Sued for selling 4.71 million yuan SIM card Dongxin Heping Singapore subsidiary was claimed 260 million yuan

Reporter: Chen Pengli Editor: Yang Xia

On the evening of October 16, Dongxin Peace (SZ002017, share price of 9.67 yuan, market value of 5.609 billion yuan) announced that the company recently received a full-owned subsidiary EASTCOMPEACE (SINGAPORE) PTE. SUMMONS AND OTHER LITIGATION MATERIALS FORWARDED BY LTD (HEREINAFTER REFERRED TO AS Singapore SUBSIDIARY) AND SERVED BY THE HIGH COURT OF THE WESTERN PROVINCE HOLDEN IN COLOMBO (HEREINAFTER REFERRED TO AS THE SRI LANKA COURT). A Sri Lankan mobile communications operator, MOBITEL (PRIVATE) LIMITED (hereinafter referred to as Mobitel), filed a lawsuit against the company's Singapore subsidiary on the grounds of product quality issues, which was accepted by the court.

The reporter of "Daily Economic News" learned that Dongxin Heping Singapore subsidiary began to establish business cooperation with Mobitel around 2014. Between January 2019 and November 2020, Mobitel purchased six orders from its Singapore subsidiary totaling 8.8 million SIM cards (with a contract value of approximately US$662,300). Mobitel is now suing its Singapore subsidiary for compensation of about 10.798 billion Sri Lankan rupees (about 260 million yuan) and interest at an annual interest rate of 18% on the grounds of product quality problems.

Dongxin Heping said that the case is currently in the acceptance stage and has not yet been tried in court, and it is impossible to judge the impact of the lawsuit on the company's current or future profits. Moreover, the Singapore subsidiary does not consider product quality to be problematic.

Dongxin Peace's business covers smart card products and services in mobile communications, financial services, and government public utilities. The picture shows the Dongxin Peace booth at the China International Smart Card Expo in Beijing. Visual China Diagram

The Singapore subsidiary was sued

The "Daily Economic News" reporter noted that the lawsuit stemmed from the order transaction between Dongxin Heping's Singapore subsidiary and Mobitel four or five years ago, and Mobitel purchased six batches of SIM cards from the Singapore subsidiary, with a contract amount of about 662,300 US dollars, or about 4.71 million yuan.

Mobitel filed a lawsuit in the Sri Lankan courts, alleging that it had found that the SIM card was defective and had suffered loss and damage as a result. Mobitel requested the court to render judgments and orders in favour of the plaintiff and against the defendant, directing the defendant to pay the plaintiff six sums of money in various amounts and interest at the rate of 18 per cent per annum. These six payments amounted to about 260 million yuan. At the same time, Mobitel requested the defendant to reimburse it for costs and grant further and other relief as the court deemed appropriate.

Dongxin Peace claimed that the lawsuit was a dispute arising from the Singapore subsidiary and Mobitel who could not reach an agreement on whether the product had quality problems despite negotiations. The grounds for compensation claimed by Mobitel are solely its unilateral claims. In the absence of tangible evidence from Mobitel, the Singapore subsidiary did not believe that there was a problem with the quality of the product.

The company also stated that in order to resolve the dispute, the Singapore subsidiary had repeatedly negotiated with Mobitel and proposed reasonable solutions, but could not reach an agreement due to Mobitel's unreasonable demands. The company will cooperate with its Singapore subsidiary and hired lawyers to actively respond to the lawsuit and take strong measures to protect its rights in accordance with the law. At the same time, the company will also pay close attention to the progress of the above-mentioned litigation cases and fulfill its information disclosure obligations in a timely manner.

Judging from the public information, Dongxin Peace and the plaintiff Mobitel Company currently have different opinions on whether the product has quality problems. On the morning of October 17, the reporter of "Daily Economic News" called the secretary office of the board of directors of Dongxin Peace, and the relevant staff replied to the reporter that the interview needed to be reported to the leadership before replying. The reporter then sent the interview email to the company's public mailbox and reminded the staff to check. However, as of press time, the reporter has not received a reply from the company.

Foreign sales declined in the first half of the year

The reporter of "Daily Economic News" learned that the predecessor of Dongxin Heping Singapore subsidiary was ZEP SMART CARDS PTE. LTD., which was incorporated in Singapore in November 2003, was initially jointly invested by two natural persons, Anthony Ong and Andy Chew. Less than a year after its establishment, in August 2004, Dongxin Peace Anthony Ong and Andy Chew signed a capital increase agreement, unilaterally increasing capital by 400,000 US dollars at a premium, obtaining a controlling stake in the company, holding 80% of the shares, and the subsidiary was renamed Eastcompeace Smart Card (Singapore) Pte. Ltd., that is, Dongxin Peace Smart Card (Singapore) Limited.

The Singapore subsidiary is mainly engaged in the sale of smart cards. Dongxin Peace's 2005 financial report mentioned that the company actively uses the Singapore subsidiary as a sales and service platform for the company's internationalization strategy, gives full play to the company's advantages in manufacturing and service, and accelerates the pace of the company's internationalization strategy.

In 2023, the individual shareholders of the Singapore subsidiary will withdraw their shares, for which the Singapore subsidiary will also pay 586,500 Singapore dollars (about 3,325,800 yuan) to its individual shareholders, and the Singapore subsidiary will become a wholly-owned subsidiary of Dongxin Peace. This year, in order to further promote the internationalization of its business, Dongxin Peace also jointly invested with its Singapore subsidiary to set up a company in Indonesia with an investment of 1 million US dollars.

According to the financial report, in the first half of 2024, Dongxin Heping achieved foreign sales of 206 million yuan, a year-on-year decrease of 28.46%. Overseas sales revenue accounted for about 28% of the company's current revenue.

The reporter particularly noted that the lawsuit involved in the Singapore subsidiary exceeded 260 million yuan. In 2023, Dongxin Peace will achieve revenue of 1.382 billion yuan and net profit attributable to the parent company of 172 million yuan. It can be seen that if this lawsuit is finally lost, it may have a greater impact on the net profit of Dongxin Peace. From the perspective of the company's business composition, the smart card business is currently the company's largest source of revenue, followed by the digital identity security business.

National Business Daily