Profitability, short-term debt under pressure Sacrificing the crazy expansion of profits, DXN China crisis may come

Editor's Introduction: Accompanied by the decline in sales in 2022, DXN China will face more severe pressure from many aspects, and the crisis of DXN China may come.

Graph/Network

Recently, DXN China Holdings Limited ("DXN China") is one of the few real estate companies that have been downgraded due to the postponement of the release of the audited annual report.

After the release of the delayed disclosure of their annual reports on March 29, Moody's and Standard & Poor's downgraded DXN China and expressed concerns about its information disclosure, transparency and financing channels.

In fact, the rating agencies' concerns about DXN China are not unreasonable, according to the unaudited annual report data disclosed by DXN China, DXN China's operating income and net profit both increased in 2021, but at the same time, its attributable net profit, gross profit margin and net profit margin all declined to varying degrees.

The reason is that DXN China has been expanding in recent years to obtain land at high prices and continuously attract partners, resulting in a decline in the proportion of its equity sales, which has affected its profit distribution and profit margins.

In addition, the expansion of scale has not brought about a breakthrough in sales, 2021 DXN China sales not only did not exceed 100 billion yuan, has not yet reached the sales target of 80 billion yuan, but its liabilities are really increasing, in 2021 DXN China only short-term liabilities increased by 80% year-on-year, in the weak sales, profitability decline, the decline in net profit attributable to the mother, DXN China is difficult to cover the short debt is particularly "eye-catching".

Declining gross margin Profitability declined

According to DXN China's unaudited annual report, DXN China achieved operating income of RMB23.11 billion in 2021, an increase of 45.58% year-on-year, and for the growth of performance, DXN China said that its revenue mainly came from property sales, followed by property construction and project management services, commercial property leasing and hotel operations.

Although DXN China's performance has both grown, its profitability is much less than before, and the data shows that in 2021, it achieved a net profit of 2.377 billion yuan, an increase of 5.14% year-on-year, and its net profit margin was only 10.3%, down 3.9 percentage points year-on-year.

Gross profit of RMB5.011 billion increased by 21.99% year-on-year, but the overall gross profit margin was only 21.68%, down 4.2 percentage points year-on-year, DXN China said, mainly due to the lower land and construction costs generated by the delivery of projects in 2020.

In other words, DXN China's two core indicators of profitability both declined.

In fact, DXN China's two indicators have fallen for two consecutive years, with gross profit margins of 32.16% and 24.9% from 2019 to 2020, respectively, and net profit margins of 23.72% and 14.43% on sales.

At the same time as the core profit indicators declined, DXN China's net profit attributable to the mother has been negative growth for two consecutive years, the data shows that in 2021, DXN China achieved a net profit attributable to the mother of 941.5 million yuan, a year-on-year decline of 21.05%, it is worth mentioning that in 2020, the net profit attributable to the mother of DXN China increased by -23.39%,

Attributable net profit margin also decreased by 3.3 percentage points from 7.5% in 2020 to 4.1% in 2021, further pressure on DXN China's profitability.

Sales under-standard Minority shareholders' equity surges

As mentioned above, DXN China's attributable net profit margin has fallen sharply, and the reason may be due to the expansion of DXN China, and Kerry believes that a large number of cooperative projects have eroded revenue and led to a decline in its attributable net profit margin.

It is understood that since the realization of the goal of 10 billion yuan in 2016, DXN China has been "running wild" on the road of expansion, and when it was listed in 2019, it said that it would take three years to step into the "100 billion camp", and it should be known that DXN China's contract sales in 2018 were only 39.6 billion yuan, that is to say, DXN China's three-year cumulative growth will reach 152.55%.

The growth of scale is bound to bring about the growth of liabilities, so DXN China frequently introduces partners, resulting in a low proportion of its soil reserve equity, and the proportion of new soil reserve equity in 2021 is only 48%.

However, in the same period, the minority shareholders' equity increased by 48.56% to 15.993 billion yuan, accounting for 72.47% of the total equity, an increase of 7.67 percentage points year-on-year, while the equity of controlling shareholders increased by only 3.92% year-on-year to 6.074 billion yuan in the same period, and the proportion of total equity decreased from 35.19% in 2020 to 27.52% in 2021.

The substantial increase in minority shareholders' equity means that minority shareholders will share most of DXN China's net profit, and the minority shareholders who hold more than 70% of the equity in 2021 will share the net profit of 1.435 billion yuan, accounting for 60.37% of the net profit.

Minority shareholders' profit and loss increase, the net profit attributable to the mother will be relatively reduced, in other words, DXN China sacrificed profits to ensure the growth of scale, but even so, the growth of DXN China's scale is still unsatisfactory, and now that the three-year period has arrived, DXN China has not reached the target of 100 billion, not only that, in March 2021, DXN China said that the sales target of DXN China in 2021 is 80 billion yuan, according to which its sales achievement rate in 2021 is only 92.5%.

Kerry said that the proportion of DXN China's equity has always been relatively low, although this model can help companies sprint performance in the short term, but at the same time, it also erodes a lot of corporate revenue, resulting in hollow growth.

Short-term debt is at its peak

The hollowing out growth of DXN China is not only reflected in its size and revenue, but also in terms of debt.

Thanks to the growth of minority shareholders' equity, DXN China's net debt ratio will be 63% in 2021, the asset-liability ratio after excluding pre-sale accounts will be 69.6%, the cash short-term debt ratio will be 1.11, and all three red lines will meet the standards, making it a "green file" housing enterprise.

However, this is not the case in terms of short-term debt, as of 31 December 2021, DXN China's short-term borrowings amounted to RMB15,764 million, an increase of 80% year-on-year, compared with $17,563 million in cash and cash equivalents and restricted cash for the same period.

It should be noted that it also includes about 5.83 billion yuan of guarantee deposits for pre-sale properties and about 1.422 billion yuan of bank loans and bank acceptance notes, which means that the cash and cash equivalents available to DXN China are only 10.311 billion yuan, which is far from covering the above debts.

However, DXN China's short-term debt does not stop there, the data shows that by the end of 2021, the size of DXN China Trade's payables and notes payable will reach 3.389 billion yuan, and the payable non-controlling interests and related parties will be 9.7 billion yuan, if combined with non-current liabilities due within one year, DXN China's funding gap will be even greater.

In addition, according to Kerry, at the end of 2021, DXN China's long-term debt ratio fell to 0.96, and nearly 50% of the interest-bearing bonds matured this year, and the debt structure needed to be adjusted. In terms of credit lines, as of the end of last year, DXN China's unused credit line of banks and other financial institutions was about 2.53 billion yuan, down about 1.5 billion yuan from the medium term, and the credit line still needs to be increased compared with the current debt scale.

Obviously, with the decline in sales in 2022, DXN China will face more severe pressure from many aspects, and the crisis of DXN China may come.

Original author: Wang Tingyan

Editor: Wang Tingyan