21 Observation丨Dongfang Yuhong has a large amount of dividends, a radical adventure to save people from fire and water

21st Century Business Herald reporter Zhao Yunfan reports

On the evening of March 12, "Waterproof Mao" Dongfang Yuhong issued an announcement to adjust the dividend plan that had been controversial by investors.

Among them, the total amount of the company's annual cash dividends in 2024 is planned to be halved from the original total of 4.419 billion yuan to 2.21 billion yuan.

"We have had full exchanges with investors and actively listened to everyone's concerns and suggestions about the plan", Dongfang Yuhong clarified in the adjusted investor exchange information that it will pay more attention to the impact of dividends on the company's liquidity and actively protect the company's financial health.

It is worth noting that since Oriental Yuhong has already carried out a round of interim dividends of 1.462 billion yuan in the middle of 2024, if according to the pre-adjustment plan, the total dividend amount of Oriental Yuhong in fiscal year 2024 will be as high as 5.881 billion yuan. Even if it is adjusted, its total dividend amount for fiscal year 2024 is still as high as 3.671 billion yuan.

In sharp contrast to the large dividends, with the adjustment of the real estate market, Oriental Yuhong, which has shown a declining operating trend, will only achieve a net profit of 108 million yuan in 2024, which also makes Oriental Yuhong the dividend case with the largest difference between dividends per share and earnings per share in the history of A-shares.

What is intriguing is that under the premise that Dongfang Yuhong has hidden risks in the quality of earnings, assets and liabilities, and cash flow, and the regulator clearly does not support abnormally large dividends, the company's board of directors unanimously passed the distribution resolution.

In this way, it is doubtful how credible and reliable Dongfang Yuhong's internal control system is.

Dividends are exhausted and fishing

Since 2019, as the real estate market has entered a downturn cycle of adjustment and clearing, Oriental Yuhong's performance has also been seriously impacted by the decline in the industry.

From 2022 to 2024, Dongfang Yuhong will achieve operating income of 31.89 billion yuan, 29.51 billion yuan, and 28.06 billion yuan respectively, showing a downward trend year by year, while the net profit attributable to shareholders of the same company will plummet from 1.52 billion yuan in 2022 to 108 million yuan, showing a cliff-like dive.

However, at this time, Dongfang Yuhong did not choose to "accumulate grain" in the real estate winter, but increased cash dividends against the market, and its weak financial performance made it difficult not to make people feel that they were "eating grain" for their super-large proportion of profit distribution.

Judging from the history of A-shares, it is not uncommon for performance to decline but pay dividends against the market, but they are far less "bold" than Oriental Yuhong.

For example, Zoomlion only achieved 83.467 million yuan in fiscal year 2015, but still chose cash dividends of 1.15 billion yuan in response to the regulator's call to strengthen investor returns. However, it should be pointed out that as of the end of 2015, Zoomlion's undistributed profit at that time reached 17.068 billion yuan, so the actual distribution profit in 2015 accounted for only 6.74% of the distributable profit, compared with its distribution strength will not make people feel too exaggerated.

A similar situation also includes the dividends of Lijiang shares in 2022. Although the company only made a profit of 3.6846 million yuan due to a temporary public health event, the annual dividend reached 137 million yuan. However, considering that Lijiang shares have maintained regular dividends in previous years, and the long-term and short-term debts on the book were zero at that time, and the monetary funds were abundant, the company's undistributed profit at the end of 2022 was also 1.057 billion yuan, and the proportion of dividends in undistributed profits was only 13%.

In contrast, if the dividend of Oriental Yuhong is calculated according to the original plan of 4.419 billion yuan, it will account for 35% of the undistributed profit of 12.646 billion yuan at the end of 2024, and even after the revision, it will reach 17%, which is much higher than Zoomlion and Lijiang shares, which were considered to be typical dividends against the trend at that time.

Moreover, even according to the adjusted plan, Dongfang Yuhong may still continue to pay out a large number of dividends in mid-2025.

The capital chain is worried

It should be pointed out that although "undistributed profits" have "profits earned but not yet distributed" in the name, their essence is only the bookkeeping method in the owner's equity, and it does not mean that there is enough cash to distribute profits at any time.

