overseas regulatory announcement reply to a notice of feedback on the review of the administrative

425 Pages·2017·3.8 MB·English

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong
Kong Limited take no responsibility for the contents of this announcement, make no
representation as to its accuracy or completeness and expressly disclaim any liability
whatsoever for any loss howsoever arising from or in reliance upon the whole or any
part of the contents of this announcement.
OVERSEAS REGULATORY ANNOUNCEMENT
REPLY TO A NOTICE OF FEEDBACK ON THE REVIEW OF THE
ADMINISTRATIVE LICENSING PROJECT OF THE CSRC
This announcement is made pursuant to Rule 13.10B of the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited.
The following sets out the “Reply to A Notice of Feedback on the Review of the
Administrative Licensing Project of the CSRC” published by Dongfang Electric
Corporation Limited on the website of the Shanghai Stock Exchange (www.sse.com.cn)
for your reference only.
By order of the Board
Dongfang Electric Corporation Limited
Gong Dan
Company Secretary
Chengdu, Sichuan, the PRC
25 January 2018
As at the date of this announcement, the directors of the Company are as follows:
Directors: Zou Lei, Zhang Xiaolun, Huang Wei,
Xu Peng and Zhang Jilie
Independent Non-executive Directors: Chen Zhangwu, Gu Dake and Xu Haihe
– 1 –
DONGFANG ELECTRIC CO. LTD

Reply to A Notice of Feedback on the Review of the
Administrative Licensing Project of the CSRC

DONGFANG ELECTRIC CO. LTD
January 2018
CONTENTS
1. The application materials shows that 1) in this transaction, the Listed Company intends to
purchase 95% stock rights of DEC Finance Co., Ltd. from Dongfang Electric Corporation
(hereinafter referred to as the DEC). At the same time, a total of 833 equipment assets and 472
intangible assets, such as intellectual property rights, are to be purchased from Dongfang Electric
Corporation by the Listed Company. 2) In January to June 2017, Chengdu Dongfang Electric
Clean Energy Co,. Ltd, (hereafter referred to as "DEC Clean Energy") and Chengdu Dongfang
Electric Smart. Energy Co.,Ltd. (hereafter referred to as "DEC Smart Energy") achieved a net
profit of RMB 60,400 and RMB 314,900 respectively. Please: 1) Supplement to disclose the
reasons and rationality of not purchasing all shares of DEC Finance in this trade, and disclose
whether there is subsequent plan or arrangement to purchase remaining shares. 2) Supplement to
disclose the concluded agreements and arrangements between Listed Company and Dongfang
Electric Corporation in terms of DEC Finance control power arrangement and company
governance, and their influence on independence of Listed Company. 3) Supplement to disclose
the actual consuming body, consuming methods, determined consuming consideration and
payment arrangement of relevant equipment assets and intangible assets after transaction. And
disclose whether there will be benefit transfer between related parties or other conditions which
damage the rights of Listed Company and other minority shareholders, if so, whether there are
feasible preventive measures. 4) Combining the belonged industries, specific purposes, core
values (particularly the profit ability of DEC Clean Energy and DEC Smart Energy) of above
equipment assets and intangible assets, supplement to disclose whether there is synergy effect
between above relevant assets with Listed Company or other underlying assets in this transaction,
as well as to disclose the rationality and necessity the transaction. The Independent Financial
Adviser and lawyer shall verify and give clear opinions. ............................................................... 17
2. The application materials show that there are two pending litigation of DEC Finance in the
report period: 1) the case of financial loan contract dispute case, the court has decided in October
2014 that the defendant shall pay RMB 367,091,700 to DEC Finance. Loans made to the
defendant for impairment of assets in the previous year were withdrawn in the year 2016, thus the
amount of asset impairment provision for the relevant funds in 2015 was RMB 164,000,000. 2) In
the dispute case of the Creditor's right of revocation, the Supreme People's Court judged and
confirmed that the Mortgage Contract of Maximum Amount signed between DEC Finance and
Dongfang Electric Group Emei semiconductor materials Co., Ltd was invalid, and DEC Finance
has applied for protest. Please supplement disclosure: 1) for lawsuit and execution progress of the
above-mentioned dispute case of financial loan contract, does DEC Finance has the risk of being
