Perseverance
Source: Fortune Unicorn
The equity of Huaxing Bank's shareholders has once again attracted much attention from the market due to the judicial auction.
Recently, according to the Ali auction platform, from 10 a.m. on October 28, 2024 to the same day as the next day, the Intermediate People's Court of Wuxi City, Jiangsu Province, will publicly auction 175.8 million shares of Huaxing Bank on the Alibaba judicial auction network platform, with an appraisal price of 568 million yuan and a starting price of 397 million yuan. It is reported that the owner of the above-mentioned equity target is Chenchengda, which was enforced by the court, and Chenchengda holds a total of 800 million shares of Huaxing Bank, with a shareholding ratio of 10%, making it the third largest shareholder, and all the shares held are frozen, of which 392 million shares have been pledged.
In other words, nearly 500 million shares of Huaxing Bank were sold at 70% of the appraised price.
In fact, this is not the first time that Huaxing Bank's stake has been auctioned. In July this year, Shanghai Shenglong, the second largest shareholder of Huaxing Bank, sold its 150 million shares of Huaxing Bank in five splits, and the sale price was 7.2% off the appraisal price, but it ended in a failed auction; in September, Xintong Wanbao sold 35 million shares of Huaxing Bank at a price of 5.6 percent, which also ended in an unsuccessful auction.
According to relevant media reports, at present, on the Ali judicial auction platform, the disposal agency is shown as Huaxing Bank, and the auction status shows that there are more than 30 objects in the investment promotion.
Why is Huaxing Bank selling at such a discount?
01
Profitability needs to be improved, and asset quality is under pressure
According to the official website, Huaxing Bank is approved by the relevant ministries and commissions of the State Council, in August 2011, a mixed-ownership commercial bank established in accordance with the law, with a registered capital of 8 billion yuan, registered in Shantou Special Economic Zone, has set up 11 first-class branches in Guangzhou, Shenzhen, Foshan, Dongguan, Shantou, Jiangmen, Zhuhai, Huizhou, Zhongshan, Zhaoqing and Zhanjiang. As of the end of 2023, Huaxing Bank has assets of more than 430 billion yuan, more than 2,700 employees, 37th in terms of assets and 22nd in terms of profit, and ranks among the top in terms of per capita income and per capita profit, making it an eye-catching force in Guangdong's economic construction.
At the same time, however, China Renaissance Bank faces many challenges, including profitability needs to be improved and asset quality is under pressure.
In 2023, Huaxing Bank's business will maintain a certain development, and the scale of profitable assets will increase, but in recent years, affected by market conditions, the bank's high-yield credit assets have slowed down, and the stock of non-standard assets has matured one after another, making the overall asset income level show a downward trend, and at the same time, due to the rigidity of its debt cost, the interest margin is facing greater downward pressure.
In 2023, Huaxing Bank's deposit and loan spreads will continue to narrow, and the net interest margin will further decrease to 1.51%; The net interest income for the year was 5.842 billion yuan, a year-on-year decrease of 7.90%; In terms of non-interest income, net fee and commission income decreased in 2023 due to the decline in the scale of wealth management business. In addition, due to the fluctuating yield in the bond market and the increase in the scale of financial investment, the total net income from investment in financial assets and net income from fair value changes of Huaxing Bank increased in 2023.
Under the combined effect of the above factors, Huaxing Bank will achieve a net operating income of 8.409 billion yuan in 2023, a year-on-year decrease of 5.51%, which is the second consecutive year of decline in its revenue. In terms of operating efficiency, business and administrative expenses increased in 2023, and the cost-to-income ratio increased due to the increase in employee compensation and business promotion expenses. The profit before provision for the whole year was 5.371 billion yuan, a year-on-year decrease of 10.75%; Profit before provisions/average risk-weighted assets decreased to 1.89%.
In terms of provisions, due to the pressure on loan quality, Huaxing Bank increased its loan provision in 2023, and the new loan loss provision for the whole year increased by 556 million yuan from the previous year to 2.179 billion yuan, and the provision for impairment loss of non-credit assets decreased due to the decline in the scale of new venture capital, and the new asset impairment loss decreased to 2.516 billion yuan, accounting for 46.85% of the profit before provision. In terms of income tax, under the effect of the tax exemption effect of interest income from government bonds and mutual funds, the bank's income tax expense in 2023 will be -165 million yuan.
To sum up, in 2023, Huaxing Bank will achieve a net profit of 3.020 billion yuan, a year-on-year decrease of 8.82%, but it will still remain at a certain scale; Return on average capital and return on average assets decreased by 2.65 and 0.13 percentage points year-on-year to 11.60% and 0.71%, respectively, and profitability declined.
