Filing and reporting period
Entity and period mismatch: The supplied filing is Hexindai Inc.’s Form 20-F for the fiscal year ended March 31, 2018—not an Akso Health Group filing or a standalone 2017 Q4 report. It provides annual results, not separate Q4 financial statements. The filing describes a China consumer-lending marketplace and online microlending business.
Financial results and liquidity
All amounts below are U.S. dollars. Net revenue is reported after business taxes, investor cash incentives and, where applicable, risk-reserve charges.
| Metric | FY2018 | FY2017 |
|---|---|---|
| Net revenue | $107.3 million | $22.9 million |
| Operating expenses | $31.4 million | $13.0 million |
| Operating income | $75.9 million | $9.9 million |
| Net income | $65.5 million | $8.6 million |
| Operating margin | 70.7% | 43.3% |
| Net margin | 61.1% | 37.4% |
| Operating cash flow | $87.7 million | $8.2 million |
| Investing cash flow | $(27.6) million | $(0.3) million |
| Financing cash flow | $47.5 million | $4.3 million |
| Cash and cash equivalents at year-end | $132.6 million | $19.2 million |
At March 31, 2018, total assets were $163.9 million, liabilities $23.8 million and shareholders’ equity $140.0 million. The balance sheet lists no borrowings. Loans receivable from the new microlending business were $28.7 million, with no loan-loss allowance recorded. Investing cash outflow largely reflected microlending loan originations. The IPO generated $43.3 million in net proceeds.
Material changes versus FY2017
- Loan volume facilitated increased 151% to RMB8.33 billion; borrowers grew to 101,172 from 28,738, and participating investors to 137,950 from 63,335.
- The business shifted sharply toward unsecured credit loans: they represented 99.2% of FY2018 facilitated volume, versus 68.3% in FY2017. Secured-loan facilitation ceased in Q3 FY2018.
- Loan facilitation revenue rose to $118.0 million from $25.6 million. Loan-management revenue fell to $0.5 million from $2.7 million as secured lending contracted. FY2018 also included $0.6 million of microlending interest income.
- Investor cash incentives increased to $15.2 million from $1.6 million, reducing revenue. The risk-reserve charge fell to zero after replacement of the reserve arrangement with third-party insurance in February 2017.
- Operating expenses rose 141% to $31.4 million, but declined as a share of net revenue to 29.3% from 56.7%. FY2018 included $1.8 million of share-based compensation.
- More than 90% of credit-loan volume had 36-month terms; the share of credit loans over RMB100,000 rose to 54.6% from 48.1%.
Outlook, risks and unusual items
- Outlook: No quantified earnings or revenue guidance is provided. Management said it expects to continue emphasizing credit loans, developing microlending and improving risk management and product pricing. It believed cash, operating cash flows and IPO proceeds would cover ordinary working-capital needs for the following 12 months.
- Regulatory exposure: China’s marketplace-lending and microlending rules were evolving. The company said Beijing authorities had not yet enabled platforms, including Hexindai, to submit record-filing applications; timing and acceptance remained uncertain. Wusu held a microlending license but faced regulatory inspection and possible rectification.
- Credit and insurance: More than 90-day delinquency was 0.98% of outstanding principal and interest at March 31, 2018, versus 0.627% a year earlier. The FY2018 vintage M3+ charge-off rate was reported as 0.11% but was immature, particularly for loans issued in the final quarter. Changan Insurance coverage may be insufficient; the filing notes a possible contractual claim against the company because actual payment practice differed from the 2018 insurance agreement.
- Microlending controls: Auditors identified a material weakness in the microlending risk-control process. The company said remediation was underway. Disclosure controls were deemed ineffective, and earlier weaknesses in accounting resources, close procedures and governance were also not yet remediated. The financial-statement audit opinion was unqualified; the auditor did not opine on internal-control effectiveness.
- Structure and concentration: Operations rely on PRC variable-interest-entity contracts and on Hexin Group, controlled by the chairman, for more than 89% of borrower referrals. Contract enforceability, regulatory treatment and related-party conflicts are material risks.
- Capital and distributions: Ping An Bank provided a RMB500 million credit line, of which approximately RMB0.2 million had been drawn by the filing date; other described bank facilities were unused. In July 2018, after year-end, the board adopted a target annual dividend of 15%–25% of anticipated after-tax income and declared a $0.40 per share/ADS dividend.
- Liquidity disclosure inconsistency: Management’s discussion calls working capital a $139.3 million deficit at March 31, 2018, although reported balance-sheet current assets and liabilities appear to imply a substantial surplus. The filing text does not reconcile this discrepancy.
Most important facts to verify
- Confirm the issuer and period: this is Hexindai FY2018, not Akso Health Group or 2017 Q4.
- Reconcile the stated $139.3 million working-capital deficit with the balance sheet and detailed current-asset/current-liability classifications.
- Review the microlending portfolio’s loan aging, subsequent credit losses and basis for recording no allowance on $28.7 million of receivables.
- Confirm current regulatory filing status, any required rectification, and continued validity of Wusu’s license and the company’s VIE arrangements.
- Assess insurance coverage limits, claims experience and the potential contractual exposure arising from the difference between the insurance agreement and actual payment practice.
- Track remediation of internal-control weaknesses and dependence on Hexin Group for borrower referrals.