Turnover and Profit Reach New Highs Up 61% and 35% Respectively;
Diversifies Business Portfolio and Expands Exposure in Asset Management
HONG KONG — Differ Group Holding Company Limited (“DFH” or the “Group”) (stock code: 6878), a leading provider of short- to medium-term financing and financing-related solutions in the PRC, has announced another successful year for the Group, with satisfactory annual results for the financial year ended 31 December 2016 (the “Year”). Turnover surged by 61.0% YoY to approximately RMB294.9 million and profit attributable to shareholders soared by 30.6% YoY to approximately RMB135.5 million. Basic earnings per share amounted to approximately RMB3.20 cents, representing a YoY increase of 25.0%. The growth was mainly attributed to exceptional income growth from asset management, finance lease and entrusted loan businesses. The Group has been devoting efforts to expanding its finance lease and asset management businesses and recorded outstanding results in the Year.
The Group maintained a healthy financial position with a 28.2% gearing ratio. As at 31 December 2016, it had total cash and bank balances (including restricted bank deposits) of approximately RMB143.8 million. In the Year, provision of bad debts was RMB28.0 million (2015: RMB6.7 million).
To provide incentives to the employees, the Group granted an aggregate of 84,108,000 share options. The equity-settled share-based payments were RMB12.00 million. To capture the industry opportunities, the Group issued a convertible bond of US$30 million during the Year. Imputed interests expenses and fair value gain on change of derivative financial instruments were approximately RMB12.7 million and RMB14.0 million respectively. If taking off the above one-off items, profit for the year reached RMB153.2 million, representing a substantial growth of 45.1%.
Mr. Hong Mingxian, Chairman and Executive Director of DFH, said, “The year 2016 was a challenging time for the Group. Since the Chinese economy entered the ‘New Norm’, more prudent credit policies have given rise to new development opportunities. The Group has actively reviewed and adjusted its business development focus and placed more effort on expanding businesses with higher profitability and sustainability, especially asset management and finance lease businesses. Finance lease business can affect a healthy leverage from banks, which means scalability.”
Business Review
Finance Lease Services
Following the acquisition of Jiashi International Financial Limited and its subsidiaries (“Jiashi Group”) in late October 2015, the Group further developed its finance lease business. The acquisition has added momentum to the Group’s finance lease business through Jiashi Group’s extensive network and experience in the agricultural industry, such as distant marine fisheries, agricultural drones, and personal consumption, specifically, tourism and car leasing to individuals businesses. Agricultural industry has been going through structural change in recent years and the upgrading of the sector requires financing with strong support from the government. Personal consumption sector has been going through a long period of expansion caused by the continuous increase in personal income and improvement of personal lifestyle. The effect is a constantly increase demand for financing. In addition, the Group has started its finance lease business for properties in late 2016 and the hard work has begun to bear fruit. Income increased by 92.5% YoY to approximately RMB41.4 million.
Asset Management Services
The Group has placed greater effort on expanding asset management business in order to capture opportunities presented by the abundant assets in Fujian Province during the Year. It is actively looking for good-quality assets that offer potentially high-percentage returns. Income from asset management services increased by 343.9% YoY to approximately RMB93.2 million, mainly due to the disposal of four properties in 2016 as compared with the disposal of only two properties in 2015. Besides, certain obligors of non-performing loans have settled the debts according to the terms set out in the relevant contracts.
Express Loan Services
In light of tightened credit controls by PRC banks and the strong demand for financing services by SMEs, the Group continued to expand the proprietary lending business (“PLB”, also known as “entrusted loan”) in the PRC. By effective management of its financial resources, the Group was able to generate more interest income. The Group’s express loan services income increased sharply by 60.4% YoY to approximately RMB108.0 million, mainly due to the increase in average entrusted loan receivables.
The Group commenced its Hong Kong money lending business in the second half of 2015 and continued to expand the business in 2016. Income from the Hong Kong money lending business increased sharply by 252.9% YoY to approximately RMB7.0 million. In addition, due to the strong demand for financing by SMEs, the Group has provided more short-term financing to customers in the PRC and recorded interest income of approximately RMB19.6 million in 2016 as compared with only approximately RMB0.9 million in 2015.
Pawn loan service income decreased by 45.1% YoY to approximately RMB7.7 million in 2016. The Group disposed of this business in late June. The proceeds from the disposal enabled the Group to have more capital to focus on other scalable business activities that generate higher profits.
Financial Services
The Group mainly focused on financial services that charge customers based on certain percentage of the amount of financing obtained as a result of consultation. Due to the macro economic environment of the PRC economy in 2016, banks across the country tightened their credit approval process. Although the Group’s customer base has remained stable, the amount of financing obtained from banks became more modest, thus resulting in a decline in income from financial services. Consequently, income from financial consultation services decreased by 24.9% YoY to approximately RMB42.6 million.
Financial Guarantee Services
In 2016, the macro economic environment led to more prominent credit risks. The Group has taken a more prudent approach towards vetting potential customers’ applications. As a result, the number and income from guarantee services decreased accordingly. Income declined by 41.8% YoY to approximately RMB9.6 million.
Outlook
DFH has always been exploring opportunities to develop new businesses and broaden income streams. In 2016, the Group has issued convertible bonds and corporate bonds, so as to enhance its capital base and accelerate its development, especially the asset management business.
The Group considers the finance lease business as another key growth driver. The launching of a free-trade zone in Fujian, the issue of policies on the “One Belt, One Road” initiative and the National 13th Five-Year Plan are all leading to substantial business opportunities for the financial lease industry. The Group has expanded its finance leasing business to encompass industries, such as agriculture and personal spending that are sustainable, fast growing and encouraged by the government policies, in order to capture more business opportunities.
In addition, the Group has entered into an investment cooperation agreement to form a joint venture with three well-known enterprises (with two as state-owned enterprises) in providing commercial factoring services in the PRC. Driven by favourable state policies and a market that has over RMB20 trillion in account receivables, it is believed that commercial factoring has immense potential for development. The close ties forged via the joint venture can help to broaden the customer base, bolster the competitiveness and also expand the geographical coverage of the Group’s business. This business can also be leveraged and can help the scaling up of the overall loan book of the Group.
Mr. Hong concluded, “Going forward, we believe that strong development of the asset management and finance lease businesses will strengthen the Group’s leading position in the finance service business. Moreover, the joint venture on commercial factoring related services can further diversify the Group’s business portfolio and create synergies with its existing businesses. We will continue to actively capture opportunities presented by the rapidly changing economic environment in the PRC and maintain our leading position as the preferred choice of comprehensive short- to medium-term financing solutions by SMEs.”