South China City (01668-HK) has changed its executives again!

On November 13, Chief Financial Officer Xu Jinye chose to resign for personal reasons. This means that Xu ended his senior trip to South China City after only a year as chief financial officer.

It is worth mentioning that, coupled with Xu's departure, the number of board of directors and senior executives in South China City has changed as many as 10 times in the past two years, raising questions about what has happened in South China City in recent years.

The founder of "five Tigers", three people have reduced their holdings and are out.

In 2002, Zheng Songxing, who is engaged in jewelry business, jointly funded the establishment of South China City with the Chaoshan Township Party Liang Manlin, Ma Jiezhang, Sun Qilie and Ma Weiwu to develop the trade and logistics industry in the mainland by virtue of their respective advantages. At that time, the five people respectively controlled Minsheng International (00938-HK), Jinghui Group, 00126-HK Group, Jianlox, Lijia International and other Hong Kong listed companies and local well-known enterprises. The founder of the "five Tigers" has a strong capital strength.

With the help of shareholders' social background and strong capital, through various marketing models, vigorously promote the development of property investment business, making the asset size of South China City jump from 1 billion yuan (the same below) to 4.3 billion yuan in 2007. At a time when the scale of assets is steadily increasing, in 2009, South China City chose to list on the Hong Kong main board to expand financing channels and further accelerate the pace of development in the field of property development and services in the mainland. With the listing of the company, the shareholding proportion of the founder "five Tigers" began to surface. Zheng Songxing's family, Ma Jiezhang, Liang Manlin, Sun Qilie and Ma Weiwu held 41.25%, 15%, 11.25%, 3.75% and 3.75% respectively, with a total of 75%.

It is worth noting that with the listing of South China City, some of the founders seem to have completed some kind of "mission" and began to withdraw from the list of shareholders and positions in South China City by means of reduction. As of March 31, 2019, the founders of Zheng Songxing's family (Zheng Songxing himself and his brother Zheng Dabao), Ma Jiezhang, Liang Manlin, Sun Qilie and Ma Weiwu held 35.74%, 1.71%, 0%, 0% and 0% respectively, according to wind data. Among them, Liang Manlin, Sun Qilie and Ma Weiwu, the three founders, all left Tsinghua Nancheng shares and resigned their related positions before the end of 2017. This means that the founder of the "five Tigers" has run away from three, currently dominated by the Zheng Songxing family.

After the clearance of the three founders, the company successively hired professional managers such as Song Chuan (CEO) and Xu Jinye (CFO) to join the group management, hoping to strengthen the professional construction of management while filling the positions of the three resigned founders, and actively promote business transformation and development in the future.

The ideal is beautiful, but the reality is very bony.

On February 1, 2019, Song Chuan resigned on the grounds that he needed to spend more time with his family and develop his personal interests; on November 15, Xu Jinye resigned for personal reasons.

The board of directors and the number of senior executives have changed as many as 10 times in less than two years, from the clearance of the shares of the three founders in 2017 to the departure of two senior executives in 2019. Does this reflect that there are big problems in the internal management of enterprises in South China City? does it reveal that there is a conflict between professional managers and controlling shareholders in investment decisions?

Business performance is standing still, assets and liabilities are approaching 70%.

Senior management changes frequently, to some extent, there are some problems in the company's business activities. As of March 31, 2019, the operating income of South China City dropped from 13.468 billion yuan in 2013 / 14 to 10.274 billion yuan in 2018 / 19, and the net profit attributable to shareholders decreased from 3.498 billion yuan to 3.251 billion yuan in the same period.

Compared with other financial years, the company's operating performance is still not optimistic if the high performance in South China City in 2013 is excluded. As shown in the following figure, the revenue of South China City increased from 9.758 billion yuan to 10.274 billion yuan from 2014 / 15 to 2018 / 19, with an annual compound growth rate of only 1.3%, and the net profit belonging to shareholders decreased from 3.728 billion yuan to 3.251 billion yuan. Thus it can be seen that with this growth in business performance, South China City's dream of developing into the largest integrated trade, logistics and commodity trading center in China is drifting away.

While the business performance is standing still, the profitability of South China City is also gradually weakening. As shown in the following figure, the gross profit margin of South China City fell from 48.61% to 43.21% from 2013 / 14 to 2018 / 19, and the net profit rate increased from 27.44% to 31.56%. However, if combined with the changes in the company's net interest rate in recent years, the net interest rate shows a trend of four consecutive decreases.

While profitability is weakening, the asset-liability ratio of South China City remains high. As of 2013 / 14-2018 / 19, the asset-liability ratio of South China City increased from 66.40% to 68.04%, higher than 63% of the industry (real estate development and management). The asset-liability ratio of South China City still remains high and shows a trend of slight growth, which deviates from the current main tone of reducing leverage in domestic real estate and property management.

In addition, under the situation of high asset-liability ratio, the cash flow of South China City at the end of the period shows a trend of decreasing year by year. As shown in the chart below, the closing balance of cash and cash equivalents decreased from $11.303 billion in 2013 / 14 to $5.934 billion in 2018 / 19. The asset-liability ratio hovered at a high level, but the balance of cash and cash equivalents continued to decline at the end of the period, which to a certain extent reflected that the business expansion of South China City was not smooth, resulting in the annual cash return and debt restructuring is not ideal.

In addition, under the situation of frequent turnover of management, standing still in business performance, poor management quality and high asset-liability ratio, the dividend ratio of South China City has also decreased sharply, resulting in the continued superposition of many negative factors and stock prices drifting away from the "immortal" territory.

As shown in the figure below, the amount of dividend per share has shrunk from 0.11 yuan to 0.04 yuan from 2013 / 14 to 2018 / 19, and the dividend payout ratio has been reduced from 31.04% to 12.47%. Operating performance has stalled, dividends are not dominant, and secondary market shares have fallen from a high of HK $4.5 in 2014 to HK $0.92 on November 20, 2019.