C3 - Hubei Lantian (A)

9 -1 1 3 -1 1 8
REV: MARCH 3, 2014
DAVID F. HAWKINS
MICHAEL SHIH-TA CHEN
NANCY HUA DAI
Hubei Lantian (A)

On August 20, 2001, Emily Wang, an analyst with Future Securities, was reading historical annual
reports of Hubei Lantian Co., Ltd. (Hubei Lantian) in her office in Shanghai, China. Her supervisor
had asked her to make a purchase recommendation on the common stocks of some listed companies
in China. Founded in 1992, Hubei Lantian was an agricultural business mainly engaged in fishery
and beverage production. As the first state-owned enterprise (SOE) that the Ministry of Agriculture
(MOA) of China recommended for public listing, it had achieved impressive growth since its listing
on the Shanghai Stock Exchange (SSE) in 1996 (stock ticker: 600709). Its total assets, revenues from
main businesses, and net profits grew by 356%, 293%, and 628%, respectively, from 622 million
renminbi (RMB), RMB468 million, and RMB59.3 million in 1996 to RMB2.84 billion, RMB1.84 billion,
and RMB432 million in 2000.1 On August 20, its stock price closed at RMB14.3. Wang found Hubei
Lantian a very attractive investment target, but before she responded to her supervisor, she needed to
look deeper into the company and do a financial analysis comparison with its peer companies.
Company History
Qu Zhaoyu, the founder of Hubei Lantian, was born in 1948 in Qu Clan Town, 2 Honghu City,
Hubei Province, an area rich in fishery resources and a former revolutionary base for the Communist
Party of China during the civil war before 1949. Qu joined the Chinese People’s Liberation Army in
1968 and served in its navy before he was discharged from military service. Subsequently, he served
as the director of the Propaganda Department of the Shenyang3 Telecommunications Bureau and as
vice principal of the Shenyang Institute of Administration (SIA). When he was at the SIA, he set up
three entities which included one agricultural by-products business, one pharmaceutical factory, and
one hotel, all under the control of the SIA (see Exhibit 1 for Hubei Lantian’s chronology of events). In
October 1992, with the approval of the Shenyang Structural Reform Commission, the three
companies were consolidated to form Shenyang Lantian Co., Ltd. (Shenyang Lantian), the first SOE
in the agricultural industry in China to undergo corporatization reform. Of the total 66.96 million
shares, 18.28 million shares were state shares4 held by Shenyang Asset Management Co., Ltd.; 35.256
million shares were legal person shares5 held by Shenyang Lantian Economic and Technology
Development Company (SLET), a collective-owned enterprise 6 of which Qu was the legal
representative;7 and 13.424 million shares were held by employees. 8 Qu was chairman and general
manager of Shenyang Lantian. The company name “Lantian” was Qu’s childhood name.9
________________________________________________________________________________________________________________
Professor David F. Hawkins, HBS-APRC Executive Director Michael Shih-ta Chen, and Senior Researcher Nancy Hua Dai prepared this case.
This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School, and not
by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of
primary data, or illustrations of effective or ineffective management.
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This document is authorized for use only in Dr. Sarit Biswas's PGP14_FSA at Indian Institute of Management - Rohtak from May 2024 to Nov 2024.
113-118 Hubei Lantian (A)
In March 1993, Honghu Lantian Aquatic Product Development Co., Ltd. (Honghu Lantian), a
wholly owned subsidiary of Shenyang Lantian, was set up to engage in the development and sales of
agricultural and aquatic products, which became Shenyang Lantian’s major business. Baotian,10 Qu’s
younger brother, was appointed general manager of this subsidiary. In August 1994, the Shenyang
municipal government approved Shenyang Lantian as an agricultural enterprise under the
management of the MOA. In December 1995, the 18.28 million shares that Shenyang Asset
Management Co., Ltd., held were transferred to the MOA, which subsequently approved Shenyang
Lantian’s request for public listing.
On June 18, 1996, Shenyang Lantian was listed on the Shanghai Stock Exchange with an initial
public offering (IPO) price of RMB8.38 per share for 30 million additional shares from the public,
expanding the equity base to 96.96 million shares. It invested the capital raised in Honghu Lantian
and an affiliated company, Honghu Dahu Company. State shares and legal person shares were non-
tradable in China. Shares that directors, supervisors, and senior executives held were also non-
tradable, until China enacted the New Company Law on January 1, 1996.11 In 1997, Shenyang Lantian
completed a 10-for-3 share placement to its shareholders. The MOA decided to use the net assets of
its subsidiary, China Agricultural Material Supply Company (CAMSC), valued at RMB53 million, to
subscribe to the placement shares and turned CAMSC into a wholly owned subsidiary of Shenyang
Lantian by transferring CAMSC’s assets and staff to the latter in late 1997.12 In January 1998, with the
approval of the MOA, CAMSC’s name was changed to “China Lantian Group,” and Qu Zhaoyu was
made the legal representative, a position formerly held by an MOA staff person. On June 15, 1998,
China Lantian Group’s registered capital increased from RMB4.01 million to RMB400 million. The
increased capital came from the MOA, but it was not a cash injection; instead, it was backed by a
financial document that the MOA’s finance department issued.13
In 1998, the shareholder meeting approved the change of Shenyang Lantian’s registered address
from Shenyang to Qu Clan Town and the change of the company name to Hubei Lantian Co., Ltd.,
signaling the shift of the operations base to Qu Clan Town.14 In April 1999, the MOA transferred all
its state shares to Hubei Hongfu Aquatic Product Co., Ltd., an SOE of the Honghu municipal
government. In the same year, SLET, the largest shareholder of Shenyang Lantian, moved its
registered address to Honghu and changed its name to Honghu Lantian Economic and Technology
Development Co., Ltd. (HLET).15 Qu remained the legal representative of the company. In 1999,
Baotian became chairman of Hubei Lantian, and Qu maintained his position as general manager and
director of the board. After several share placements from 1996 to 2000, Hubei Lantian had 446
million shares issued at the end of 2000 (see Exhibits 2 and 3 for the company’s equity changes and
stock performance).
The relationship between China Lantian Group and Hubei Lantian was ambiguous. China Lantian
Group guaranteed Hubei Lantian’s loan application, distributed products for it, paid for its
advertisement fees on China Central Television (CCTV), and lent money to it directly. According to
Hubei Lantian’s 2001 interim report, Hubei Lantian owed China Lantian Group RMB193 million. 16
The same report described the relationship between the two as related parties with no controlling
relationship and stated that the only relationship between the two was that Qu, a director of Hubei
Lantian, was the legal representative of China Lantian Group. On June 29, 2001, Qu resigned from his
position as general manager of Hubei Lantian.
On October 15, 1999, the China Securities Regulatory Commission (CSRC) announced that Hubei
Lantian had submitted fake documents that overstated invisible assets and bank deposits and
distorted equity figures in its application materials for the IPO.17 It gave Hubei Lantian an official
warning and imposed a fine of RMB1 million on the company and a fine of RMB100,000 on Qu
Zhaoyu.18
Hubei Lantian (A) 113-118
Lantian’s Business Operations

