Key Points
- CHG (Zhonghua Yantu 中化岩土) faces delisting risk after a significant downward revision of its 2025 annual performance forecast, impacting over 150,000 shareholders.
- The company’s net profit and non-recurring net profit forecasts were nearly doubled in losses, with the most critical change being the owner’s equity, which shifted from a forecasted positive ¥17-217 million RMB to a negative -¥580 to -¥130 million RMB.
- The revisions stemmed from a deferred tax assets write-down, subsidiary investment re-estimations, and increased goodwill impairment provisions, brought to light after a switch in auditors from Grant Thornton (Zhitong 致同) to Baker Tilly China (Tianzhi Guoji 天职国际) in late 2024.
- CHG’s business is contracting fast, with a 42.61% year-on-year decline in operating revenue in the first three quarters of 2025, and the company is involved in numerous lawsuits and arbitrations, further complicating its financial outlook.
- Tenure: Grant Thornton had served for 12 years (2012-2024).
- Opinion History: Consistently issued “unqualified opinions” throughout their tenure.
- The Change: Switched to Baker Tilly China in Dec 2024.
- The Result: New auditor applied stricter “prudence” principles, leading to massive write-downs.
- The Signal: Auditor changes during financial distress often precede major negative corrections.
A brutal downward revision in earnings has sent shockwaves through CHG (Zhonghua Yantu 中化岩土), affecting over 150,000 shareholders and raising serious concerns about the company’s future on China’s stock exchange.
On April 8, CHG (Zhonghua Yantu Engineering Co., Ltd. 中化岩土工程股份有限公司) dropped a corrective announcement on its 2025 annual performance forecast—and it wasn’t pretty.
The company didn’t just miss its targets.
It fundamentally restructured them.
And the implications? A potential delisting risk warning that could reshape the company’s market position entirely.
The Numbers That Changed Everything
As of September 30, 2025, CHG had 153,900 shareholder accounts according to Choice data.
The company’s total market capitalization stood at ¥5.418 billion RMB ($748.9 million USD) as of April 8.
But here’s where things get messy.
Three Major Performance Indicators Got Slashed
Let’s break down the revisions CHG disclosed:
- Net profit attributable to the parent company:
- Originally forecasted: -¥800 million RMB (-$110.6 million USD) to -¥600 million RMB (-$82.9 million USD)
- Revised forecast: -¥1.4 billion RMB (-$193.5 million USD) to -¥950 million RMB (-$131.3 million USD)
- That’s nearly double the losses projected.
- Non-recurring net profit:
- Originally forecasted: -¥790 million RMB (-$109.2 million USD) to -¥590 million RMB (-$81.6 million USD)
- Revised forecast: -¥1.38 billion RMB (-$190.8 million USD) to -¥930 million RMB (-$128.5 million USD)
- Again, a significant deterioration in performance.
- Owners’ equity attributable to the parent company (the real shocker):
- Originally forecasted: ¥17 million RMB ($2.35 million USD) to ¥217 million RMB ($30.0 million USD)
- Revised forecast: -¥580 million RMB (-$80.2 million USD) to -¥130 million RMB (-$18.0 million USD)
- This isn’t just bad—it’s gone negative.
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Why the Massive Revision? Follow the Audit Trail
CHG explained the massive downward revision to investors with three primary factors:
1. Deferred Tax Assets Write-Down
During the 2025 annual financial audit, the company wrote down previously recognized deferred tax assets.
As of September 2025, these deferred tax assets totaled ¥573 million RMB ($79.2 million USD) on the balance sheet.
The decision came after “full communication with the annual audit accountants and based on the principle of prudence and professional judgment,” according to CHG’s statement.
2. Subsidiary Investment Value Re-estimation
CHG re-evaluated how much its subsidiaries are actually worth.
The verdict? They’re worth less than previously thought.
3. Goodwill Impairment Provisions
The company also took a more conservative stance on goodwill impairment.
