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Public company info - China CITIC Financial Asset Management Co. Ltd. - H Shares , 02799.HK

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China CITIC Financial Asset Management Co. Ltd. - H Shares, 02799.HK - Company Profile
Chairman WANG Zhanfeng
Share Issued (share) 25,044,000,000
Par Currency Renminbi
Par Value 1.0
Industry Investments & Assets Management
Corporate Profile Business Summary: China Huarong Asset Management Co., Ltd. (Stock Code: 2799), with its predecessor being China Huarong Asset Management Corporation founded on November 1, 1999, is one of the four state-owned financial asset management companies (the “AMCs”) established in response to the Asian financial crisis and for mitigating financial risks, promoting the reform of state-owned banks and the reform and difficulty relief of state-owned enterprises. It was converted into a joint stock limited company upon the approval of the State Council on September 28, 2012. On October 30, 2015, China Huarong was listed on the Main Board of the HKEX and its major Shareholders included the MOF, National Council for Social Security Fund, China Life Insurance (Group) Company, Warburg Pincus and Sino-Ocean Group Holding Limited. The Company mainly engages in such businesses as distressed asset management, financial services, and asset management and investment business, with distressed asset management being its core business. Currently, China Huarong has 33 branches with geographic coverage across 30 provinces, autonomous regions and municipalities in mainland China as well as in Hong Kong and Macau. Its platform subsidiaries include Huarong Financial Leasing, Huarong Xiangjiang Bank, Huarong Trust, Huarong Rongde, Huarong Industrial and Huarong International, with a total of about 10,000 employees. Performance for the year: In 2020, the operating income of the Group amounted to RMB101,732 million, representing a decrease of 7.5% compared with the same caliber income in 2019, the Group achieved a net loss of RMB106,274 million, and a net loss attributable to equity holders of the Company of RMB102,903 million. Business Review The year 2020 is an eventful year for the Group’s development. After three years of hard work, the Group has undergone a series of structural and trend-oriented changes in the return to core business, downsizing and risk resolution, and improvement in corporate governance and internal control of risks, with various businesses developed constantly and the operating income remained stable, and all employees have worked together to build New Huarong. But at the same time, the risks caused by the aggressive operation during the tenure of former chairman Lai Xiaomin were highlighted. Lai Xiaomin decided on major matters of the Group in violation of regulations and intervened in specific projects unauthorizedly. Lai Xiaomin and other related violators seriously polluted the political ecology of the Group. Some units and persons have performed in the same manner, with aggressive risk appetite and aimless expansion, resulting in great risk accumulation. At the same time, prior to Lai’s case, the disorderly expansion of assets and subsidiaries in violation of regulations pushed the Group off its main responsibilities and core business. At the end of 2017, the total consolidated assets of the Group at the end of the period amounted to RMB1,870,260 million, representing an increase of 211.4% as compared with the end of 2014. The number of non-financial subsidiaries reached 27, representing an increase of 18 as compared with the end of 2014. The expansion of overseas business was particularly prominent. The total international business assets increased from RMB60.451 billion at the end of 2015 to RMB274.764 billion at the end of 2017, representing an increase of 354.5%. From 2015 to 2017, the number of offshore direct administration institutions increased by 7. On April 17, 2018, Lai Xiaomin was put under disciplinary review and regulatory investigation for alleged serious violation of discipline and laws. According to regulatory requirements, the new management of the Group stabilized operation, liquidity and workforce, and assisted the task force in recovering embezzled property and losses, and constantly promoted screening and disposal of the operational risks. During the year, for debt instruments at fair value through other comprehensive income and debt instruments at amortised cost, the Group made impairment provisions of RMB33,846 million, with an impairment ratio of 6.7% at the end of the year. The net profit attributable to equity holders of the Company decreased by 92.8% as compared with the previous year. Impacts to relevant risks started to emerge. In 2019, the management further took firm measures in respect of organizational structure and management system to clear and integrate domestic and overseas non-financial subsidiaries and address the risk from disorderly expansion of institutions. The number of domestic and overseas non-financial subsidiaries under the direct management of the Group has been reduced from 27 to 23, and further reduced to 13 at the end of 2020. Overseas business has been integrated, in the meanwhile. Huarong Overseas Chinese, as an overseas asset management platform, was responsible for managing and vitalizing existing assets. During the year, the proportion of the Group’s income from the distressed asset management segment increased to 62.0% (further increased to 78.9% in 2020). While maintaining stable operations, in 2019, the Group made impairment provisions of RMB31,163 million for debt instruments at fair value through other