From 1993 to 1995, Lantian’s revenues from its main businesses and profits after tax grew by 130%
and 52%, respectively, from RMB 133.7 million to RMB308.3 million and RMB14.1 million to RMB21.4
million.19 At the time of the public listing in 1996, Lantian’s businesses covered two major categories:
aquatic products, and drugs and health-care products. Its achievements were further magnified after
its public listing (see Exhibits 4, 5, 6, and 7 for its 1997–2000 financial statements and major
accounting policies and Exhibit 8 for average annual US$-to-RMB exchange rates for the 1993–2002
period). In 1998, the Yangtze River was hit by the biggest flood in a century. Though Hubei Lantian’s
core business base was located in the Honghu section of the Yangtze River Levee, it survived the
flood and achieved revenue and net profit growth of 31% and 156%, respectively. Lantian became a
key agricultural enterprise in Hubei Province and a role model for the industry. In 2000, Hubei
Lantian had six major businesses: aquatic products, beverage, drugs, product sales, commercial
housing sales, and catering services (see Exhibit 9 for its 2000 revenue breakdown by business).
Qu operated a “peasant + company” business model to achieve rapid growth. By converting the
land, fish ponds, and houses of local peasants into the company’s assets and turning the peasants into
the company’s employees, the company created a Lantian empire with over 300,000 mu (about 20,000
hectares) of water areas, 2,700 mu (about 180 hectares) of land, 20,000 employees, and over 20 projects,
such as Lantian Industrial Zone and Lantian Agriculture Base.20 Because Qu was from Qu Clan Town,
he carried out many asset transactions by negotiating directly with local village committees and
getting their approval verbally, with legal procedures and documentation either omitted or
postponed.21
The rich natural resources in Honghu were a benefit to the company. According to company staff,
Hubei Lantian made a fortune first by purchasing, at a very low price, crawfish that local people
didn’t eat and exporting the meat of the crawfish at RMB20 per jin (about 0.5 kilogram). Because the
cost could be offset by the revenues from selling feed made from crawfish shells, RMB20 yuan per jin
was net profit for the company.22 There was also an abundant supply of small wild fish and lotus
roots in the area, meaning that the only production cost for the company was that of labor. The
company also claimed to have innovative technology and built an organic farming base in
cooperation with the Aquatic Organism Research Center of the Chinese Academy of Science. With
ducks living on the water, fish in the water, and lotus roots beneath the water, one mu (about 1/15
hectare) of such a self-sufficient farming base was able to generate annual output worth RMB30,000,
according to Qu.23 Qu also claimed that a duck raised by the company could produce over 300 eggs a
year, more than double the productivity of an ordinary duck, and the eggs could fetch a higher price
and generate an average net profit of RMB0.4 per egg because of their larger size and better taste. 24
Another unique characteristic of the company was its cash transactions, with 70% of its aquatic
product sales completed in cash. Customers were mainly individual merchants or peasants. Qu
explained that there was only one bank branch available in Qu Clan Town. Withdrawal of up to
RMB2 million in cash daily required several days’ notice, and bank transfers took even longer. With
limited formal banking services available, a company like Hubei Lantian, which could have an
accumulated cash flow of RMB10 million on any one day, found it impossible to carry out business
without cash transactions.25
Born to a peasant family, Qu always claimed that he had a strong affinity for agriculture, villages,
and peasants. Because of Hubei Lantian, Qu Clan Town transformed from a poverty-stricken area
that relied on government support into a more developed area. It became the most beautiful town in
Honghu after the company built a road, set up a water plant, a high school, and other facilities and
provided interest-free loans to local residents for housing renovations.26 Local residents’ per capita
annual income was less than RMB650 in 1994, but after Hubei Lantian moved there, they could work
for the company for a monthly income of RMB300 to RMB3,000.27
Industry Comparison
Hubei Lantian’s major revenue sources came from aquatic products (fish, ducks, freshwater
shrimp, and aquatic plants such as lotus roots and water chestnuts) and beverages (such as wild lotus
juice, wild lotus root juice, and mineral water), accounting for 69% and 29% of the company’s 2000
revenues, respectively. Based on Hubei Lantian’s revenue sources and the CSRC industry
classification guide, Wang decided on two industries for her peer performance comparison: fishery or
freshwater fishery, and the food and beverage industry. Then she chose four companies in the fishery
or freshwater fishery industry and three companies in the food and beverage industry, respectively,
for comparison (see Exhibit 10 for a stock price chart of peer companies in the fishery industry, and
Exhibits 11 through 17 for key financials and ratios of Hubei Lantian and its industry peers).
Fishery Industry
Hubei Wuchangyu Co., Ltd. (Wuchangyu) Established in 1999, Wuchangyu was based in
Erzhou, Hubei Province. Located by the Yangtze River and 200 kilometers from Hubei Lantian’s base,
its main businesses covered freshwater fish and other aquatic products, livestock, and poultry
breeding, and vegetable cultivation. In 2000, aquatic products accounted for 86% of the company’s
revenue. As a major agricultural business in Hubei, it was listed on the Shanghai Stock Exchange in
August 2000 (stock ticker: 600275).
Hunan Dongting Aquaculture Co., Ltd. (Dongting Aquaculture) Established in 1999, Dongting
Aquaculture was based in Changde, Hunan Province. Situated in the Dongting Lake region, the
company mainly produced high-quality freshwater fish and special aquatic products and was famous
for its Dongting Lake hairy crabs and four kinds of carp. In 2000, aquatic products accounted for 68%
of its revenues. It was listed on the Shanghai Stock Exchange in June 2000 (stock ticker: 600257).
Guangdong Hualong Groups Limited Company (Hualong Groups) Hualong Groups was one
of the 50 leading agricultural companies in Guangdong Province. Established in 1993, its major
businesses included marine fishing, ocean development, and farming. In 2000, 60% of its revenues
came from aquatic products. The company was listed on the Shanghai Stock Exchange in December
2000 (stock ticker: 600242).
CNFC Overseas Fishery Co., Ltd. (CNFC Fishery) The China National Fishery Corp. (CNFC)
and its two subsidiaries set up CNFC Fishery in 1998. CNFC was an SOE and a leading fishing
company in China. Headquartered in Beijing, it derived all its revenues from aquatic products. In
February 1998, it was listed on the Shenzhen Stock Exchange (stock ticker: 000798).
The closing stock prices of these four companies on August 20, 2001, were RMB16.21
(Wuchangyu), RMB23.55 (Dongting Aquaculture), RMB15.95 (Hualong Groups), and RMB13.01
(CNFC Fishery).
Food and Beverage Industry

