*ST Changyao's Financial Fraud and Delisting Risk: Warning Significance for A-Share Pharmaceutical Sector Investors

According to the latest market data, *ST Changyao (300391.SZ) has become the 15th listed company in the A-share market to be subject to compulsory delisting due to major violations in 2025 [2]. This incident has profound warning significance for investors in the pharmaceutical sector.

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*ST Changyao (Yangtze River Pharmaceutical Holdings) carried out systematic financial fraud through its subsidiaries Hubei Changjiangyuan Pharmaceutical and Hubei Xinfeng Pharmaceutical over three consecutive years from 2021 to 2023 by forging fake warehousing and delivery documents [3]:

• Inflated Operating Revenue
  : Total of 733 million yuan (215 million in 2021, 284 million in 2022, 234 million in 2023)
• Inflated Total Profit
  : Total of 168 million yuan
• Fraud Proportion
  : The proportion of inflated revenue to the disclosed revenue in the current period increased year by year (9.12%→17.57%→19.51%)
• Penalty Result
  : The company was fined 10 million yuan, 14 responsible persons were fined a total of 31 million yuan, and the former general manager Luo Ming was subject to a lifetime securities market entry ban [3]

From the stock price chart, it is clear that *ST Changyao has shown a one-sided downward trend since 2024:

[0]:

• Period Decline
  : From $7.85 at the beginning of 2024 to $1.18 at the end of 2025, a decline of 84.97%
• 52-Week Range
  : $1.18 - $6.29, having fallen to an all-time low
• Single-Day Plunge
  : Fell by 19.73% on the latest trading day with a turnover of 8.9 million shares
• Valuation Collapse
  : P/E ratio of -0.63x, P/B ratio of -0.64x, reflecting the market’s complete loss of confidence in it

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*ST Changyao’s predecessor, Kangyue Technology, originally focused on photovoltaic equipment and transformed into the pharmaceutical track through mergers and acquisitions in 2020 [4]. This case reveals:

• Performance Commitment Risk of M&A Targets
  : Luo Ming, the actual controller of Changjiang Xingyuan, made profit commitments for 2020-2022, and carried out financial fraud to fulfill the commitments
• High Difficulty in Cross-Border M&A Integration
  : Lack of operational experience in the pharmaceutical industry, leading to internal control system failure
• Investor Insight
  : Maintain high vigilance against cross-border transformation of ST stocks, and focus on the past financial compliance and rationality of performance commitments of M&A targets

Since 2025, 15 listed companies have been subject to compulsory delisting due to major violations, a record high [2]. Core points of the new regulations:

Fraud Type	Recognition Standard	Consequence
Single-Year Fraud	Amount ≥200 million yuan and proportion ≥30%	Triggers delisting
Consecutive Two-Year Fraud	Cumulative ≥300 million yuan and proportion ≥20%	Triggers delisting
Consecutive Three-Year Fraud	Regardless of amount	Compulsory delisting

• “Three-Year Red Line” Hard Requirement
  : As long as there is consecutive three-year financial fraud, delisting is triggered, significantly lowering the recognition threshold
• Investor Insight
  : Do not bet on “policy relaxation”; regulatory zero tolerance has no exceptions [2]

*ST Changyao’s financial indicators had already sent danger signals, but the market reaction was lagging:

• Liquidity Drying Up
  : Current ratio of only 0.50, quick ratio of 0.46 [0], far below the healthy value of 1.0
• Profitability Collapse
  : Net profit margin of -377.51%, operating profit margin of -744.98% [0]
• Cash Flow Deterioration
  : EV/OCF ratio of -5.84x, serious shortage of operating cash flow
• Market Value Trap
  : Market value shrank by nearly 90% from its peak, currently only $413 million

: Maintain vigilance against companies with consecutive losses and deteriorating liquidity, regardless of their industry prospects.

As of the end of Q3 2025, *ST Changyao had more than 14,000 shareholders, most of whom were small and medium investors [4]. With delisting, these investors will suffer huge losses.