unable to withdraw all loan involved in the case after winning the lawsuit? If yes, what are the
amount of loan that cannot been withdrawn and time arrangement and concrete measures of claim
for fund, and will DEC Finance's loan that was not withdrawn form non-operational fund
occupation of related parties after this transaction? 2) Dispute focus of the dispute case of the
Creditor's right of revocation, concrete content of the Mortgage Contract of Maximum Amount,
purpose of debt, estimated time of payment, the final undertaker of credit risk, the actual amount
of debt so far, the actual debt paying ability of Dongfang Electric Group Emei semiconductor
materials Co., Ltd, whether there is arrangement of prepayment or arrangement that a third party
pays back instead and provides guarantee, etc. 3) The influence on DEC Finance's production and
operation as well as assessed value this time in case that the Mortgage Contract of Maximum
Amount is affirmed to be invalid. 4) Whether DEC Finance calculated and withdrew accrued
liabilities and compliance of accounting treatment. The Independent Financial Adviser, lawyer and
valuer shall conduct inspection and give clear opinions. ................................................................ 30
3. The application materials show that 1) the dispute between the Dongfang Electric International
Corporation (hereafter referred to as "DEC International Corporation") and local tax authorities in
Indonesia on the final tax and branch profit tax of construction contract for 5X325MW coal-fired
power plant has not been settled. According to local laws and regulations and similar cases in
Indonesia, the above two cases may cause DEC International Corporation to undertake RMB
459,000,000 or liabilities, and DEC International Corporation has calculated and withdrawn
estimated liabilities. 2) The project was delayed in delivery due to DEC International
Corporation's failure in delivery of goods of foreign export project and for other reasons, thus
DEC International Corporation's possibility of being fined was high. DEC International
Corporation has calculated and withdrawn corresponding estimated liabilities. 3) DEC and
Dongfang Electric Corporation appointed that Dongfang Electric Corporation shall pay cash of the
balance between related total actual loss and withdrawn amount to DEC (or DEC shall appoint
DEC International Corporation to be the main receiving body). 4) If the total amount of the tax,
overdue fine and fine paid by DEC International Corporation and other expenses is less than the
estimated amount, DEC shall deduct deferred income tax asset confirmed on December 31, 2016
and reflected in evaluation of estimated tax, overdue fine and fine not actually produced in
Indonesian project from the balance and pay it to Dongfang Electric Corporation in cash. Please
supplement the disclosure: 1) treatment progress of the above unsolved dispute, whether there are
other disputes so far, calculation process and confirmation basis of deferred income tax asset and
whether they conform to regulations of Accounting Standards for Business Enterprises. 2)
Whether Dongfang Electric Corporation has the capacity of fully performing the above cash
payment obligation and whether related urge and supervision measures help to protect rights and
interests of listed companies and minority shareholders. 3) Whether DEC International
Corporation establishes internal control system related to project construction and effectively
executes it. After the completion of transaction, what measures will be adopted to ensure the
standardized management of Listed Company and effective prevention against relevant risks. 4)
The influence of disputed issues mentioned above on the Listed Company after the transaction and
completion of the transaction. The Independent Financial Adviser, lawyers, valuers and
accountants are required to verify and issue the clear opinions. ..................................................... 65
4. The application documents show that on May 9, 2014, NamMang 1 Power Company Limited
(hereinafter referred to as NamMang Company) signed a loan agreement of USD 64,950,000 with
the Export-Import Bank of China, and NamMang Company provided the assets and rights
obtained after the implementation of the agreement to provide guarantees to the Export-Import
Bank of China as guarantee. DEC International Corporation provides complete guarantee for the
above loans and provides the Export-Import Bank of China with all equity in NamMang as pledge.