CHG’s goodwill balance sits at ¥24 million RMB ($3.32 million USD).
By increasing provisions against this, the company acknowledged that past acquisitions or investments haven’t performed as expected.
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Negative Net Assets = Delisting Risk Warning
Here’s the critical issue: if a company’s end-of-year net assets turn negative, China’s stock exchanges have rules about what happens next.
According to the Shenzhen Stock Exchange (Shenzhen Zhengquanjiaoyisuo 深圳证券交易所) rules, CHG’s stock will face a delisting risk warning (ST status) once the 2025 annual report is officially disclosed.
What does that mean for shareholders?
- Daily price fluctuation limits tighten.
- Increased transparency requirements and scrutiny.
- Potential delisting from the exchange if conditions don’t improve.
- Severe reputational damage in the market.
To top it off, CHG also delayed the disclosure of its 2025 Annual Report from April 10 to April 18, giving the company an additional week to sort through the details.
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The Red Flag Nobody Should’ve Missed: Auditor Change
Looking back, the seeds of this disaster were planted months earlier.
In December 2024, CHG announced a significant auditor change—a classic red flag in corporate finance.
The company switched from Grant Thornton (Zhitong 致同), which had audited CHG for over a decade, to Baker Tilly China (Tianzhi Guoji 天职国际).
According to CHG’s explanation, the change was made to “ensure objectivity and independence.”
But here’s what investors should know:
- Grant Thornton had audited CHG from 2012 through 2024 without incident.
- Throughout this entire period, despite changes in certified public accountants, Grant Thornton consistently issued standard unqualified opinions.
- Translation: Grant Thornton never flagged major concerns or reservations about CHG’s financial health.
- A fresh auditor (Baker Tilly China) brought a different lens—and apparently, a much less optimistic assessment.
This auditor switch was essentially a signal that something fundamental was changing in how CHG’s finances were being evaluated.
What’s Really Going On With CHG’s Business?
CHG operates in two primary sectors:
- Engineering services (the core business)
- General aviation (a secondary vertical)
On the engineering side, CHG has diversified from pure geotechnical services into a more integrated offering covering:
- Geotechnical engineering
- Municipal infrastructure
- Underground space development
Sounds solid in theory.
The problem? The execution has been a disaster.
The Business is Contracting Fast
In the first three quarters of 2025, here’s what CHG reported:
- Operating revenue: ¥671 million RMB ($92.7 million USD)
- Year-on-year decline: 42.61%
- Non-recurring net profit: -¥298 million RMB (-$41.2 million USD)
- Net cash flow from operating activities: -¥129 million RMB (-$17.8 million USD)
That’s not just a slowdown.
That’s a structural collapse in business performance.
CHG attributed this to market competition resulting in fewer new contracts and lower collection of project payments.
In the company’s 2025 semi-annual report, management acknowledged the harsh reality:
“While our business scope is expanding, current market competition is exceptionally fierce. Bidding prices for projects have dropped compared to previous years, reducing the volume of engineering services and lowering gross profit margins.”
Translation: The company is competing in a race to the bottom on price while struggling to secure contracts.
Additional Headwinds: Litigation and Arbitration
As if the financial deterioration wasn’t enough, CHG and its subsidiaries are currently involved in a large number of litigations and arbitration cases.
These legal battles add another layer of uncertainty and potential financial liability to an already precarious situation.
What This Means for 150,000+ Shareholders
For investors holding CHG stock, the situation is serious:
- Near-term outlook: Expect ST status designation once the annual report is released.
- Stock volatility: Heightened price swings as the market reprices the equity.
- Delisting risk: If the company can’t recover to positive net assets, delisting becomes a real possibility.
- Valuation compression: The negative equity revelation will likely trigger a sharp re-valuation of the company’s worth.
- Recovery timeline: Even if CHG stabilizes operations, returning to profitability and positive equity will take years.
The bottom line: This is a company in serious distress, and the auditor switch in December was the canary in the coal mine.