[2]:

• Pre-compensation System
  : Requires controlling shareholders and actual controllers to take the initiative to pre-compensate
• Special Representative Litigation
  : Cases like Jintongling and Meishang Ecology have covered tens of thousands of investors
• Model Mediation + Arbitration Confirmation
  : Provides an efficient rights protection channel

:

1. Pre-prevention
   : Stay away from ST and *ST stocks, avoid “gambling on restructuring”
2. Mid-event response
   : Pay close attention to company announcements and regulatory penalties
3. Post-event rights protection
   : Actively participate in collective litigation and claim compensation through legal channels

Current market data shows that the Healthcare sector performed weakly, falling by 0.54% in a single day, making it one of the worst-performing sectors [0]. The pharmaceutical industry faces unique risks:

• Policy Regulatory Risk
  : Continuous centralized procurement price reductions and medical insurance cost control
• Concealment of Financial Fraud
  : Complex pharmaceutical sales channels make inflated revenue difficult to detect
• Goodwill Impairment Risk
  : High-premium M&A of pharmaceutical assets faces impairment pressure

: Investment in pharmaceutical stocks requires careful selection of segmented tracks and high-quality targets, avoiding “track belief” and ignoring financial quality.

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Based on the *ST Changyao case, investors can focus on the following warning signals:

Warning Indicator	*ST Changyao Situation	Alert Threshold
Abnormal Fluctuation of Gross Margin	Not disclosed (may be inflated)	Difference from peers >20%
Accounts Receivable/Revenue Ratio	Not disclosed	>50% requires vigilance
Operating Cash Flow/Net Profit	Serious deviation	Continuous <1 requires vigilance
Audit Opinion	May be issued non-standard	Non-“standard unqualified”
Executive Changes	General manager banned	Frequent changes require vigilance
Performance of M&A Targets	Fraud to fulfill commitments	Just meet or barely meet standards

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• *ST/ST Stocks: Unless there is a clear restructuring plan and compliance rectification plan
• Cross-Border Transformation Companies
  : Especially “shell companies” lacking industry experience
• High Performance Commitment in M&A
  : Conduct in-depth verification of the target’s historical financial data
• Abnormal Financial Indicators
  : Consecutive losses, liquidity crisis, excessive goodwill proportion

The pharmaceutical sector is becoming more differentiated; it is recommended to focus on:

• Innovative Drug Leading Enterprises
  : With core R&D capabilities
• Consumer Pharmaceuticals
  : Self-paid varieties not affected by centralized procurement
• Medical Devices
  : Large space for domestic substitution
• CXO Industry Chain
  : Beneficiaries of specialized division of labor

1. Diversified Investment
   : Single stock position should not exceed 10%
2. Stop-Loss Discipline
   : Resolutely stop loss when falling below key support levels
3. Regular Check-up
   : Check the financial health of held stocks quarterly
4. Information Tracking
   : Pay close attention to regulatory announcements and penalty information

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The *ST Changyao case is a landmark event of “zero tolerance” regulation under the background of the full registration system in A-shares [1][2]. The core warnings for pharmaceutical sector investors are:

1. Zero tolerance for financial fraud, three-year red line hard constraint
2. High risk of transformation M&A, performance commitments need screening
3. ST stocks cannot be gambled on, delisting losses are hard to recover
4. Pharmaceutical track is highly differentiated, select targets carefully and adhere to discipline
5. Rights protection channels have been widened, pre-prevention is the most important

In the current market environment, investors should abandon the speculative mentality of “gambling on shells” and “speculating on ST stocks”, return to the fundamental investment concept, and choose high-quality pharmaceutical enterprises with real performance support, transparent governance structure, and stable industry status. The regulatory authorities are optimizing capital market resource allocation through a positive cycle mechanism of “survival of the fittest” [3], which is conducive to the healthy development of the market in the long run, but in the short term, we need to be vigilant against the risk of clearing out problem companies.

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[0] Gilin API Data - *ST Changyao (300391.SZ) Real-Time Quotes, Financial Data, Historical Prices
[1] East Money Wealth Channel - “Financial Fraud for Three Years! *ST Changyao May Become the First Major Violation Delisting Stock in A-Shares in 2025” (https://caifuhao.eastmoney.com/news/20251226205809366486140)
[2] 21st Century Business Herald - “*ST Changyao Steps into Compulsory Delisting Channel by Touching Three-Year Red Line; Regulatory Zero Tolerance Has No Exceptions” (https://www.xincai.com/article/nheerhz0271918)
[3] NetEase News - “Consecutive Three-Year Financial Fraud! *ST Changyao Faces Compulsory Delisting: 14 People Fined a Total of 31 Million Yuan, One Person Banned from Securities Market for Life” (https://www.163.com/dy/article/KHO10GM90514R9P4.html)
[4] Sina Finance - “*ST Changyao Found to Have Inflated Profits by Over 168 Million Yuan in Three Years; Who Should Pay for Investors’ Losses?” (https://finance.sina.com.cn/roll/2025-12-28/doc-inheimcs8940454.shtml)
[5] Securities Daily - “Optimizing Capital Market Resource Allocation with Entry and Exit Mechanism”