Please supplement the disclosure of: 1) the expected repayment time of the debt guaranteed by the
above-said equity pledge; actual debt paying ability of NamMang Company and the possibility of
early repayment or repayment and provision of guarantee by a third party and other arrangements.
2) The impact of equity pledge on the valuation and production and operation of DEC
International Corporation and relevant risk control measures. The Independent Financial Adviser,
lawyer and Valuer shall conduct inspection and give clear opinions. ............................................. 77
5. According to the application materials, there are 8 pending lawsuits in Dongfang Hitachi (CD)
Electrical Control Equipments Co., Ltd. (hereinafter referred to as Dongfang Hitachi). The court
has ruled that they are in the stage of enforcement or mandatory enforcement. Please disclose
whether Dongfang Hitachi has the risk of failing to enforce the favorable judgment, and whether
the corresponding assets are confirmed with respect to the aforesaid pending lawsuits. If this is
the case, disclose the influence of unsuccessful execution on this transaction and the ongoing
operation of Orient Hitachi. The Independent Financial Adviser, accountant and lawyer shall
conduct inspection and give clear opinions..................................................................................... 83
6. The application materials shows that Dongfang Electric Corporation has not obtained the
ownership certificate with respect to the premise rented to DEC Finance and DEC International
Corporation and has not have the lease registered; the premise rented to Dongfang Electric
(Sichuan) Materials Co.,Ltd.(hereinafter referred to as Materials Company) and DEC Bulk
Logistic Co., Ltd. (hereinafter referred to as DEC Bulk Logistic) by Dongfang Electric
Corporation has not been registered. Please add the disclosure: 1) the reason why the ownership
certificate for above premise is not obtained and the influence that the ownership flaw will exert
on the production and operation of the Listed Company after the transaction is finished. 2) The
reason why relevant Lease Agreement failed to undergo register-for-record procedure, whether
there exists rent default risk or not and the influence that these points will exert on the stability of
the production and operation of the Listed Company. The Independent Financial Adviser and
lawyer shall verify and give clear opinions. .................................................................................... 93
7. The application materials show that part of software products registered by Sichuan Dongfang
Electric Automatic Control Engineering Co., Ltd. (hereinafter referred to as DEA) and Dongfang
Hitachi will expire in 2018. Please: 1) Supplement and disclose the renewal plan of above
software products, and the influence on the production and operation of the underlying assets if
there will be legal obstacles for the renewal. 2) Supplement and disclose the necessity of buying
above software products in combination with expiration time of above software products. The
Independent Financial Adviser and lawyer shall verify and give clear opinions. ......................... 100
8. Your Company shall carry out a comprehensive verification over the existing and possible new
horizontal competition between the Listed Company and Dongfang Electric Corporation after the
completion of the transaction, and shall perfect, supplement and disclose the commitments of
Dongfang Electric Corporation on avoiding or solving the horizontal competition according to the
requirement of Guideline No. 4 for the Supervision of Listed Companies – Commitments and
Fulfillment of Commitments of the Actual Controllers, Shareholders, Affiliates, and Acquirers of
Listed Companies as Well as the Listed Companies.The Independent Financial Adviser and lawyer
shall verify and give clear opinions. ............................................................................................. 106
9. The application materials show that the other receivables of the DEC International Corporation
are mainly those from Dongfang Electric Corporation. Your company is required to supplement
and disclose whether Dongfang Electric Corporation occupies non-operating assets of the related
parties and whether the transaction meets the requirements of Article 3 - Applicable Opinions on
the Issue of Funds Occupied by the Assets to be Purchased - Securities and Futures Law Opinion
No. 10 of Measures for Administration of Material Assets Reorganization of the Listed Company.
