On August 26, Yanchang Petro (00346.HK) issued an inside information announcement revealing that a salesperson from one of its subsidiaries, along with an independent third party, is suspected of conspiring to defraud and misappropriate inventory, with an estimated amount of approximately RMB 19.24 million (equivalent to around HK$22.32 million). The case has been reported to the Chinese Public Security Bureau, and the suspects involved have been placed under criminal detention.

Yanchang Petro stated that, based on information currently available to the company, the suspects allegedly obtained the inventory through forged documents. The group is cooperating with police to recover the inventory or stolen funds. The announcement noted that as the case is still under criminal investigation by the public security authorities, specific progress details cannot be ascertained, and the final recoverable amount and the financial impact on the group remain undetermined.

The company plans to engage third-party professional advisors to conduct an independent investigation into the incident, review its risk management and internal control systems, and submit rectification recommendations to the board. Yanchang Petro's main business is divided into two segments: oil and gas exploration and production in Canada, and refined oil product trading and retail in mainland China. The oil product trading business serves as its core revenue source, characterized by high inventory throughput and numerous transaction links, which inherently creates significant internal control management pressure.

The company's performance has continued to weaken over multiple consecutive reporting periods. Full-year 2025 revenue declined 40.6% year-on-year, with a net loss of HK$757 million. For the first half of 2026, revenue is expected to reach HK$7.024 billion, down another 30% year-on-year, with a loss of approximately HK$40.2 million, widening by 44% compared to the same period last year. In its profit warning issued on August 4, the board attributed the deteriorating performance to two factors: first, a revenue reduction of approximately HK$2.957 billion in its China oil product sales business, mainly due to a decline in oil product trading scale and continuously narrowing retail margins, with sales volume down approximately 32% year-on-year; and second, foreign exchange losses of approximately HK$10.7 million on its Canadian oil and gas business's U.S. dollar-denominated term loans, caused by fluctuations in the USD/CAD exchange rate.

Yanchang Petro indicated that since the board only became aware of the suspected misappropriation incident after issuing the aforementioned profit warning, the financial impact of the suspected misappropriation was not included in that announcement. The company's interim results are scheduled to be released around August 27, and the board will update shareholders, if applicable, on the financial impact of the suspected misappropriation on the first-half financial performance.

However, the involved inventory, equivalent to approximately HK$22.32 million, accounts for only 0.32% of the expected total revenue for the first half of 2026. Even if a full impairment is subsequently recognized, the marginal impact on overall performance would be limited. Beyond the internal control issues exposed this time, the company also faces debt repayment challenges. As of the end of June 2025, the company had secured term loans totaling approximately HK$447 million, indicating high liquidity pressure.

In the secondary market, the company's share price has been on a downward trajectory this year. As of the time of writing, the stock was trading at HK$0.231 per share, representing a year-to-date decline of 36.71%.