"Many companies will put undistributed profits into operations, but they will not directly transfer profits to capital reserves, surplus reserves and other corporate capital accounts in the financial reports." A former certified public accountant in Shanghai told reporters that for example, enterprises use the profits of previous years to buy equipment for reproduction, but this operation will only affect the transfer of cash under balance sheet assets to fixed assets. The undistributed profit item under the owner's equity will not change due to the purchase of equipment.

Therefore, the cash that seems to have more than 10 billion yuan of undistributed profits may be much lower than the undistributed profits on the books.

For Oriental Yuhongfang, a real estate-related manufacturing enterprise, in addition to the production and manufacturing of a large amount of capital investment, the advance of funds in business activities and the postponement of the accounts receivable period will test the company's cash flow management ability.

If the company's short-term solvency is examined, as of the end of 2024, Dongfang Yuhong's liquid assets are 24.343 billion yuan, and current liabilities will reach 17.318 billion yuan, with a current ratio of about 1.4.

According to the traditional financial theory, the current ratio of an enterprise above 2 is a healthy state, 1~2 is a sub-healthy state, and less than 1 is a short-term debt repayment risk.

If according to the earlier version of the plan of Oriental Yuhong, the company's liquid assets will be reduced to 19.924 billion yuan, and the current ratio will be reduced to 1.15, which will touch the "red line" of short-term debt repayment risk, even with reference to the new dividend plan, the current ratio will also drop to 1.27, which will adversely affect the company's liquidity security.

In terms of cash flow, the company continued to have a net outflow of cash equivalents from 2022 to 2024, with net cash and cash equivalents of -5.118 billion, -1.264 billion and -1.675 billion respectively.

Roughly calculating the impact of this dividend, the company's monetary funds at the end of 2024 are 7.259 billion yuan, and short-term borrowings are 4.612 billion yuan, and the difference between the two is 2.647 billion yuan.

In view of the fact that Oriental Yuhong may still insist on a considerable amount of cash dividends in the middle of 2025, in order to complete this dividend plan, the company has to increase the recovery of accounts receivable.

In the market environment where the industry is still not very sluggish, it seems unrealistic to rely on the recovery of accounts receivable to protect cash dividends.

How effective is internal control?

Although in recent years, it has become a trend for the regulator to call on listed companies to strengthen dividends and improve investors' sense of return on investment, but at the same time, the regulator also requires listed companies to pay dividends within their capacity and not damage the normal operation and sustainable development of the company.

For example, the "New National Nine Articles" issued last year made clear restrictive provisions on the phenomenon of dividends beyond capacity, and in the case of poor financial status of assets, cash dividends shall not exceed 50% of the current profit.

It is worth noting that although Dongfang Yuhong has reduced the annual dividend amount in 2024 by half, its large proportion of dividends, whether from the perspective of regulatory requirements or financial soundness, is flawed, but the relevant dividend resolution was unanimously approved by 11 directors, including four independent directors.

Generally speaking, the selection of independent directors often includes an independent director with financial expertise and an independent director with legal expertise, and the board of directors should be able to identify the flaws in the large dividend plan, especially the independent directors have the legal obligation to raise objections in a timely manner.

There are many indications that Dongfang Yuhong's choice of large dividends should be "Xiang Zhuang's sword dance is intended for Pei Gong", and the intention of alleviating the huge debt risk of the actual controller through extraordinary dividends is quite obvious.

Up to now, of the 531 million shares held by Li Weiguo, the actual controller of Oriental Yuhong, 420 million shares, or nearly eighty percent of the shares, are in a pledged state, accounting for about 17% of the total share capital of the listed company.

In 2021, Dongfang Yuhong launched an employee stock ownership plan, and 1,600 employees raised 2.8 billion yuan to participate in the company's shareholding. In order to motivate employees to participate, Li Weiguo promised to cover the principal and guarantee an annualized return of 8%.

It is very unfortunate that the total market value of Dongfang Yuhong's stock price has shrunk from 150 billion yuan in 2021 to 33 billion yuan today.

According to an investor relations record disclosed by Dongfang Yuhong on March 12, the company publicly admitted that the super-large proportion of dividends was related to the financial status of the actual controller, arguing that bailing out the financial status of the actual controller through dividends would also be beneficial to the listed company.

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