(Yicai Global) Dec. 31 -- Shares of Ningbo Cixing slumped 10 percent, the most allowed by the Shenzhen stock exchange in a single day, after the Chinese knitting machine maker said it expects to report a steep loss for the year.

Its stock price [SHE:300307] fell to CNY4.36 (USD0.63) today, trimming the Ningbo-based company's market capitalization to CNY3.5 billion (USD502 million). 

Cixing is the latest listed Chinese company to run into financial difficulties due to expensive mergers and acquisitions. The firm is bracing for losses of between CNY720 million (USD103 million) and CNY725 million this year, largely due to substantial goodwill impairments at two online advertising units it owns, the firm said in a statement yesterday. Last year, it had a CNY138 million net profit.

The company has put aside CNY600 million in goodwill impairment. That is the difference in the inflated price paid, or goodwill price, and the actual fair value of the companies. Cixing bought Hangzhou Youtou Technology and Hangzhou Duoyile Network Technology in 2016 for CNY1 billion (USD144 million), some 40 times the value of their reported assets at the time.

Cixing has also put aside CNY100 million to account for the devaluation of its stock of computerized flat knitting machines due to intensified competition and accelerated upgrades. 

Founder Sun Pingfan, who is also chairman and president of the company, has sought to shift Cixing into the mobile internet sector and away from the knitting industry. But a weak advertising market and the dominance of a few key players resulted in a sharp decrease in the two units' share of customers and internet traffic. As a result, their annual net profit has fallen far below their respective financial targets of CNY90 million and CNY67.5 million under the terms of their acquisition.

Youtou Technology's profit fell to CNY37 million (USD5.3 million) in the first half from CNY83 million in the same period last year. Duoyile Network's first-half profit stood at CNY19 million, down from CNY50 million.

Editor: Kim Taylor