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Recon Technology, Ltd (RCON)·Q4 2015 Earnings Summary

Executive Summary

  • Q4 FY2015 was an extreme clean-up quarter: revenue fell to RMB 5.86M and gross profit was negative RMB 5.73M, driving a -97.8% gross margin due largely to inventory provisions and receivables write-downs recognized at year-end .
  • Full-year FY2015 revenue declined 44.9% to RMB 51.5M ($8.46M) with gross margin falling to 19.6% (from 34.7% in FY2014); operating loss reached RMB 35.5M as selling and G&A rose sharply amid a weak industry backdrop .
  • Management cited customer capex cuts and project delays (Sinopec/CNPC) as primary drivers; the company emphasized preparedness for recovery and pursued strategic moves (JOCEC qualification; QHHY acquisition announcement in Dec-2015) to strengthen operations .
  • No earnings call transcript or formal guidance was provided; Wall Street consensus via S&P Global was unavailable in our session. Near-term stock narrative likely hinges on the magnitude of Q4 charges and follow-through on QHHY integration .

What Went Well and What Went Wrong

What Went Well

  • Secured contractor qualification with Sinopec’s JOCEC and won a ~RMB 0.55M contract, expanding project eligibility in construction/engineering .
  • Announced intent to acquire QHHY (100% equity) to expand downhole services in West China; structure includes $3.6M in shares and up to $2.4M cash contingent on 15% net profit growth (FY2016/17) .
  • Management tone on resilience: “we firmly believe that we are well prepared to withstand the storm and to capitalize on an eventual recovery of the oil and gas industry” (CEO Shenping Yin) .

What Went Wrong

  • Revenue decline of 44.9% YoY (RMB 51.5M vs RMB 93.4M) with gross margin compressed to 19.6% (from 34.7%) due to broad weakness and first-half project disruptions .
  • Operating expenses surged: Selling +113.7% to RMB 11.3M; G&A +86.1% to RMB 30.1M (FY2015), intensifying operating loss to RMB 35.5M .
  • Significant year-end charges: RMB 7.70M inventory provision and a RMB 10.68M receivables write-down (non-GAAP recon), plus warrant redemption loss (RMB 2.50M), driving negative Q4 gross profit and large net loss .

Financial Results

Quarterly P&L (RMB; oldest → newest)

Metric (RMB)Q1 FY2015 (Sep 2014)Q2 FY2015 (Dec 2014)Q3 FY2015 (Mar 2015)Q4 FY2015 (Jun 2015)
Revenue4,304,000 21,328,972 20,018,890 5,861,038 (Computed from FY−9M)
Gross Profit615,314 8,977,931 6,248,839 -5,729,911 (Computed from FY−9M)
Gross Margin %14.3% 42.1% 31.2% -97.8% (Computed)
Operating Expenses5,060,810 6,591,138 5,844,931 28,131,527 (Computed from FY−9M)
Operating Income (Loss)(4,445,496) 2,386,793 403,908 (33,861,438) (Computed from FY−9M)
Net Income (Loss) attrib. to RCON(4,161,545) 5,325,376 (1,527,282) (31,092,937) (Computed from FY−9M)

Notes: Q4 values are derived from FY totals less nine-month amounts directly from company filings.

Segment Revenue by Quarter (RMB)

SegmentQ1 FY2015Q2 FY2015Q3 FY2015Q4 FY2015
Hardware & Software (non-related)4,245,509 20,515,571 18,358,835 5,861,038 (Computed)
Service58,491 45,283 0 0 (Computed: FY equals 9M)
Hardware & Software (related parties)0 768,118 1,660,055 0 (Computed: FY equals 9M)

Full-Year Comparison (USD and RMB)

MetricFY2014FY2015
RevenueRMB 93.45M; Gross margin 34.7% RMB 51.51M ($8.46M); Gross margin 19.6%
Operating Income (Loss)RMB 2.83M RMB (35.52M)
Net Income (Loss) attrib. to RCONRMB 0.81M RMB (31.46M) ($5.17M)
Diluted EPSRMB 0.18 RMB (6.45) ($1.06)

Key Balance Sheet & Cash Metrics (RMB, period-end)

MetricSep 30 2014Dec 31 2014Mar 31 2015Jun 30 2015
Cash & Equivalents6,030,111 4,947,964 4,665,869 12,344,929
Short-term Bank Loans8,000,000 8,000,000 8,000,000 7,000,000
Short-term Borrowings (Related Parties)5,209,561 9,631,504 10,218,308 16,916,905
Working Capital———RMB 72.4M (vs RMB 83.1M in FY2014)

KPIs & One-off Items (FY and implied Q4)

