” shows that the Beijing CSRC has completed its investigation into suspected information disclosure violations by ST Dongshi.

The investigation revealed that in 2022, ST Dongshi did not account for its subsidiary Chongqing Dongfang Fashion Driving Training Co., Ltd. (hereinafter referred to as Chongqing Dongfang Fashion) land leasing business, underreporting management and financial expenses, leading to false disclosures in the 2022 semi-annual and annual reports.

Specifically, in the 2022 semi-annual report, profits were inflated by 9.4029 million yuan, accounting for 30.97% of the disclosed profit. In the 2022 annual report, the inflated profit increased to 18.931 million yuan, representing 82.33% of the disclosed profit.

It was not until April 30, 2024, that ST Dongshi issued an “Announcement on Correction of Prior Accounting Errors and Retroactive Adjustments,” proactively correcting and retroactively adjusting the 2022 financial statements.

Several senior executives were identified as directly responsible for this violation. Among them, Xu Xiong, Chairman of Dongfang Fashion and Chongqing Dongfang Fashion, was accused of neglecting duties and failing to provide written confirmation that the 2022 semi-annual and annual reports were true, accurate, and complete. The then General Manager Yan Wenhui, as well as Vice General Manager, CFO, and Board Secretary Wang Hongyu, were also held accountable for neglecting duties and signing confirmation statements.

Based on the facts, nature, and social harm of the violations, the Beijing CSRC plans to order the company to rectify, issue a warning, and impose a fine of 1.8 million yuan. For individuals, Xu Xiong is proposed to receive a warning and a fine of 1 million yuan; Yan Wenhui and Wang Hongyu are proposed to receive warnings and fines of 800,000 yuan each.

This administrative penalty also triggered a chain reaction in securities market regulation. ST Dongshi stated that, according to the notice, the company has violated Article 9.8.1, Paragraph 1, Item (7) of the “Shanghai Stock Exchange Stock Listing Rules (Revised April 2025).” Starting March 23, 2026, the stock will be subject to additional risk warnings. Afterward, the stock will continue to trade under the “ST Dongshi” abbreviation with a daily price fluctuation limit of 5%, and will remain on the risk warning board.

Previously, ST Dongshi had already been under risk warning status due to multiple issues.

In 2024, Beijing Dehao International Accounting Firm (Special General Partnership) issued a negative opinion on ST Dongshi’s internal control audit report. The stock has been under additional risk warning since April 30, 2025. Additionally, due to three consecutive years of losses from 2022 to 2024 and the audit report indicating uncertainty about the company’s ongoing viability, the company also entered a risk warning situation.

Multiple Risks Overlapping: Pre-Reorganization Underway, Bond Repayment Pressure

Beyond regulatory penalties, on March 11, ST Dongshi issued a warning announcement, announcing a change in its largest shareholder.

The announcement showed that Dengtou Holding Group Co., Ltd. (hereinafter referred to as Dengtou Holding) and its concerted action partner Anhui Rongzhi Management Consulting Partnership (Limited Partnership) (hereinafter referred to as Anhui Rongzhi) have been continuously increasing their holdings through various means. As of March 9, 2026, Dengtou Holding and its concerted action partner held over 87.04 million shares, accounting for 12.17% of the total share capital, becoming the largest shareholder.

Dengtou Holding has a registered capital of 1.5 billion yuan, with Hu Yechao as legal representative. Its business scope includes corporate headquarters management, software development, and new energy vehicle sales. Its concerted action partner, Anhui Rongzhi, also has Dengtou Holding as its executive partner.

Meanwhile, ST Dongshi’s bankruptcy reorganization process is also progressing.

On July 10, 2025, ST Dongshi received a “Decision” from the Beijing First Intermediate People’s Court, initiating pre-reorganization and appointing ST Dongshi’s liquidation team as the temporary administrator.

On August 19, 2025, ST Dongshi, the temporary administrator, and the reorganization investor signed a “Reorganization Investment Agreement.” On the same day, the company announced that non-operational capital occupation issues by the controlling shareholder and its related parties had been fully repaid through third-party compensation and debt transfer.

According to the progress announcement disclosed in early March, the company is still in the pre-reorganization stage, and whether it will enter formal reorganization remains uncertain. The announcement states that the company is actively cooperating with the temporary administrator to advance various pre-reorganization tasks, including creditor declaration and review, reorganization audit, and valuation. If the court later accepts the reorganization application, the stock will be subject to delisting risk warning.

Regarding debt pressure, ST Dongshi’s convertible bond “Dongshi Convertible Bond” will mature on April 8, 2026. The company expects to be unable to repay the principal and interest on time.

The announcement notes that the last trading day for the “Dongshi Convertible Bond” is April 2, 2026. If the company ultimately enters formal reorganization, the registered convertible bond holders’ claims will participate in the debt repayment as reorganization claims, with repayment plans and timing still uncertain.