Wins Finance Holdings Inc. (“Wins Finance” or the “Company”) (NASDAQ: WINS), a diversified investment and asset management company that provides integrated financing solutions to small and medium enterprises (“SMEs”) in China, today announced its unaudited financial results for the fiscal six months ended December 31, 2017.
Fiscal Six Months Financial and Operational Highlights
Gross revenue was $5.3 million, compared to $4.8 million for the corresponding period ended December 31, 2016.
Interest income on short-term investments was $7.5 million, compared to $6.8 million for the corresponding period ended December 31, 2016.
Net income attributable to Wins Finance was $9.2 million, compared to $11.0 million for the corresponding period ended December 31, 2016.
“Our gross revenue increased 10% for the first six months of fiscal 2018 as compared to same period a year ago as our financial advisory business increased by 227%, though this was offset by a 26% decrease in our financial guarantee business. However, our net income fell 17%, primarily due an increase in our expenses,” said Renhui Mu, Chairman and Chief Executive Officer of Wins Finance.
“We continue to work to optimize the company’s business and operating structure. The economic slowdown in Shanxi Province’s economy, our main market for our guarantee business, could lead to an increased risk of potential loan default despite our extensive screening process, so we plan to make fewer loan guarantees. Instead, we plan to focus on growing our financing lease business, which we believe will continue to expand in the future.”
“In order to plan for growth and reduce the cost of bank financing, we plan to increase our capital and strive to improve the Company’s credit rating with our lenders. This could take the form of an issuance of securities as outlined in our registration statement on Form F-3,” added Mr. Mu
Six Months Ended December 31, 2017 Financial Results
Gross revenue for Wins Finance for the six months ended December 31, 2017 was $5.3 million, which was comprised of $1.2 million of commissions and fees generated from our financial guarantee services, $3.0 million of direct financing lease interest income and $1.2 million of financial advisory and lease agency income.
Commissions and fees from financial guarantee services decreased $0.4 million, or 26.4%, to $1.2 million for the six months ended December 31, 2017, compared to $1.6 million for the six months ended December 31, 2016. The decrease was primarily attributable to reduced lending activities due to the economic slowdown in Shanxi Province, where most of our existing SME clients are located, and, as a result, fewer potential clients were able to pass our screening process. Concurrent with a slowdown of China’s economy, competition in our lending business has intensified in the region. These factors are expected to negatively impact our guarantee business in the foreseeable future.
Direct financing lease interest income generated from payments under direct financing leases with customers increased by $0.1 million, or 3.6%, to $3.0 million for the six months ended December 31, 2017, compared to $2.9 million for the six months ended December 31, 2016.
Financial advisory and lease agency income increased by $0.8 million, or 226.8%, to $1.2 million for the six months ended December 31, 2017, compared to $0.4 million for the six months ended December 31, 2016. The increase was primarily attributable to new contracts secured under our financing advisory services.
Interest income on short-term investment
Interest income from short-term investments increased by $0.6 million to $7.5 million for the six months ended December 31, 2017, compared to $6.8 million for the six months ended December 31, 2016. The increase was primarily due to an increase in the average balance of our short-term investments.
Non-interest expense was $2.1 million for the six months ended December 31, 2017, as compared to non-interest income of $0.06 million for the six months ended December 31, 2016. In connection with the grant of stock options to employees, we recorded share-based compensation charges of $nil and a gain of $1.5 million for the six months ended December 31, 2017 and 2016, respectively. The gain in 2016 resulted from the reversal of share-based compensation expense for our stock options that were cancelled in 2016 due to the termination of the holders’ employment prior to vesting.
Income tax expense decreased by $0.6 million, to $0.6 million for the six months ended December 31, 2017, compared to $1.2 million for the six months ended December 31, 2016. The decrease was attributable to the decrease in taxable income, which excluded tax exempt interest income from short-term investments.
Net income decreased by $1.8 million, or 16.6%, to $9.2 million for the six months ended December 31, 2017, compared to $11.0 million for the six months ended December 31, 2016.
Management continues to be cautious as to its operating results in future periods in view of the slowdown of the Chinese economy in those regions where the Company operates and which directly effects China’s financial sector. The Company believes that its financial guarantee services business could especially be adversely affected since its exposure to defaulted loans is expected to increase and counter guarantees or collateral provided may become insufficient to cover repayments. Management is undergoing a review of the risk controls for the Company’s financial guarantee business and may reduce the operation of this business in order to minimize the risks of the Company’s exposure.
Conversely, we believe that the financial leasing business offers substantial growth opportunities as SMEs have become an indispensable driver of promoting economic and employment growth and continue to contribute to China’s economic transformation. Many SMEs need to upgrade their equipment and adopt new technologies but have limited access to capital. Although the Company’s financial advisory and agency services are important as they focus on SMEs and have the potential to diversify the Company’s client base, the period-to-period financial results of this sector is affected by the complexity, uncertainties and changes in China’s economic conditions and the regulations governing the industry.
Other Significant Events
The Company’s registration statement on Form F-3, which registers the issuance of ordinary shares, preferred shares, warrants, rights, debt securities and debentures by the Company, was declared effective by the SEC on March 30, 2018. The Company may sell such securities from time to time pursuant to the registration statement. As we have previously disclosed, we have advised NASDAQ that we will seek to increase the public float and potentially the liquidity of our ordinary shares in an attempt to limit the volatility in the trading price of our ordinary shares. If we undertake any offering under the registration statement, it will be, in part, an effort to increase the liquidity of our ordinary shares. However, we cannot guarantee that any actions we take will have the intended effect of reducing market volatility and improving liquidity, and such share issuances could result in significant dilution for current shareholders.