(Yicai Global) Feb. 6 -- Shares of Huayi Brothers Media, one of China's leading film production companies, have risen over the past two days despite questioning by the Shenzhen Stock Exchange after the firm said it expects to report a CNY3.9 billion (USD559.5 million) annual loss.

When markets reopened after the extended Lunar New Year holiday at the start of this week, the firm's stock [SHE:300027] dropped. But it climbed 4 percent yesterday and closed 1.1 percent higher today at CNY3.69 (USD0.53).

The loss was due to a drop in earnings from Huayi's movie and television drama businesses, paying a high premium for two entertainment firms as well as the devaluation of long-term equity investments and other assets, the Beijing-based company said on Jan. 23, just before the start of the holiday.

The profit warning prompted the Shenzhen bourse to ask Huayi for an explanation. It wants to know if the adjustment was due to making provision for the devaluation of a large number of assets. It is also asking the company to specify the non-recurring losses and profits in its 2019 earnings reports.

Huayi Brothers overpaid CNY1.9 billion (USD272.5 million) for Zhejiang Dongyang Haohan Pictures Entertainment and Zhejiang Dongyang Meila Media, according to its third quarter earnings' report. This has led to substantial goodwill impairments, which is the difference in the inflated price paid, or goodwill price, and the actual fair value of the companies.

Editor: Kim Taylor