He Bei Cheng De LoLo Company Limited (Cheng De LoLo) LoLo Group, established in 1950,
was one of the top-10 beverage companies in China. In 1997, it established Cheng De LoLo, which
was then listed on the Shenzhen Stock Exchange (stock ticker: 000848). The LoLo brand of almond
juice, Chengde LoLo’s main product, was a dominant leader in the almond juice market in China.
XuZhou VV Food & Beverage Co., Ltd. (VV Food & Beverage) VV Group, VV Food &
Beverage’s parent company, was established in 1992. It was the largest soybean milk producer and
one of the top-10 food and beverage companies in China. VV Food & Beverage was established in
1994 and listed on the Shanghai Stock Exchange in 2000 (stock ticker: 600300).
Inner Mongolia Yili Industrial Group Co., Ltd. (Yili) Established in 1993, Yili was a leading
dairy products manufacturer in China. It had five business units: liquid milk, ice cream, milk powder,
yogurt, and raw milk. The company was listed on the Shanghai Stock Exchange in 1996 (stock code:
600887).
Questions
1. Based on a financial ratio analysis of Hubei Lantian, what is your assessment of the
company’s current performance and financial condition?
2. Compare Hubei Lantian’s financial performance and financial condition with its peer
companies in the fishery industry and the food and beverage industry. What does the
comparative financial analysis tell you about Hubei Lantian? Does your analysis raise any
concerns?
3. Put yourself in Emily Wang’s shoes. Your supervisor has told you to go out into the field to see
what additional insights into Hubei Lantian’s management, operations, and financial condition
you might uncover beyond those you were able to develop from the case materials that might
be relevant to Future Securities’ Hubei Lantian stock investment decision. List three lines of
inquiry you plan to follow in your field research. Why did you choose these particular lines of
inquiry?
4. What is your assessment of Hubei Lantian’s quality of earnings (broadly defined)?

Justify.
5. Based on your quality of earnings analysis of the company, would you recommend buying
Hubei Lantian’s shares? Justify.
Exhibit 1 Hubei Lantian’s Chronology of Events, 1987–2001
Year Events
1987 – Qu Zhaoyu set up an entity involved in the business of an agricultural by-products market.
1988 – Qu Zhaoyu set up a pharmaceutical factory.
1991 – Qu Zhaoyu set up a hotel.
1992 – The above three companies were consolidated to form Shenyang Lantian Co., Ltd. (Shenyang
Lantian); Qu Zhaoyu became its chairman and general manager.
– Share ownership: 18.28 million state shares held by Shenyang Asset Management Co., Ltd.;
35.256 million legal person shares held by Shenyang Lantian Economic and Technology
Development Company (SLET), a collective-owned enterprise of which Qu was the legal
representative; and 13.424 million shares held by employees.
1993 – Honghu Lantian Aquatic Product Development Co., Ltd. (Honghu Lantian) was set up as
Shenyang Lantian’s wholly owned subsidiary. Baotian (Qu’s younger brother) was appointed
general manager of Honghu Lantian.
1994 – The Shenyang municipal government approved Shenyang Lantian as an agricultural enterprise
under the management of the Ministry of Agriculture (MOA).
1995 – The 18.28 million shares held by Shenyang Asset Management Co., Ltd., were transferred to
the MOA.
1996 – Shenyang Lantian was listed on the Shanghai Stock Exchange.
1997 – Shenyang Lantian completed a 10-for-3 share placement to its shareholders.
– The MOA used the net assets of its subsidiary China Agricultural Material Supply Company
(CAMSC), valued at RMB53 million, to subscribe to the placement shares, and turned CAMSC
into a wholly owned subsidiary of Shenyang Lantian by transferring CAMSC’s assets and staff
to the latter.
1998 – The name “CAMSC” was changed to China Lantian Group, and the legal representative was
changed from an MOA staff person to Qu Zhaoyu.
– China Lantian Group’s registered capital increased from RMB4.01 million to RMB400 million.
– The shareholder meeting approved the change of Shenyang Lantian’s registered address from
Shenyang to Qu Clan Town and the change of the company name to Hubei Lantian Co., Ltd.
1999 – The MOA transferred all its state shares to Hubei Hongfu Aquatic Product Co., Ltd., an SOE of
the Honghu municipal government.
– SLET, Shenyang Lantian’s largest shareholder, moved its registered address to Honghu and
changed its name to Honghu Lantian Economic and Technology Development Co., Ltd. (HLET).
Qu remained its legal representative.
– Baotian became chairman of Hubei Lantian, and Qu maintained his position as general
manager and director of the board.
– CSRC announced that Hubei Lantian submitted fake documents in its application materials for
the IPO. It gave Hubei Lantian an official warning and imposed a fine of RMB1 million on the
company and a fine of RMB100,000 on Qu Zhaoyu.
2000 – Hubei Lantian had 446 million shares issued at year end.
2001 – Qu Zhaoyu resigned from his position as general manager of Hubei Lantian.
Source: Casewriter developed this chronology from Long Hao, “Qu Zhaoyu: A Duck Equivalent to Two Color TV Sets [in
Chinese],” China Economic Times, June 13, 2003, http://news.xinhuanet.com/newscenter/200306/13/content_
917662.htm, accessed October 12, 2012.
Exhibit 2 Hubei Lantian’s Equity Changes, 1996–2000
Unit: millions
1996 1997 1998 1999 2000
State shares 18.3 42.0 84.1 84.1 84.1

Non-tradable shares Legal person shares 35.3 81.1 162.2 162.2 162.2
Employee shares 13.4 30.9 61.8
Tradable shares 30.0 69.0 138.0 199.8 199.8
Total number of shares 97.0 223.0 446.0 446.0 446.0
Source: Casewriter developed this table based on data from http://app.finance.china.com.cn/stock/data/periodic_

reports.php?symbol=600709, accessed October 12, 2012.
Note: Due to rounding, the numbers may not add up. (This also applies to data in other exhibits.)
Exhibit 3 Hubei Lantian’s Historical Stock Performance
Closing Price
Hubei Lantian's Stock Closing Price, 1996-2001 unit: RMB
30
25
20
15
10
0
1998/6/18
2001/2/18
1996/6/18
1996/8/18
1997/2/18
1997/4/18
1997/6/18
1997/8/18
1998/2/18
1998/4/18
1998/8/18
1999/2/18
1999/4/18
1999/6/18
1999/8/18
2000/2/18
2000/4/18
2000/6/18
2000/8/18
2001/4/18
2001/6/18
2001/8/18
1996/10/18
1996/12/18
1997/10/18
1997/12/18
1998/10/18
1998/12/18
1999/10/18
1999/12/18
2000/10/18
2000/12/18
Source: Casewriter prepared this chart based on data from http://money.finance.sina.com.cn/corp/go.php/vMS_Market