comprehensive income and debt instruments at amortised cost, with an impairment ratio of 8.5% at the end of the year. In 2020, the Group continued to carry out existing risks disposal while maintaining operational stability, but the sudden outbreak of the COVID-19 epidemic accelerated deterioration of the quality of the Company’s risk assets. Under the unprecedented operating situation and market pressure, the management, on the one hand, actively took countermeasures to stabilize operating income; on the other hand, for projects exposed to risks, it comprehensively reviewed and assessed the risk of the operating assets in light of the COVID-19 epidemic, the market and other influential factors, and loss from the fair value change and asset impairment loss recognized in the current period had a huge impact on the operating results. Firstly, impairment test was conducted on the existing risk assets that has been centralizedly disposed. Based on the integration of overseas business in 2019, Huarong Overseas Chinese integrated some existing assets of branches and subsidiaries within the Group, and conducted centralized management. The Group completed the project registration and approval of the equity transfer of Huarong Overseas Chinese, and made an announcement on the potential disposal as at April 8, 2020. However, by the end of 2020, the transfer has not been implemented according to the plan. Huarong Overseas Chinese had conducted the comprehensive review and assessment of the centrally managed assets, made provisions for credit impairment loss and loss from fair value changes. Secondly, a prudent assessment was conducted on the impairment loss of current asset risks. From 2015 to 2017, the fast-growing acquisition-and-restructuring projects and fixed income projects matured centrally in 2020, due to the historical reasons for the formation of risk assets and the effect of the current market environment, as well as the severe impact of COVID-19 epidemic and the “mine explosion” incidents in the market, the contract performance ability of customers was greatly affected and the relevant assets’ quality was also exposed to greater pressure than that in the previous period. Upon the comprehensive review and assessment of risks, the Company had recognized credit impairment loss. Thirdly, the risks of some subsidiaries offset the Group’s operating results. The underlying assets in asset management plan of relevant financial service subsidiaries are exposed to risks in a quicker speed. Deterioration incurred on risk assets of some subsidiaries in asset management and investment segments. Upon the comprehensive review and assessment of risks, these subsidiaries had recognized credit impairment loss and loss from fair value changes. In 2020, the operating income of the Group amounted to RMB101,732 million, representing a decrease of 7.5% compared with the same caliber income in 2019, and operating income remained basically stable under circumstance of overcoming the impact of the epidemic. Upon the comprehensive review and assessment of risks, recognized unrealized fair value changes of RMB-25,224 million, the total income of the Group amounted to RMB76,508 million, representing a decrease of 32.1% as compared with last year. In particular: (1) the distressed assets management business which is the Group’s core business remained stable, and a total revenue of RMB60,370 million was recorded from the distressed asset management segment. Among which, the total income from distressed debt assets under the acquisition-and-restructuring model and the realized gain from distressed debt assets under the acquisition-and-disposal model amounted to RMB41,051 million, representing an increase of 1.8% as compared with last year; (2) the total revenue of the financial service subsidiaries remained steady, and the total revenue from the financial services segment was RMB33,288 million, basically the same as last year; (3) the asset management and investment segment reduced its non-core and non-advantageous businesses, and at the same time, prudently assessed the fair value of financial assets, the total revenue of the asset management and investment segment amounted to RMB-11,500 million. The total expenses amounted to RMB177,895 million, representing an increase of RMB75,828 million as compared with last year, mainly due to the total amount of recognized credit impairment loss and impairment loss on other assets of RMB107,755 million upon the comprehensive review and assessment of risks. To sum up, the Group achieved a net loss of RMB106,274 million, and a net loss attributable to equity holders of the Company of RMB102,903 million. Due to historical and realistic reasons, the Group recorded a huge loss for large amounts of recognized impairment in 2020, which is the concentrated reflection of existing risks accumulation during the tenure of Lai Xiaomin, and a painful lesson to be learned forever for the development of the Company. We will learn from the lesson and take it as valuable experience and the motivation to move forward. In 2020, the Group maintained stable operation on its core business and constantly optimized its business structure. The Company had additional acquisition cost in acquisition-and-disposal business of RMB53,757 million throughout the year, representing an increase of 36.5% as compared with the previous year; disposed distressed debt assets of RMB38,939 million, representing an increase of 26.0% as compared with the previous year; achieved disposal income of RMB7,240 million with the IRR of 13.7%, which was remained in a high level. The Company remained stable in regard of the scale of