The Independent Financial Adviser, lawyers and accountants are required to verify and issue the
clear opinions. ............................................................................................................................... 132
10. The application materials show that there are receivables between Dongfang Electric
Corporation with respect to other underlying assets except for the equipment assets and intangible
assets in the transaction. Your company is required to supplement and disclose the total amount of
the receivables between Dongfang Electric Corporation with respect to the aforesaid underlying
assets, the amount that has not been recovered and bad debt accrual until now as well as whether
the transaction will lead to the occupation of new non-operating capital of the new related parties
in the transaction. The Independent Financial Adviser and lawyer shall verify and give clear
opinions. ........................................................................................................................................ 135
11. The application materials show that in addition to the underlying asset injected into the
transaction by Dongfang Electric Corporation, Dongfang Investment Management Co, Ltd. and
other subsidiaries are also included. At the same time, the 9th session of the second Board of
Director's resolution of Dongfang Electric Corporation decided to transfer the property of DEC
Finance and Materials Company to Dongfang Investment Management Co, Ltd. without any
compensation. Your company is required to supplement and disclose: 1) selection of the specific
standards of reorganizing the relevant assets of Dongfang Electric Corporation into Dongfang
Electric System. 2) Whether allocation of the aforesaid assets has any adverse impacts on the
stability of personnel, integrity of assets and business development of the Listed Company or it
may affect the independent decision-making and operation of the Listed Company. If yes, whether
there are any feasible solutions. 3) Whether there is are follow-up acquisition plans or
arrangements for the non-purchased assets. 4) Whether the reason and rationality of Dongfang
Electric Corporation transferring the relevant house property of underlying assets to non-
purchased assets without compensation will affect the production and operation of the underlying
assets and harm the interests of the Listed Company and the minority shareholders. The
Independent Financial Adviser, lawyers and accountants are required to verify and issue the clear
opinions. ........................................................................................................................................ 138
12. The application materials show that the main business of Dongfang Electric is providing large-
scale power generation complete equipment, and engineering contracting and services. After the
completion of reorganization, the business scope of Dongfang Electric will additionally include
power electronics and control, finance, logistics, trade, new energy, industrial smart equipment
and other business. Your company is required to: 1) Supplement and disclose the main business,
future business development strategy and business management mode of the Listed Company after
the transaction in combination with the financial indicators. 2) Supplement and disclose the
integration plan, risks of integration and the corresponding management control measures in
business, assets, finance, personnel, institutions, corporate governance and other aspects after the
transaction. 3) Supplement and disclose specific embodiment of synergy effect in market,
customers, technology and other aspects of the Listed Company and the underlying assets. 4)
Supplement the disclosure of any risk of losing the core personnel of the underlying assets due to
the transaction and the concrete measures to maintain the stability of the major management and
staff teams of the underlying assets after the transaction. The Independent Financial Adviser and
lawyer shall verify and give clear opinions. .................................................................................. 143
13. The application materials show, the net profit attributable to shareholders of the parent
company of Dongfang Electric was RMB -1,784.3068 million in 2016. Please check, add and
disclose relevant information according to the regulation, Related Questions and Answers about
Sudden Changes of Performance Before the Major Assets Reorganization of Listed Companies or
Situation of Intended Exchange-out of Assets in this Asset Reorganization. After that, independent
financial advisers, lawyers, accountants and appraisers shall be invited to verify and issue explicit
opinions. ........................................................................................................................................ 154
14. Your company is asked to: 1) provide supplementary disclosure on the names of top 5 clients
and suppliers, sales details, sales amount and ratio preceding to the reporting period of each
underlying asset. 2) make supplementary disclosure on the fairness of pricing in the connected
transactions during the reporting period of each underlying asset by taking reference of the
underlying asset’s transaction price with a third party. 3) make supplementary disclosure if the
transaction benefits the company in reducing the listed company’s connected transactions and