History/stockid/600709.phtml?year=2001&jidu=4, accessed October 5, 2012.
Exhibit 4 Hubei Lantian’s Balance Sheets, 1997–2000
Unit: RMB millions 1997 1998 1999 2000
Cash and cash equivalents 279.6 148.3 192.8 167.1

Accounts receivable 45.7 19.6 12.4 8.6
Other receivables 191.0 186.4 45.3 22.8
Less: bad debt reserves 0.1 4.5 4.6 2.5
Net balance of receivables 45.5 201.6 53.1 28.9
Prepayments 21.7 2.5 4.6 0.7
Inventory 53.6 253.3 266.1 279.3
Less: provision for inventory (include project loss reserves) 0.0 0.0 30.4 43.0
Net balance of inventory 53.6 253.3 235.7 236.4
Deferred expense 0.6 0.3 0.0 0.0
Total current assets 592.0 606.0 486.1 433.1
Long-term equity investment original cost 37.4 25.9 0.0 0.0
Total long-term investment 37.4 25.9 0.0 0.0
Net balance of long-term investment 37.4 25.9 0.0 0.0
Fixed assets original cost 90.7 356.2 1,314.4 2,142.5
Less: accumulated depreciation 14.5 19.3 55.9 197.3
Net balance of fixed assets 76.2 336.9 1,258.5 1,945.3
Project materials 0.0 0.0 0.0 2.2
Projects under construction 276.5 487.2 435.1 221.5
Total fixed assets 352.7 824.1 1,693.6 2,169.0
Intangible assets 114.8 50.4 49.4 48.3
Establishment charge 0.0 0.0 0.0 0.0
Long-term prepaid expenses 113.9 112.0 108.8 187.2
Total intangible assets and other assets 228.7 162.4 158.2 235.5
Total assets 1,210.9 1,618.4 2,338.0 2,837.7
Short-term borrowings 158.3 187.6 137.4 99.8

Accounts payable 37.3 2.9 3.6 29.7
Advances from customers 11.6 0.7 10.5 12.1
Accrued payroll 0.0 0.0 0.0 0.0
Welfare payable 0.2 1.1 2.8 5.0
Dividend payable 5.1 4.9 4.9 4.9
Taxes payable 8.0 79.5 112.4 79.4
Other liabilities 0.0 0.0 0.4 0.5
Other payables 53.8 37.7 181.7 327.2
Accrued expense 6.1 0.5 1.0 2.1
Total current liabilities 280.3 314.8 454.7 560.7
Long-term borrowings 23.4 18.0 28.1 20.3
Bonds payable 0.0 31.6 94.2 63.0
Long-term payables 10.0 9.0 9.0 9.0
Housing fund 0.1 0.0 0.0 0.0
Total long-term liabilities 33.4 58.6 131.3 92.3
Deferred tax credits 0.0 5.8 5.2 4.6
Total liabilities 313.8 379.2 591.2 657.6
Minority shareholders’ interest 0.0 0.0 0.0 1.6
Share capital 223.0 446.0 446.0 446.0
Capital reserves 458.0 340.8 340.8 340.8
Surplus accumulation 86.5 140.4 299.1 386.8
Include: welfare fund 16.9 33.9 87.8 132.3
Retained earnings 129.6 312.0 660.9 1,004.8
Total shareowners’ equity 897.1 1,239.2 1,746.8 2,178.4
Total liabilities’ and shareowners’ equity 1,210.9 1,618.4 2,338.0 2,837.7
Source: Casewriter developed the table based on data from Hubei Lantian’s 1998, 1999, and 2000 Annual Reports; 1999 and
2000 Reports, via Shanghai Stock Exchange, http://www.sse.com.cn/sseportal/webapp/datapresent/SSEQuery
CompanyStatement?isAdvQuery=1&PRODUCTID=600709&REPORTTYPE2=DQBG&BEGINDATE=2000-01-
01&ENDDATE=2001-12-30&REPORTTYPE=ALL, accessed October 12, 2012; 1998 Report, via
http://business.sohu.com/stock_individual/com_doc/ndbg/600709_7.html, accessed October 12, 2012.
Exhibit 5 Hubei Lantian’s Income Statements, 1997–2000
Unit: RMB millions 1997 1998 1999 2000
1. Revenues from main businesses 1,251.3 1,621.8 1,851.4 1,840.9

Net revenues from main businesses 1,251.3 1,621.8 1,851.4 1,840.9
Less: cost of main businesses 1,038.4 1,079.4 1,084.3 1,205.9
Tax and associate charge of main businesses 4.5 15.6 40.5 36.7
2. Gross profit 208.3 526.8 726.6 598.3

Add：other business profits 2.4 –2.6 –5.1 0.2
Less: inventory depreciation loss 0.0 0.0 30.4 12.8
Operating expenses 2.8 9.2 11.5 21.5
Administrative expenses 29.3 26.7 38.5 44.8
Financial expenses 8.1 25.5 18.3 16.0
3. Operating profit 170.5 462.8 622.8 503.3

Add: investment income (loss in "-") 2.7 –23.5 –5.4 0.0
Non-operation income 0.7 0.0 0.2 0.5
Less: non-operation expense 3.0 2.5 2.7 2.3
4. Total profit 171.0 436.8 614.8 501.6

Less: income tax 28.4 72.1 101.8 69.9
5. Net profit 142.6 364.7 513.0 431.6

Add: retained earnings, beginning of year 8.3 124.7 306.6 660.9
6. Profit available for distribution 151.0 489.4 819.6 1,092.5

Less: appropriation of legal surplus accumulation 14.3 36.5 105.8 43.2
Less: appropriation of statutory welfare fund 7.1 18.2 52.9 44.6
7. Profit available for distribution to

shareholders 129.6 434.7 660.9 1,004.8
Common dividends turned into paid in capital 0.0 122.7 0.0 0.0
8. Retained earnings 129.6 312.0 660.9 1,004.8
9a. Earnings per share (diluted) (RMB) 0.64 0.82 1.15 0.97
9b. Earnings per share (weighted

average)(RMB) 0.79 0.82 1.15 0.97
CompanyStatement?isAdvQuery=1&PRODUCTID=600709&REPORTTYPE2=DQBG&BEGINDATE=2000-0101&
ENDDATE=2001-12-30&REPORTTYPE=ALL, accessed October 12, 2012; 1998 Report, via
Exhibit 6 Hubei Lantian’s Cash Flow Statements, 1998–2000
Unit: RMB millions 1998 1999 2000
1. Cash flow from operating activities