KPI / ItemQ1 FY2015Q2 FY2015Q3 FY2015Q4 FY2015 (Implied)
Provision for Slow-moving Inventories———RMB 7,700,837 (FY item; 9M=0)
Write-down of Accounts Receivable (non-GAAP recon)———RMB 10,684,000 (FY item; implied at year-end)
Loss from Warrants Redemption—RMB 1,913,262 (3M) —RMB 583,113 additional to FY total RMB 2,496,375

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Company revenue/margin guidanceFY2015/Q4None formalNone formal; management expects continued near-term industry challenges but eventual recovery Maintained (no quantitative guidance)
Strategic actionsFY2015/Q4—JOCEC qualification and RMB ~0.55M contract; NAU Workstation collaboration Positive operational capacity
Post-period M&AFY2016 (Dec 2015)—Announced QHHY acquisition contingent on 15% net profit growth in FY2016/17 (earn-out) New initiative

Earnings Call Themes & Trends

No earnings call transcript was found for Q4 FY2015. Themes below reflect MD&A across prior quarters and the FY press release.

TopicQ1 FY2015 (Sep 2014)Q2 FY2015 (Dec 2014)Q3 FY2015 (Mar 2015)Q4 FY2015 (Press Release)
Oil price & customer CAPEXCNPC/Sinopec capex reductions; project delays Continued declines; project completion issues Ongoing CAPEX pressure, cancellations; revenue affected Year marked by budget cuts and delayed projects
Digital oilfield / SCADAEmphasis on measuring equipment/services, SCADA deployments Continued focus on SCADA & automation solutions SCADA/video surveillance services; “digital oilfield” transformation —
Fracturing servicesCooperation with Zhongyuan; developing own tools Expect revenue growth from fracturing Continued cooperation & growth expectations —
New downhole toolsMarket developing rapidly; customer acceptance Progress and expectation of revenue Ongoing development Acquisition of QHHY (downhole services) announced post-period
Regional strategyPursuit of SINOPEC overseas and western China opportunities Focus on Jilin/Xinjiang; project wins despite slowdown Broad geographic relationships maintained JOCEC qualification; QHHY (Qinghai) strengthens West China
Regulatory/legalNo material disclosuresNo material disclosuresNo material disclosures—
R&D executionOngoing R&D; furnace improvements R&D spend reduced; cost control Continue to manage R&D spending —
Macro/tariffs/supply chainMacro oil/gas price headwinds Same; supply constraints on projects Same Same

Management Commentary

  • “The past twelve months have been difficult for us as our major customers cut their capital budgets, canceled or delayed new projects… While the oil and gas industry is likely to continue to face multifaceted challenges in the near term, we firmly believe that we are well prepared to withstand the storm and to capitalize on an eventual recovery of the oil and gas industry.” — Chairman & CEO Shenping Yin .
  • Recent operational updates: collaboration Workstation with NAU’s CIST, JOCEC qualification and contract; MOU with QHHY ahead of definitive purchase agreement .

Q&A Highlights

No Q4 FY2015 earnings call transcript was available; therefore Q&A highlights are not applicable for this period [functions.ListDocuments earnings-call-transcript returned none].

Estimates Context

  • Wall Street consensus for Q4 FY2015 EPS and Revenue was unavailable via S&P Global in our session (API request limit exceeded). We cannot reliably compare reported results to Street estimates for this quarter.

Key Takeaways for Investors

  • Q4 was a significant clean-up quarter: inventory provisions (RMB 7.70M) and receivables write-down (RMB 10.68M) drove negative gross profit and a large net loss, overshadowing relatively steadier Q2–Q3 operations .
  • Full-year margin compression and higher opex (Selling +114%; G&A +86%) highlight the need for cost discipline and improved project execution amid a weak demand environment .
  • Liquidity posture improved sequentially into year-end (cash RMB 12.34M vs RMB ~4.67M at Mar-2015), but reliance on related-party borrowings increased materially (RMB 16.92M at Jun-2015) and working capital declined YoY (RMB 72.4M vs RMB 83.1M) .
  • Strategic pivot: JOCEC qualification expands project eligibility; the announced QHHY acquisition (earn-out structured) positions Recon to deepen downhole services in West China—a potential catalyst if integration and profit growth targets are met .
  • Near-term narrative: absent formal guidance or consensus, investors should focus on operating normalization post-Q4 charges, cash collections (AR), inventory quality, and execution against QHHY-related earn-out milestones .
  • Medium term: recovery in CNPC/Sinopec capex and continued digital oilfield deployments (SCADA/automation) could support revenue stabilization, but visibility remains constrained by macro oil & gas price cycles .