enhancing the listed company independence by taking reference of the listed company’s situations
before and after the transaction. Reviews and clear opinions from independent financial consultant
and account are required. .............................................................................................................. 195
15. The application materials show that Nam Mang 1 Power Company Limited is an overseas
subsidiary of DEC International Cooperation, which owns 75% of share proportions. Please check
whether the business data ofNam Mang 1 Power Company Limited is in compliance with the Item
(9) of Article 16of the Guidelines for Content and Format of Information Disclosures by
Companies that Offer Securities to the Public No.26-Momentous Asset Restructuring of Listed
Companies (Revised in 2017); if so, please add the relevant information. Reviews and clear
opinions from independent financial consultants and lawyers are required. ................................. 234
16. The application materials show that the production capacity, production and efficiency of DEC
Automatic Control and DEC Hitachi during the reporting period have been disclosed except for
indicators of capacity utilization rates, changing trends, change tendency, changing reasons and
the match with the revenue of each period of operation in terms of the specific products for the
reporting period. Reviews and clear opinions from independent financial consultants and accounts
are required. .................................................................................................................................. 236
17.The application materials show that the Materials Company adopts the business model of agent
purchasing, and participate in clients' raw materials biddings. The Materials Company purchases
raw materials on behalf of clients after wining the biddings and then sells to clients, and charges a
certain proportion of agency fees. The main materialsfor agent sales include large and medium
caliber steel tubes, inner diameter steel tubes, large-size forgings, stainless steel plates, stainless
steel tubes, silicon steels, welding materials and other types of steel products and spare parts.
Please: 1) Provide supplementary disclosuress on reasons that downstream clients do not directly
purchase products from upstream suppliers according to industrial features, pattern of market
competitions, business model of upstream and downstream clients, and business advantages of the
Materials Company. 2) Provide supplementary disclosuress on the determination basis for agency
fees of the Materials Company, and whether the proportion of agency fees are different from that
of the same industry companies, if so, please specify. Reviews and clear opinions from
independent financial consultants and accounts are required. ...................................................... 242
18.The application materials show that: 1) By the end of December 31, 2016, the book value of
net assets of DEC Finance was RMB2,772.6653 million, which was RMB3,252.8443 million
valued by market approach and the value-added ratio was 17.34%. 2) The main business of DEC
Finance is to provide financial services to the member units of DEC Group, forming more
connected transactions. Please provide supplementary disclosuress on whether relevant connected
transactions have effects on the assessment result of DEC Finance according to the connected
transactions between DEC Finance and listed companies, and other underlying business in this
transaction, cancellation conditions of relevant connected transactions in underlying assets
consolidated statement and financial statement for alternate references, net assets and net profits of
DEC Finance after offsetting, etc.. If so, please specify the management and rationality of the
above connected transactions in the assessment. Independent Financial Advisers and Appraisers
are requested to verify and make clear comments. ....................................................................... 246
19. The application materials show that, in the evaluation of income approach, it is predicted that
the main business income of DEC International Cooperation will reach RMB1,528.5783 million in
2017, with a net profit of RMB207.3392 million. Please provide supplementary disclosuress on
the realizability for DEC International Cooperation's income and net profit forecast in 2017
according to relevant circumstances, including but not limited to the latest operating data, seasonal
characteristics of operation, orders in hand and execution status, etc. Independent Financial
Advisers and Appraisers are requested to verify and make clear comments. ............................... 250
20. The application materials show that, the operating income of DEC International Cooperation
was RMB1,738.7528 million in the year of 2016. Based on the Income Approach, it is estimated
that the operating income in 2017 will be RMB1,528.5783 million, with the predicted growth rate
of -12.1%. And the growth rates among 2018-2021 are 30.66%, 22.45%, 17.99% and 8.72%
respectively. Please combine your future development plans, industry trends and predicted reasons
for the decline of earnings in 2017 to further improve the rationality of your estimated revenue and
net profit growth rate and whether the decline of revenue in 2017 will affect your future income.
Please ask your independent financial advisers and appraisers to check and issue clear opinions.