Cash received from sales of goods or rending of services 1,890.4 2,071.4 2,044.7
Rental received 2.7 0.0 0.0
Tax rebates received 0.0 28.2 0.0
Other cash received relating to operating activities 0.0 0.0 151.0
Subtotal of cash inflows from operating activities 1,893.1 2,099.6 2,195.7
Cash paid for goods and services 1,423.6 1,132.5 1,101.6
Cash paid for rental 0.0 0.1 0.0
Cash paid to and on behalf of employees 11.4 19.5 22.6
Actual value-added tax paid 89.3 105.0 105.5
Income tax paid 0.3 71.8 101.8
Tax paid other than value-added tax and income tax 43.4 55.6 59.4
Other cash paid relating to operating activities 24.8 23.9 19.0
Subtotal of cash outflows from operating activities 1,592.9 1,408.3 1,409.9
Net cash flow from operating activities 300.2 691.3 785.8
2. Cash flow from investing activities

Cash received from return of investment 37.4 20.4 0.0
Net cash received from disposal of fixed assets, intangible assets,
0.0 0.1 0.0
and other long-term assets
Other cash received relating to investing activities 0.0 256.9 4.0
Subtotal of cash inflows from investing activities 37.4 277.3 4.0
Cash paid to acquire fixed assets, intangible assets, and other
492.6 898.2 719.3
long-term assets
Cash paid to acquire equity investments 0.5 0.0 0.0
Other cash paid relating to investing activities 0.0 88.0 0.0
Subtotal of cash outflows from investing activities 493.1 986.2 719.3
Net cash flow from investing activities –455.7 –708.8 –715.3
3. Cash flow from financing activities

Cash received from issuing bonds 30.0 60.0 0.0
Cash received from borrowings 31.1 21.5 63.4
Other cash received relating to financing activities 0.0 62.6 0.0
Subtotal of cash inflows from financing activities 61.1 144.1 63.4
Cash repayments of amount borrowed 3.8 65.2 142.3
Cash repayments of expenses on any financing activities 0.0 0.9 0.0
Cash payments for distribution of dividends or profit 0.0 0.0 0.0
Cash payments of interest expenses 30.9 15.5 17.3
Cash payments for finance leases 0.0 0.5 0.0
Other cash payments relating to financing activities 0.0 0.0 0.0
Subtotal of cash outflows from financing activities 34.7 82.2 159.6
Net cash flow from financing activities 26.4 61.9 –96.1
4. Net increase in cash and cash equivalents

Net increase in cash and cash equivalents –129.0 44.4 –25.6
10
Unit: RMB millions 1998 1999 2000
5. Reconciliation from net income to cash flow from operations 0.0 0.0 0.0
Net profit (loss in "-") 362.6 513.0 431.6
Add: bad debt reserves withdrawn or written off 16.6 0.2 –2.1
Depreciation of fixed assets 10.1 32.1 140.7
Amortization of tangible assets and long-term deferred expense 2.5 2.0 31.8
Decrease of deferred expenses (Less: addition) 2.6 0.0 0.0
Amortization of establishment charge 0.0 0.0 0.0
Addition of accrued expense (Less: decrease) 0.0 0.0 1.1
Losses on disposal of fixed assets, intangible assets, and other long-
0.0 0.1 0.1
term assets (or deduct: gain)
Finance expense 27.4 15.7 16.0
Losses arising from investment (or deduct :gain) 0.0 5.4 0.0
Deferred tax credit (or deduct: debit) 0.0 5.2 0.6
Decrease in inventories (or deduct: increase) –202.9 –12.6 –13.2
Decrease in operating receivables (or deduct: increase) 19.1 58.9 29.5
Increase in operating payables (or deduct: decrease) 62.2 68.6 137.1
Accrued provision for inventory 0.0 0.0 12.6
Net increase in value-added tax (deduct: increase) 0.0 0.3 0.0
Other 0.0 2.3 0.1
Net cash flow from operating activities 300.2 691.3 785.8
6. Net increase in cash and cash equivalents

Cash at the end of period 150.6 192.8 167.1
Less: cash at the beginning of the period 279.6 148.3 192.8
Net increase in cash and cash equivalents –129.0 44.4 –25.6
CompanyStatement?isAdvQuery=1&PRODUCTID=600709&REPORTTYPE2=DQBG&BEGINDATE=2000-01-
01&ENDDATE=2001-12-30&REPORTTYPE=ALL, accessed October 12, 2012; 1998 Report, via
11
Exhibit 7 Major Accounting Policies of the People’s Republic of China Applied by Hubei Lantian
in Preparing Financial Statements for 2000
Revenue recognition: Hubei Lantian recognizes revenue when significant risks and rewards
related to the ownership of the goods are transferred to the buyer, when it no longer manages or
controls the goods, when Hubei Lantian receives the related revenue or receipts of payment, and
when it can reliably measure the cost associated with selling the goods.
Accounting method on bad debt: Accounts receivable are confirmed as bad debt when
accounts receivable are uncollectable after the liquidation of a debtor’s insolvent properties or legacy
due to his bankruptcy or death, and when a debtor is overdue in fulfilling his obligations of paying
off his debts and there are clear signs that accounts receivable are unable to be collected.
Bad debt losses are measured using the allowance method. Based on the suggestion of Hubei
Lantian’s general manager, the board decided that 8% of the balance of receivables at year end
(including accounts receivable and other receivables) is recorded as bad debt reserves. If there is
conclusive evidence showing that there is no or little possibility to collect a sum of accounts
receivable (for example, when a debtor goes bankrupt, is insolvent, has serious shortage in cash flow,
or has to shut down production because of a serious natural disaster or other factors and can’t pay off
the debt in a short period, and when there is other evidence showing possible losses of accounts
receivable, and when accounts receivable are overdue for over five years), 100% of the accounts
receivable should be recorded as bad debt reserves.
Accounting method on inventory: (1) Inventories are classified into the following: raw
materials, finished goods, low-value short-lived consumables, goods on consignment-out, work in
progress, packing materials, supplies, and semifinished goods; (2) All categories of inventories are
recorded at historical cost at the time of acquisition, and perpetual inventory system is adopted; (3)
Taking and sending out inventory: inventory is calculated with the weighted average method for the
parent company and the housing development company; inventory is calculated with the last-in first-
out method for Honghu Lantian; low-value short-lived consumables are amortized through the
equal-split amortization method.
Based on the decision of the board, the inventories shall be measured according to the cost or the net
realizable value, whichever is lower. The provision for the loss on decline in value of inventories is
made based on the balance of the cost of each item of inventories and the item’s net realizable value.
However, according to the characteristics of the cultivation and production of agricultural products
and based on the conservatism principle, the company predicts risks and makes provision for the loss
on decline in value of inventories for livestock and poultry breeding and aquaculture of Honghu
Lantian according to the characteristics of its species. The specific amount is calculated based on the
ending inventory balance, including livestock and poultry breeding, 10%; aquaculture, 15%; raising
fish fries, 30%; planting products in water, 15%. The provision for the loss on decline in value of
inventories is included in the profits and losses of the current period.
Pricing and depreciation of fixed assets: (1) Standards for fixed assets: the buildings and
structures, machinery and equipment, transportation facilities, and other equipment, appliances and
tools, etc. relating to production and operation with the service life above one year; the articles that
are not the major devices of production and operation and bear the unit value of over RMB2,000 and
service life above two years; (2) Classification of fixed assets: buildings and structures, machines and
machinery, transportation facilities and other equipment; (3) Recording of fixed assets: fixed assets
are recorded at actual costs; (4) Depreciation of fixed assets: straight-line method of depreciation is
12
adopted; and the depreciation rate is determined by deducting the residual value (5% of original
value of the fixed assets) from the original value and based on the estimated service life of the fixed
assets. The annual depreciation rate is as follows:
Category of Fixed Assets Depreciable Life Annual Depreciation Rate
Buildings and structures 20–40 years 4.75%–2.37%

