Recently, many industrial e-commerce companies have successively released their mid-term performance, showing a generally positive development trend: among the 10 listed industrial e-commerce companies, 4 have revenue exceeding 10 billion RMB, 8 have achieved positive revenue growth, 7 companies have positive net profits, and 6 companies have positive net profit growth.

Among them, ZALL SMARTCOM (02098), with a scale of hundreds of billions, has also achieved significant performance growth. In the first half of the year, it achieved revenue of approximately 68.276 billion RMB, an increase of 24.29% year-on-year; the net profit attributable to equity shareholders of the company was 498.17 million RMB, an increase of 122.76% year-on-year.

However, while the performance is improving, the company has significantly reduced its pledged bank deposits, and its asset-liability ratio has been climbing, seemingly hinting at the risks and concerns behind the fundamentals. As of the close on September 11th, the company's stock price fell by over 6% intraday, with trading volume further shrinking, reflecting a pessimistic sentiment towards ZALL SMARTCOM in the market.

Sharp Increase in Asset-Liability Ratio, with Current Liabilities Accounting for 85.3%

According to the Securities Times app, ZALL SMARTCOM aims to build a structural system of "B2B trading services + supply chain services + digital technology cloud services" using digital technologies such as big data, artificial intelligence, and blockchain. The company's business covers multiple industries such as agriculture, steel, and chemicals, and it owns multiple B2B trading platforms including Zhongnong.com, Zhuogang Chain, Huasu Hui, the World Commodity Intelligent Trading Center CIC, and Hankou North.

In terms of business segments, the supply chain management and trading business of bulk commodities remain the revenue pillar of the company, with revenue from this segment reaching 68.048 billion RMB in the first half of the year, a 24.5% year-on-year increase; rental income from investment properties was 115 million RMB, financing income was 34.9 million RMB, and sales of properties and related services brought in 54.3 million RMB.

It is worth noting that despite the improvement in the company's revenue indicators in the first half of the year, the financial situation is not optimistic. As of June 30, 2024, the company had current liabilities of 42.346 billion RMB and non-current liabilities of 7.309 billion RMB, with current liabilities accounting for 85.3%. Among them, loans from banks and other financial institutions due within one year amounted to 5.657 billion RMB (with fixed annual interest rates ranging from 3.45% to 11.75%), and other loans due within one year amounted to 2.594 billion RMB (with fixed annual interest rates ranging from 4.00% to 12.00%).

Industry insiders point out that the high proportion of current liabilities reflects the increasing difficulty for ZALL SMARTCOM to obtain long-term, stable, and low-cost loans from banks.

The financial report shows that the company's adjusted net debt increased by 185% from 3.878 billion RMB in the same period last year to 7.187 billion RMB, and the asset-liability ratio surged from 28.09% in the same period last year to 51.90%, mainly due to a significant reduction in pledged bank deposits.

Previously, in order to alleviate financial pressure, ZALL SMARTCOM had announced at the end of 2022 that it would sell its Tianjin e-commerce project at a low price to recover 1 billion RMB in cash, with 95% of it used to repay various debts. The net value of this project's assets is about 1.205 billion RMB, resulting in a loss of approximately 205 million RMB for the company.

The vast empire of the "ZALL Group" faces frequent negative news

In fact, the "ZALL Group" to which ZALL SMARTCOM belongs has been plagued by negative news in recent years, with many hidden concerns about the company's financial security.

In February 2022, the ZALL Group was embroiled in a "wage arrears" storm when male football player Hao Junmin posted on Weibo, demanding wages from the Wuhan ZALL Club under ZALL at the time. He mentioned in the public post that the wages were promised to be settled by the end of the year, then before the Chinese New Year, and then after the Chinese New Year. In this public post demanding wages, Hao Junmin specifically mentioned ZALL Group's actual controller, Yan Zhi.

Yan Zhi is a football enthusiast. At the end of 2011, ZALL spent a huge sum of money to take over the Wuhan football team, operating for over 11 years with a total investment exceeding 3 billion RMB. However, after being reported by name, a series of shady operations behind this massive investment gradually came to light.

In January 2024, in an annual anti-corruption documentary broadcasted by CCTV, the former chairman of the Wuhan ZALL Club, Tian Xudong (who had served as the vice president of ZALL Holdings), appeared and admitted that the club had engaged in transactions of power and money with the former head coach of the national football team, Li Tie, exchanging benefits, and offering huge sums of money as bribes to relevant individuals. Shortly after the case was exposed, the Wuhan ZALL Club was disbanded.