...................................................................................................................................................... 253
21. The application materials show that, the average value of newly-signed contracts per year was
349 million U.S. dollars in the recent five years. In 2017, the value of newly-signed contracts was
350 million U.S. dollars, close to the average level of the past five years, which was higher than
the value of 320 million U.S. dollars in 2016. Please: 1) further prove the feasibility of realizing
your estimated revenue based on the newly-signed contracts in 2017 in accordance with your
latest contract-signing situation; 2) further prove the feasibility of realizing your estimated revenue
based on the analysis of your average performance time and revenue recognition time.
Verifications and clear opinions from independent financial advisers and appraisers are required.
...................................................................................................................................................... 260
22. The application materials show that the combined gross profit margin of the DEC International
Cooperation for the forecast period under income approach is 24.7%, 21.5%, 19.8%, 18.4% and
17.7% respectively; during 2014-2016, the average gross profit margin of product sales at DEC
International Cooperation is 18.45%, and the average gross profit margin of construction contract
is 21.94%. As shown in your financial projections, the estimated gross profit margin of product
sales is higher than its historical average while the expected gross profit margin of construction
contract is lower than its historical average, please provide supplementary disclosures to state
(specify) the reason and rationality for such projections. Reviews and clear opinions from
independent financial consultant and appraiser are required. ....................................................... 264
23. The application materials show that the assessment discount rate by income approach of DEC
International Cooperation is 13.57%. Please provide supplementary disclosures on the rationality
of the selection of the discount rate by income approach based on the recent comparable
transaction cases. Reviews and clear opinions from independent financial consultants and
appraisers are required. ................................................................................................................. 268
24. The application materials show that income-approach assessment is used in this assessment on
the trademarks, patent,proprietary technologies and software products of DEC Auto Control and
DEC Hitachi. Your company is requested to:1) provide supplementary disclosures of the basis,
process and rationality of income forecast of above-mentioned income-approach assessment. 2)
provide supplementary disclosures on the feasibility of the estimated income in the
aforementioned assessement based on the latest operating results, business development plan for
the second half of the year, seasonal operating characteristics, situation of orders in hand, etc.
Reviews and clear opinions from independent financial consultant and appraiser are required. .. 272
25.The The application materials show that only replacement cost method is used in this
assessment of intangible assets such as equipment assets and intellectual property, please provide
supplementary disclosures of the basis and rationality on which only the replacement cost method
is used in this assets assessment, as well as the compliance or non-conformity to relevant
provisions of Article 20 of Measures for Management of Major Asset Restructuring of Listed
Company. Reviews and clear opinions from independent financial consultant and appraiser are
required. ........................................................................................................................................ 279
26. The application materials show that the proportion of accrual for the provisioning of loan loss
of DEC Finance as at Dec/31, 2016 is 6.61%, which is higher than that of the comparable
companies such as CNPC Finance, COSCO Finance and CSCL Finance etc. Please provide the
supplementary disclosure on the reason and rationality that the proportion of the provisioning of
loan loss at DEC Finance is higher that that of the comparable companies based on the industry
characteristics and usage for the major loans and capitals, etc. Reviews and clear opinions from
independent financial consultant and account are required........................................................... 282
27. The application materials show that during January to June 2017, DEC Finance provided
financial leasing services to Shandong Xinhai Technology Co., Ltd for the purchase of electricity
generation equipment including steam turbines manufactured by DTC (Dongfang Turbine), with
the financial leasing contract amounting to about RMB5 billion, and the fees and commissions
amounting to about RMB14 million. Please provide supplementary disclosures in conjuciton of
the business scope of DEC Finance on whether the financial leasing service provided by DEC
Finance to Shandong Xinhai Technology Co., Ltd is in compaliane with relevant regulations.
Reviews and clear opinions from independent financial consultant and laywer are required. ..... 287
28. According to the application materials, in 2015, 2016 and January - June 2017, the non-
recurring profit and loss of DEC Finance were RMB 128,071,400, RMB 208,424,100 and RMB
24,402,400 respectively, accounting for 46.20%, 54.63% and 20.81% of the net profit respectively.