acquisition-and-restructuring business, with the gross amount of assets of RMB364,624 million at the end of the year; achieved revenue of RMB33,812 million throughout the year, representing an increase of 6.8% as compared with the previous year. Its annualized return on monthly average gross amount was 9.0%, representing an increase of 0.5 percentage point as compared with the previous year. The Company had total cumulative investment in market-oriented DES business of RMB34,189 million and achieved income of RMB1,860 million throughout the year. In 2020, the Group conducted a comprehensive assessment of the risks of the existing assets and recognized impairment loss, which also provided financial foundation for the future disposal of risk assets. Meanwhile, with the solid support from various parties, the capital replenishment planning was implemented by the Group, the liquidity has remained stable all the time, which secured the foundation of continuous operation. We have the confidence and ability to start a new stage of high-quality development. Prospects: Looking forward to 2021, the world economic recovery will remain unstable and uneven. With the launch and promotion of the vaccine, the negative impact of the COVID-19 epidemic on the global economy is expected to gradually weaken. Impacted by the effectiveness of the government’s macroeconomic policies, the cross-border spillover effects, the structural feature of pre-crisis and other factors, it is expected that economic recovery in various countries will be significantly different, and various derivative risks caused by the impact of the epidemic cannot be ignored. Under the strong leadership of the Party Central Committee and the State Council, China has achieved significant results in stable economic recovery, with a good momentum for economic development amid sustained and stable economic recovery. However, the external environment has become more complex and severe, and the domestic economic recovery is still not sound and balanced. In macro policies, more attention was paid to cross-cycle regulation to maintain the continuity, stability and sustainability of macro policies, and efforts were made to coordinate macro policy convergence in 2021 and 2022 to keep the economy operation in a reasonable range. There should be active fiscal policies to enhance policy effectiveness, and prudent monetary policies to maintain reasonable and abundant liquidity so as to help small and medium-sized enterprises and difficulty-ridden industries continue to recover. We should prevent and resolve risks in key areas and implement a fiscal and financial risk disposal mechanism within the local responsibility. For the financial asset management industry, due to the impact of the COVID-19 and the economic downturn in the early period, it is expected that the balance of non-performing loans will grow faster in the coming period, and the relevant financial institutions will further increase their efforts in the disposal of distressed assets to ensure disposal of more distressed assets at a faster pace. There is a solid policy protection and a broad market for the Group’s core business operation. In respect of the impacts to net assets caused by the significant decline in the performance and substantial loss in 2020, the Group is actively introducing strategic investors and implementing capital replenishment planning to safeguard sustainable operation. In the three years after the case of Lai Xiaomin, the Group has implemented the three-year strategic plan for the construction of New Huarong, and against the background of profound changes in the business environment and continuous tightening of the regulatory provisions, insisted on returning to the main responsibility and core business, continued to promote risk resolution and downsizing, accelerated business transformation, constantly improved the internal management level, realized stable development of the core business fundamentals of distressed assets, further improved the business ability and professional level of employees, improved the effective corporate governance and internal risk control mechanism, and built an operation pattern for achieving high-quality development. At present and in the coming period, the Group will give full play to its subjective initiative while maintaining the basic stability of its core business, and focus on transformation of core businesses and risk resolution simultaneously, in an effort to achieve high-quality and sustainable development. On the one hand, we will broaden the operation ideas for acquisition and disposal business, reshape the profit model of acquisition and restructuring business, continuously enrich the disposal methods and channels, and promote the transformation and upgrading of core businesses; on the other hand, we will innovate the disposal mechanism, increase efforts for risk disposal of key projects, strictly control the quality of assets, and strictly prevent new risks. Looking ahead, the Group has the ability, conditions and confidence to continue to thoroughly implement the work plans of the Party Central Committee, the State Council and the CBIRC, and will focus on the functional positioning set by the state for asset management companies, continue to promote risk resolution and downsizing according to the established strategy, accelerate transformation of core businesses and resolution of inventory of risks, strengthen the endogenous development momentum, and gather the spiritual motivation of all employees to work together to build a New Huarong and start a new stage of high-quality development.

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