Temporary houses 5 years 19%
Machinery and equipment 10–20 years 9.5%–4.75%
Transportation facilities 6–10 years 15.8%–9.5%
Other equipment 5–10 years 19%–9.5%
Accounting method on projects under construction: Projects under construction are priced at
actual costs. Loan interest and other expenses related with these projects are included in the
accounting for projects under construction before fixed assets are delivered for use. These expenses
are converted and included in fixed assets after projects under construction are delivered for use.
Pricing and amortization of intangible assets: The intangible assets are priced at actual costs
and amortized with the straight-line method. Among them, land use right is recorded at the value
based on asset valuation and amortized over 50 years for agricultural and industrial enterprises and
amortized over 40 years for commercial enterprises.
Source: Casewriter prepared this exhibit based on information from Hubei Lantian, 2000 Annual Report, via Shanghai Stock
Exchange, http://static.sse.com.cn/sseportal/cs/zhs/scfw/gg/oldBulletin/600709_2000_0.pdf, accessed October
12, 2012.
13
Exhibit 8 U.S. Dollar to RMB Yuan, Average Annual Exchange Rates, 1993–2002
RMB Yuan RMB Yuan

Year Equivalent to U.S.$1 Year Equivalent to U.S.$1
1993 5.7973 1998 8.2789
1994 8.5702 1999 8.2761
1995 8.3505 2000 8.2788
1996 8.3142 2001 8.2773
1997 8.2898 2002 8.2769
Source: OANDA, http://www.oanda.com/currency/historical-rates/, accessed December 19, 2012.
Exhibit 9 Hubei Lantian Revenue Breakdown by Business, 2000 (in RMB millions)
Revenues Cost Gross Profit

Aquatic products 1,270.5 874.8 395.7
Beverage 529.2 290.2 239.0
Drugs 0.4 0.5 –0.1
Product sales 0.7 1.4 –0.7
Commercial housing sales 5.1 4.6 0.5
Catering services 35.0 34.3 0.7
Total 1,840.9 1,205.9 635.0
Source: Adapted from Hubei Lantian, 2000 Annual Report, http://static.sse.com.cn/sseportal/cs/zhs/

scfw/gg/oldBulletin/600709_2000_0.pdf, accessed October 12, 2012.
Exhibit 10 Stock Price Chart of Peer Companies in Fishery Industry,

December 7, 2000–August 20, 2001 (RMB)
Wuchangyu Stock Price Dongting Aquaculture Stock Price

Hualong Groups Stock Price CNFC Fishery Stock Price
30
25
20
15
10
Source: Casewriter prepared this chart based on data from http://finance.sina.com.cn/stock/,

accessed October 19, 2012.
14
113-118 -15-
Exhibit 11 Fishery Industry Peer Comparison—Financial Ratios, 2000
Peer Companies
Item Wuchangyu Dongting Aquaculture Hualong Groups CNFC Fishery Lantian
Current ratio 3.76 9.66 3.09 5.63 0.77

Quick ratio 3.66 9.47 3.04 5.15 0.35
Inventory-current liabilities ratio 0.10 0.19 0.04 0.48 0.42
Net working capital (RMB millions) 409.9 328.5 263.6 578.6 –127.6
Cash to current liability ratio 2.39 7.90 1.44 1.58 0.3
Cash debt coverage ratio 2.39 4.03 1.03 1.58 0.25
Inventory turnover ratio 3.65 4.17 12.56 4.05 5.1
Days in inventory (day) 99 86 29 89 71
Accounts receivable turnover 0.62 2.02 50.87 1.92 63.68
Collection period (day) 577 178 7 187 6
Days payable (day) 804 645 832 77 161
Operating cycle (day) –128 –380 –796 199 –85
Asset turnover ratio 0.13 0.15 0.14 0.3 0.65
Fixed assets turnover 1.25 1.95 0.45 0.91 0.85
Equity ratio 0.23 0.84 0.74 0.88 0.77
Debt-equity ratio 0.74 0.18 0.34 0.13 0.3
Debt ratio 0.17 0.15 0.25 0.11 0.23
Net profit margin 0.61 0.33 0.26 0.19 0.23
Return on equity 0.34 0.06 0.05 0.06 0.2
Return on assets 0.08 0.05 0.04 0.06 0.15
Equity growth rate (%) –72.51 –57.73 209.25 3.94 24.71
Growth rate of revenues from main businesses (%) 2.69 –77.33 12.47 –18.17 –0.57
Growth rate of cost of main businesses (%) –1.66 –87.99 20.75 –21.7 11.21
Net profit growth rate (%) 19.26 –60.25 –3.93 –29.16 –15.87
Growth rate of accounts receivable (%) 342.2 –78.47 –61.22 28.22 –45.52
Inventory growth rate (%) –25.98 –88.36 83.54 –1.95 0.27
Net cash flow per share from operating activities (RMB) –0.26 0.05 0.32 0.52 1.76
Earnings per share (RMB) 0.28 0.34 0.13 0.24 0.97
Source: Adapted from a table in Liu Shuwei, Spotting False Financial Statements of Listed Companies, 1st ed. (Beijing: China Machine Press, 2011), pp. 138–139.
113-118 -16-
Exhibit 12 Fishery Industry Peer Comparison—Revenues from Aquatic Products, 2000
Peer Companies
Dongting Hualong
Item Wuchangyu Aquaculture Groups CNFC Fishery Lantian
Revenues from aquatic products (RMB millions) 96.4 50.5 60.9 329.3 1,270.5
Revenues from main businesses (RMB millions) 112.3 74.6 102.3 329.3 1,840.9
Percentage of revenues from aquatic products to revenues from main businesses (%) 86 68 60 100 69
Comparison of revenues from aquatic products of peer company with that of Lantian (%) 8 4 5 26
Exhibit 13 Fishery Industry Peer Comparison—Structure of Current Assets and Structure of Total Assets, 2000
Peer Companies
Dongting
Item Wuchangyu Aquaculture Hualong Groups CNFC Fishery Lantian
Current ratio 3.76 9.66 3.09 5.63 0.77
Percentage of cash and cash equivalents to current assets (%) 64 82 47 28 38
Percentage of accounts receivable to current assets (%) 32 10 1 24 7
Percentage of inventory to current assets (%) 3 2 1 9 55
Percentage of current assets to total assets (%) 64 76 55 64 15
Percentage of fixed assets to total assets (%) 10 8 32 33 76
Source: Adapted from a table in Liu Shuwei, Spotting False Financial Statements of Listed Companies, 1st ed. (Beijing: China Machine Press, 2011), p. 149.
Exhibit 14 Fishery Industry Peer Comparison—Inventory Structure, 2000
Peer Companies
Dongting
Item Wuchangyu Aquaculture Hualong Groups CNFC Fishery Lantian
Work in progress (RMB millions) 3.6 3.3 0 40.3 229.7
Inventory (RMB millions) 15.2 7.3 5.3 60.3 279.3
Percentage of work in progress to inventory (%) 23.42 44.88 0 66.76 82.24
Source: Adapted from a table in Liu Shuwei, Spotting False Financial Statements of Listed Companies, 1st ed. (Beijing: China Machine Press, 2011), p. 150.
113-118 -17-
Exhibit 15 Food and Beverage Industry Peer Comparison—Financial Ratios, 2000
Peer Companies
Financial Ratio Cheng De LoLo VV Food & Beverage Yili Lantian
Current ratio 3.23 3.84 1.68 0.77

