Virtual profit reduction of 8.46 million yuan, Shandong Zhanggu and four involved parties fined 6.9 million yuan, and the listed company will be "capped."

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On April 3, Shandong Zhanggu (002598.SZ) announced that, due to false statements in its 2024 annual report, the company will be subject to other risk warnings, and its stock abbreviation will be changed to “ST Zhanggu.” At the same time, the Shandong Securities Regulatory Bureau plans to impose a combined administrative penalty of 6.9 million yuan on the company and relevant responsible persons. Fang Runjiang and Fang Shupeng, the father-and-son duo who have been running Shandong Zhanggu for many years, were both fined a total of 2.6 million yuan.

Unlike the profit inflation commonly seen in capital markets, Shandong Zhanggu’s rare “reverse fraud” behavior—i.e., artificially reducing profits—has touched the compliance red line.

The “Pre-notice of Administrative Penalty” issued by the Shandong Securities Regulatory Bureau shows that in 2024, without any real occurrence of accepting services such as maintenance and technical services, Shandong Zhanggu recognized related selling expenses and management expenses totaling 8.4627 million yuan, which resulted in false statements in the annual report and caused total profits to be understated by 8.4627 million yuan, accounting for 10.37% of the total profits disclosed externally for the period.

This means that profits totaling 8.4627 million yuan have disappeared from the books through fraudulent contracts, with the actual whereabouts of the funds unclear.

In connection with the above illegal facts, the Shandong Securities Regulatory Bureau intends to impose a strict penalty on the company and four individuals involved, with a total fine as high as 6.9 million yuan.

Among them, the Shandong Zhanggu company is ordered to make corrections, given a warning, and fined 2.5 million yuan. Fang Shupeng, then co-chairman and general manager, was given a warning and fined 1.8 million yuan for implementing the fee-handling decisions. Shen Chunfeng, then the head of the Turbine Business Unit and the Electrical Business Unit, organized the implementation of the matter and was fined 1.0 million yuan.

In addition, Liang Runjiang, then chairman, and Zhao Xiaofen, then chief financial officer, were each fined 800,000 yuan for failing to perform their duties diligently, and failing to ensure that the annual report was true, accurate, and complete.

It is worth noting that this is not Shandong Zhanggu’s first time running afoul of regulatory red lines.

In December 2025, the company was just required to make corrections by the Shandong Securities Regulatory Bureau for multiple issues, including violations related to the approval and disclosure of related-party transactions, violations in the use of raised funds, and inadequate corporate governance. Only half a month later, the company was officially placed on file for investigation by the China Securities Regulatory Commission for alleged violations related to the disclosure of financial information in periodic reports. Within just a few months, repeated regulatory accountability has exposed deep-seated deficiencies in the company’s internal controls.

In a disclosure announcement, Shandong Zhanggu stated that the Shenzhen Stock Exchange will impose other risk warnings on the company’s stock. The company’s shares will be suspended for 1 trading day on April 7. Starting from April 8, other risk warnings will be imposed on the stock, and the stock abbreviation will be changed from “Shandong Zhanggu” to “ST Zhanggu.” The stock code will remain unchanged at “002598.” The daily trading price fluctuation limit will be 5%.

Although Shandong Zhanggu currently judges that it has not been involved in any situation of mandatory delisting for major violations, and the company’s board of directors stated that it will urge management to actively take measures to strive for the early removal of the other risk warnings, the time required to “remove the hat” will be at least one year.

According to relevant rules of the Shenzhen Stock Exchange, an application to remove other risk warnings must simultaneously meet two stringent conditions: first, the company must have retrospectively restated the relevant annual financial and accounting reports for matters involved in the administrative penalty decision; and second, twelve months must have passed since the issuance date of the administrative penalty decision by the China Securities Regulatory Commission.

While being “hatted,” the company’s operating performance is also not optimistic, leaving the market worried about its prospects.

On the evening of January 5, a voluntary disclosure announcement of Shandong Zhanggu’s 2025 performance forecast showed that the company expects to achieve attributable net profit of 72 million to 80 million yuan in 2025, representing growth of 0.65% to 11.83% year over year.

But looking back at history, Shandong Zhanggu’s attributable net profit in the company’s first year after listing (2011) once reached 95.9343 million yuan, after which its performance fluctuated. Facing continuously rising operating costs, the company’s gross margin for its main business has declined; in the first half of 2025, its gross margins for fan, sludge pump, and water treatment businesses decreased by 3.1 percentage points, 2.88 percentage points, and 1.63 percentage points, respectively.

To break through the growth ceiling, in recent years Shandong Zhanggu has tried to find a way out through cross-industry investments. In recent years, the company has invested about 300 million yuan, covering areas including water treatment, low-altitude economy, new materials, robotics, sensors, and more. It has held stakes in and participated in more than 30 companies, but the results have not been significant.

To reverse the downturn, in August 2025, the state-owned controlling shareholder Jinan Zhangqiu District State-owned Assets Operation Co., Ltd. changed from its previous style, adding more seats for non-independent directors on the board, with the intention of pushing the company’s performance to achieve a breakthrough.

Now, with the implementation of a large penalty and the imposition of other risk warnings on its stock, Shandong Zhanggu is facing the dual extreme challenges of repairing compliance loopholes and fighting a “performance defense battle.”

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