In terms of loan quality, since 2023, affected by factors such as the slower than expected macroeconomic recovery, the capital chain of individual customers in the construction, real estate and wholesale and retail industries has been relatively tight, resulting in continued pressure on the credit asset quality of Huaxing Bank, with the balance of non-performing loans at the end of the year increasing by RMB1.220 billion from the beginning of the year, the NPL ratio increasing by 0.45 percentage points from the beginning of the year, and the balance of concerned loans increasing by 27.19% year-on-year to RMB6.740 billion.
In addition, due to the increase in the number of credit customers with temporary capital pressure in Huaxing Bank, for credit customers who meet the requirements of financial assistance policies, the pressure on customer capital turnover will be alleviated through extension and other means, and due to the existence of a certain scale of extended loans, and the concern and non-performing loans continue to rise, the asset quality will still face greater downward pressure in the future.
As of the end of June 2024, Huaxing Bank's total assets were RMB459.718 billion, total liabilities were RMB430.133 billion, and owners' equity was RMB29.585 billion. In terms of profitability, Huaxing Bank achieved a net profit of 1.67 billion yuan. In addition, from the perspective of the distribution of loans by industry, Huaxing Bank's loans are mainly concentrated in leasing and business services, real estate, and wholesale and retail industries, and the total loans of these three industries account for 55.95%.
02
Recently, equity auctions have been frequent, and there has also been a storm of meeting subsidies
This year, Huaxing Bank's stake has been auctioned frequently.
In addition to the recent auction of the third largest shareholder's shareholding, in July this year, the second largest shareholder, Shenglong Group, held 150 million shares of Huaxing Bank, was again divided into five transactions for sale, with an appraisal price of 443 million yuan and a starting price of 320 million yuan, but the auction was unsuccessful because no one bid. It is worth mentioning that it has previously experienced two rounds of auctions in April 2024 and December 2023, with a discount of 15% for one auction and a starting price of 376 million yuan.
In September, 35 million shares of Huaxing Bank held by Xintong Wanbao were sold at an appraisal price of 100 million yuan and a starting price of 56.252 million yuan. Prior to this, the above-mentioned equity has been auctioned first and second, and the starting price of the first auction is 70.315 million yuan.
That is to say, since the beginning of this year, the equity of Huaxing Bank has been listed on the auction platform many times, and has experienced the first auction, the second auction, and the sale, but in the end it ended in a failed auction.
In addition to the equity auction, Huaxing Bank also sold non-performing asset claims at a discount, which was accused of "surviving with broken arms" by the outside world. In July this year, Huaxing Bank officially launched the package transfer of a non-performing asset claim with a total principal and interest of about 542 million yuan on the Ali asset auction platform. According to the bidding announcement, the subject matter of the debt is two claims held by Huaxing Bank, including the balance of the loan principal of 440 million yuan and the arrears of interest of 101 million yuan of Dadi Cinema in the bank, and the loan principal of 421,400 yuan and the arrears of interest of 114,000 yuan by the personal debtor Zhou Yun in the bank.
The total amount of this debt is about 542 million yuan, but the starting price is only 330 million yuan, which is equivalent to a six-fold auction. However, although the assignment attracted thousands of onlookers before the start of the auction, it was ultimately ignored.
In August this year, some self-media published an article saying that "as long as the directors and supervisors attend the board of directors and supervisors, they can receive a subsidy of 15,000 yuan at one time", which aroused public opinion as soon as the news came out. Some netizens believe that "such a high conference subsidy is unreasonable, which raises questions about the bank's salary management".
In this regard, on August 9, Huaxing Bank issued a statement on its official website, "Some media on the Internet have taken out of context, secretly changed concepts, and distorted interpretations of the salary content disclosed in the annual report, released false reports, maliciously misled the public, and had a serious impact on the bank's reputation."
Huaxing Bank also said that "it has complained to the relevant platforms, and those who maliciously spread rumors will be investigated for legal responsibility in accordance with the law." At the same time, Huaxing Bank claimed that "according to the bank's remuneration management system, senior management does not receive any meeting subsidies for attending shareholders' meetings, the board of directors and special committees, shareholders do not receive subsidies for attending shareholders' meetings, and executive directors do not receive directors' remuneration or meeting subsidies." The independent board of directors shall pay remuneration in an appropriate form according to the attendance and performance of duties, and the total annual remuneration of individuals shall be within the normal level of the industry. The 33 meetings mentioned in the rumours represent the total number of meetings held by six different Board committees, and it would be misleading to add them to one independent director."
Although the response was timely, the above incident had a certain impact on the reputation of Huaxing Bank in the short term, and triggered public attention and discussion about the bank's remuneration system. We will wait and see what the follow-up of Huaxing Bank's equity sale will be.