Quick ratio 2.73 3.61 1.1 0.35
Inventory turnover ratio 8.64 10.1 5.99 5.1
Days in inventory (day) 42 36 60 71
Accounts receivable turnover 12.76 5.86 11.63 63.68
Collection period (day) 28 61 31 6
Cash to current liability ratio 1.57 2.09 0.58 0.3
Equity ratio 0.84 0.78 0.66 0.77
Debt ratio 0.16 0.21 0.31 0.23
Net profit margin (%) 6.5 12.78 6.54 23.45
Return on equity (%) 7.26 9.4 12.87 19.81
Equity growth rate (%) 79.47 411.75 5.8 24.71
Growth rate of revenues from main businesses (%) 11.01 1.17 30.78 –0.57
Growth rate of cost of main businesses (%) 14.93 –5.65 31.98 11.21
Net profit growth rate (%) –47.4 8.22 10.31 –15.87
Growth rate of accounts receivable (%) 241.07 19.14 128.41 –45.52
Inventory growth rate (%) –25.84 10.06 49.81 0.27
Exhibit 16 Food and Beverage Industry Peer Comparison—Current Asset Structure, 2000
Peer Companies
VV Food &
Item Cheng De LoLo Beverage Yili Lantian
Cash and cash equivalents (RMB millions) 210.8 684.3 180.0 167.1
Accounts receivable (RMB millions) 64.4 158.4 129.4 28.9
Inventory (RMB millions) 67.6 75.6 181.4 236.4
Total current assets (RMB millions) 433.4 1,254.1 520.4 433.1
Percentage of inventory to current assets (%) 15.6 6.03 34.85 54.58
Source: Adapted from a table in Liu Shuwei, Spotting False Financial Statements of Listed Companies, 1st ed. (Beijing: China
Machine Press, 2011), p. 153.
Exhibit 17 Food and Beverage Industry Peer Comparison—Inventory Structure, 2000
Peer Companies
VV Food &
Item Cheng De LoLo Beverage Yili Lantian
Work in progress (RMB millions) 0.1 0.5 3.8 229.7

Inventory (RMB millions) 67.6 77.3 181.4 279.3
Percentage of work in progress to inventory (%) 0.14 0.69 2.11 82.24
Source: Adapted from a table in Liu Shuwei, Spotting False Financial Statements of Listed Companies, 1st ed. (Beijing: China
Machine Press, 2011), p. 154.
18
Endnotes
1 Growth ratio was calculated based on data from http://finance.china.com.cn/stock/quote/sh600709/,