Football is just a part of ZALL's commercial empire. Yan Zhi is adept at telling the story of an industrial ecosystem to the outside world, and is keen on pursuing a diversified, large-scale business empire. Public information shows that the "ZALL Group" includes 5 listed companies such as ZALL SMARTCOM, China Tongshang, Lanting Jieshi, Huazhong CNC, and Hanshang Group, with businesses spanning e-commerce, textiles, agriculture, aviation, finance, pharmaceuticals, real estate, sports, and other industries. Among them, real estate, football, private banks, P2P, etc., are all high-risk projects that have been repeatedly exposed for various irregularities.

ZALL SMARTCOM is the core enterprise of the group. Initially, real estate was one of ZALL SMARTCOM's core businesses. In addition to wholesale markets, it also ventured into the development of office buildings, large urban complexes, and residential projects. Since 2015, ZALL SMARTCOM has transitioned from a traditional real estate development company to an e-commerce enterprise, but the ZALL Group has not completely abandoned the real estate market. Instead, it engages in real estate development through ZALL Tourism (now known as "Hubei Hualv Group") and ZALL Smart City.

In the real estate sector, ZALL's progress has not been smooth. For example, the highly anticipated ZALL Shenyang Living Room project has significantly lagged behind schedule, and in recent years, the company has been added to multiple lists of individuals subject to enforcement. According to statistics, since 2022, ZALL Tourism and its subsidiaries have been subject to enforcement totaling 108 million RMB. ZALL Smart City was even listed as a dishonest person subject to enforcement by the court on December 1, 2022.

On the other hand, the financial sector under the "ZALL Group" has also faced challenges. Previously, Jiashi Fund had ventured into the P2P business, successively exploring the P2P lending platform "Qianduoduo" and the online lending information intermediary platform "Jiashiliu". However, against the backdrop of stricter regulation of internet finance, Jiashiliu announced its exit from the P2P industry in June 2020. In 2019, ZALL SMARTCOM divested its financial assets and sold all the equity of ZALL Financial Services In addition to the P2P business, ZALL has also laid out multiple business sectors such as industrial finance, wealth management, and supply chain finance through ZONGBANG Bank, ZONGBANG Fund, ZONGBANG Financial Holdings, etc. Its investment scope covers government public projects (PPP, characteristic towns, industrial parks) and personal life (health, culture, tourism).

The 2023 annual report shows that ZONGBANG Bank is now in a difficult situation: its asset size has fallen out of the top three, the non-performing loan ratio has been climbing for three consecutive years, and its capital adequacy ratio ranks last among 18 private banks. It leads in terms of the amount of fines and the number of fines received for illegal activities among private banks. Additionally, half of the bank's shareholders are currently involved in legal disputes.

Starting as a media professional in the advertising business, Yan Zhi has gradually become the richest man in Hubei Province, showcasing his expertise in navigating the capital market. By cross-holding with the FENGSHENG Group, he once single-handedly drove ZALL SMARTCOM's market value to exceed HKD 10 billion. At its peak, the value of FENGSHENG's holdings in ZALL SMARTCOM increased by more than 6.6 billion yuan. However, as FENGSHENG Holdings faced short selling and ZALL SMARTCOM's stock price plummeted, the investment returns of both companies turned into losses, leading to the gradual end of the cross-holding game.

Through a series of operations in the capital market, the "ZALL Group" has successively acquired controlling stakes in HANSHANG Group, HUAZHONG CNC, and other listed entities, using them as pawns and tools for the next capital operation.

In February 2023, HUAZHONG CNC announced a plan to invest 321 million yuan in Wuhan ZALL Aviation City Investment Co., Ltd. ("ZALL Aviation City") to acquire the rights to use two pieces of land, as well as 11 buildings developed on them and supporting facilities, but due to the fact that the transferor ZALL Aviation City and HUAZHONG CNC are controlled by the same actual controller, Yan Zhi, this related party transaction has sparked market controversy. The Shenzhen Stock Exchange has issued a special letter of concern, requesting the company to explain the necessity and reasonableness of this transaction.

As of the end of 2022, ZALL Aviation City's total liabilities amounted to 371 million yuan. If the transaction is successfully completed, the "ZALL Group" will receive cash flow support, thereby alleviating its debt issues.

According to data from Tonghuashun iFinD, since its listing in 2011, ZALL SMARTCOM has only distributed dividends 5 times, with the most recent being the annual dividend in 2018, at HKD 0.0258 per share. From 2018 to 2023, despite the company's revenue increasing from 56.116 billion yuan to 125.29 billion yuan, a growth of 123%, no dividends have been distributed during these five years, indicating to some extent that the company's financial situation is not robust.

Amid the pressure of macroeconomic recovery, ZALL SMARTCOM's debt ratio is rapidly rising, coupled with the continuous negative news surrounding the "ZALL Group", which undoubtedly will further shake the market's confidence in the company