Please supplement and disclose whether the above large non-recurring profit and loss affect the
financial sustainability of DEC Finance. The Independent Financial Adviser and accountant shall
verify and give clear opinions. ...................................................................................................... 290
29. According to the application materials, as of June 30, 2017, the balance of accounts receivable
of DEC International Corporation was RMB 641,626,000, the accounts receivable of DEC
Automatic Control was RMB 542,429,700, and the accounts receivable of Dongfang Hitachi was
RMB 165,238,800. Your company is required to :1) Combined with the contract signing and
implementation, and the project execution cycle, make the quantitative analysis and
supplementary disclosure of the articulation and its rationality of the company's accounts
receivable, notes receivable, inventory, prepaid accounts, deposit received, accounts payable and
other balance under other items at the end of the report period. 2) Disclose the adequacy for bad
debt provision of accounts receivable in the report period of the above-mentioned company
combining with to the post-period payment collection status. The Independent Financial Adviser
and accountant shall verify and give clear opinions. .................................................................... 293
30. According to the application materials, as of the end of June 2017, the book balance of the top
five customers of the balance of accounts receivable of DEC International Corporation amounted
to RMB 629,080,200, accounting for 98.04% of the balance of accounts receivable; The book
balance of the top five customers of DEC Automatic Control accounts receivable was RMB
618,632,200, accounting for 81.79% of the balance of accounts receivable; The book balance of
the top five customers of the accounts receivable of Dongfang Hitachi amounted to RMB
37,968,300, accounting for 18.53% of the balance of accounts receivable. Your company is
required to make supplementary disclosure on the account age and the payment collection of top 5
payment of accounts receivable of the above mentioned company, if the top 5 customers of
accounts receivable are the same as the top 5 sales customers of each company, if not, please
explain the reason and rationality. The Independent Financial Adviser and accountant shall verify
and give clear opinions. ................................................................................................................ 312
31. According to the application materials, the operating revenue of DEC International
Corporation during the report period was RMB 1,637,045,700, RMB 1,533,564,000 and RMB
357,869,400 respectively. Your company is required to make supplementary disclosure about the
specific circumstances of the construction contract, the specific confirmation basis for operating
revenue, cost and inventory, and the specific confirmation basis for the construction schedule of
the construction contract of DEC International Corporation in the report period. The Independent
Financial Adviser and accountant shall verify and give clear opinions. ....................................... 322
32. According to the application materials, 1) the gross profit rate of DEC International
Corporation during the report period was 20.43%, 26.50% and 34.20% respectively, and the
product gross profit rates of DEC International Corporation on sales and construction contract
changed greatly during the report period. 2) When doing the cost estimation for contract signing,
DEC International Corporation cautiously completed the cost forecast by taking the local risks
into account. While the cost confirmed in the late stage is lower than the estimated cost in the
early stage, which leads to normally higher gross profit rate in the late stage of project
implementation. 3) Sales expenses decreased by RMB 210,997,400 in 2016 compared with the
previous year, due to the company's liquidation of RMB 86,440,900 of the completed projects in
2016 for the original expected delayed delivery penalty. Your company is required to: 1)
Combined with the average price and cost of product sales and the level of the comparable
companies in the same industry, make supplementary disclosure of the rationality of the gross
profit rate level of DEC International Corporation in the report period. 2) Make supplementary
disclosure on whether the accounting treatment adopted where the cost confirmed in later period is
lower than the estimated cost in the preliminary stage complies with Accounting Standards for
Business Enterprises. 3) Make supplementary disclosure on the compliance of the accounting
treatment adopted where DEC International Corporation includes the late delivery penalty losses
in the cost of sales. The Independent Financial Adviser and accountant shall verify and give clear
opinions. ........................................................................................................................................ 328
33. The application materials show that, 1) The operating revenue of the DEC International
Corporation in report period was RMB 1,637,045,700, RMB 1,533,564,000 and RMB