2
Clan towns or villages are towns or villages where people with the same ancestor and sharing the same
family name live. In Qu Clan Town, the people in that town shared the same family name of Qu. People in clan
towns or villages usually have close bonds with each other.
3
Shenyang is the capital city of Liaoning Province. It is the political, economic, and cultural center and
transportation hub in northeastern China.
4
State shares are shares held by government agencies or authorized institutions on behalf of the state. China
does not allow state shares to be traded on an open market. (Source: http://www.chinastockreports.com/
chinamarket.aspx, accessed November 5, 2012.)
5Legal person shares are shares of a joint stock company owned by another company or institution with a
legal person status. China restricts the transfer and trading of legal person shares. (Source: http://www.china
stockreports.com/chinamarket.aspx, accessed November 5, 2012.)
6Collective-owned enterprises are industrial enterprises where the means of production are owned
collectively, including urban and rural enterprises invested by collectives and some enterprises that were
formerly owned privately but have since been registered by local industrial and commercial administration
agencies as collective units after raising capital from the public. (Source: http://www.shanghai.gov.cn/
shanghai/node2314/node4128/node15316/node15317/userobject30ai15040.html accessed October 31, 2012.)
7 A legal representative is a natural person appointed to act on the company’s behalf. According to Article 38
of the General Principles of Civil Law of the People’s Republic of China, a legal representative is the “responsible
person who performs the duties and powers on behalf of a legal person in accordance with the law or the
constituent documents of the legal person.” Under the Company Law of the People’s Republic of China, all
businesses established in China must have a legal representative. The legal representative may be the chairman
of its board of directors, an executive director, or its general manager, as provided by the company’s articles of
association. The legal representative must also be registered with company authorities. Daisy Xu and Matthew
McKee, “Legal Representatives: Understanding the Risks and Responsibilities,” http://www.lehmanlaw.
com/fileadmin/lehmanlaw_com/Publications/Briefing_Paper_Series/Legal_Representatives-Understanding_
the_Risks_and_Responsibilities.pdf, accessed December 10, 2012.
8 Long Hao, “Qu Zhaoyu: A Duck Equivalent to Two Color TV Sets [in Chinese],” China Economic Times, June
13, 2003, http://news.xinhuanet.com/newscenter/2003-06/13/content_917662.htm, accessed October 12, 2012.
9 Long Hao, “Qu Zhaoyu: A Duck Equivalent to Two Color TV Sets.”
10 Baotian’s original name was Qu Baotian (with Qu as his family name). The 2001 Jianghu Ecology annual
report (Hubei Lantian’s name was changed to Jianghu Ecology in 2001) said that he applied to the household
registration department of the police for the change of his name from Qu Baotian to Baotian.
11The New Company Law in China allowed directors, supervisors, and senior executives to trade their
shares one year after the company listing, and each year the number of shares they were allowed to trade while
they were still holding their positions at the company should not exceed 25% of the total shares they held. If they
left the company, they were not allowed to trade their shares within half a year. (Source: Company Law of the
People’s Republic of China [in Chinese], http://www.csrc.gov.cn/pub/newsite/flb/fgwj/gjfl/200802/t2008
0225_77646.htm, accessed October 12, 2012.)
12 Zhang Nianqing, “Decoding Lantian’s X File: Investigation Result Shocking [in Chinese],” Beijing Youth
Daily, March 11, 2002, http://finance.sina.com.cn/t/20020311/178625.html, accessed October 12, 2012.
13 Luo Changping, “The Whole Story about How Four Officials Involved in ‘Lantian Myth’ [in Chinese],” The
Beijing News, September 27, 2005, http://finance.sina.com.cn/20050927/1010330971.shtml, accessed October 31,
2012.
19
14
Hubei Lantian announcement, January 5, 2000, http://app.finance.china.com.cn/stock/data/view_notice.
php?symbol=600709&id=2927509, accessed October 12, 2012.
16 Hubei Lantian Co., Ltd., Interim Report, http://www.sse.com.cn/sseportal/cs/zhs/scfw/gg/old
Bulletin/600709_2001_1.pdf, accessed October 12, 2012, p. 31.
17 http://news.xinhuanet.com/fortune/2002-01/25/content_257401.htm, accessed October 12, 2012.
18 Luo Changping, “The Whole Story about How Four Officials Involved in ‘Lantian Myth.’”
19
“Shenyang Lantian Co., Ltd. IPO Prospectus Summary [in Chinese],” May 23, 1996, http://app.finance.
china.com.cn/stock/data/view_notice.php?symbol=600709&id=12754, accessed October 12, 2012.
21 st
Chen Hongxia, “The Rebirth Dilemma of Lantian [in Chinese],” 21 Century Business Herald, June 6, 2012,
http://www.21cbh.com/HTML/2012-6-5/zOMzA3XzQ0ODAzOQ.html, accessed October 15, 2012.
22
“The ‘Moving’ Story of Lantian from One Success to Another [in Chinese],”Caijing Magazine, December 7,
2001, http://finance.sina.com.cn/t/20011207/152485.html, accessed October 15, 2012.
23 “The ‘Moving’ Story of Lantian from One Success to Another,” Caijing Magazine.
24 “The ‘Moving’ Story of Lantian from One Success to Another,” Caijing Magazine.
25
Ma Teng, “Lantian Stock: What Is China Securities Regulatory Commission Investigating It About [in
Chinese]?” Capital Week, October 15, 2001, http://money.163.com/editor/011015/011015_63829.html, accessed
October 15, 2012.
26
Liao Xinjun, “The Quiet Return of Qu Zhaoyu after Disappearing for Several Years [in Chinese],” 21
St
Century Economic Herald, February 4, 2005, http://www.people.com.cn/BIG5/jingji/42774/3168142.html,

27 Liao Xinjun, “The Quiet Return of Qu Zhaoyu after Disappearing for Several Years.”
20

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REV: MARCH 3, 2014

MICHAEL SHIH-TA CHEN

NANCY HUA DAI

Hubei Lantian (A)

Lantian’s Business Operations

Food and Beverage Industry

4. What is your assessment of Hubei Lantian’s quality of earnings (broadly defined)?

Exhibit 1 Hubei Lantian’s Chronology of Events, 1987–2001

Exhibit 2 Hubei Lantian’s Equity Changes, 1996–2000

1996 1997 1998 1999 2000

State shares 18.3 42.0 84.1 84.1 84.1

Source: Casewriter developed this table based on data from http://app.finance.china.com.cn/stock/data/periodic_

Exhibit 3 Hubei Lantian’s Historical Stock Performance

Source: Casewriter prepared this chart based on data from http://money.finance.sina.com.cn/corp/go.php/vMS_Market

Exhibit 4 Hubei Lantian’s Balance Sheets, 1997–2000

Unit: RMB millions 1997 1998 1999 2000

Cash and cash equivalents 279.6 148.3 192.8 167.1

Short-term borrowings 158.3 187.6 137.4 99.8

Exhibit 5 Hubei Lantian’s Income Statements, 1997–2000

Unit: RMB millions 1997 1998 1999 2000

1. Revenues from main businesses 1,251.3 1,621.8 1,851.4 1,840.9

2. Gross profit 208.3 526.8 726.6 598.3

3. Operating profit 170.5 462.8 622.8 503.3

4. Total profit 171.0 436.8 614.8 501.6

5. Net profit 142.6 364.7 513.0 431.6

6. Profit available for distribution 151.0 489.4 819.6 1,092.5

7. Profit available for distribution to

8. Retained earnings 129.6 312.0 660.9 1,004.8

9b. Earnings per share (weighted

Exhibit 6 Hubei Lantian’s Cash Flow Statements, 1998–2000

Unit: RMB millions 1998 1999 2000

1. Cash flow from operating activities

2. Cash flow from investing activities

3. Cash flow from financing activities

4. Net increase in cash and cash equivalents

Unit: RMB millions 1998 1999 2000

6. Net increase in cash and cash equivalents

Category of Fixed Assets Depreciable Life Annual Depreciation Rate

Buildings and structures 20–40 years 4.75%–2.37%

RMB Yuan RMB Yuan

Source: OANDA, http://www.oanda.com/currency/historical-rates/, accessed December 19, 2012.

Revenues Cost Gross Profit

Total 1,840.9 1,205.9 635.0

Source: Adapted from Hubei Lantian, 2000 Annual Report, http://static.sse.com.cn/sseportal/cs/zhs/

Exhibit 10 Stock Price Chart of Peer Companies in Fishery Industry,

Wuchangyu Stock Price Dongting Aquaculture Stock Price

Source: Casewriter prepared this chart based on data from http://finance.sina.com.cn/stock/,

Exhibit 11 Fishery Industry Peer Comparison—Financial Ratios, 2000

Current ratio 3.76 9.66 3.09 5.63 0.77

Exhibit 12 Fishery Industry Peer Comparison—Revenues from Aquatic Products, 2000

Exhibit 14 Fishery Industry Peer Comparison—Inventory Structure, 2000

Exhibit 15 Food and Beverage Industry Peer Comparison—Financial Ratios, 2000

Current ratio 3.23 3.84 1.68 0.77

Exhibit 17 Food and Beverage Industry Peer Comparison—Inventory Structure, 2000

Work in progress (RMB millions) 0.1 0.5 3.8 229.7

1 Growth ratio was calculated based on data from http://finance.china.com.cn/stock/quote/sh600709/,

Century Economic Herald, February 4, 2005, http://www.people.com.cn/BIG5/jingji/42774/3168142.html,

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