{"text":[[{"start":6.64,"text":"At first glance, the latest annual results from XXF Group Holdings Ltd. (2473.HK) seem to show the auto leasing company is faring surprisingly well despite operating in a rapidly stalling Chinese car market. But a closer look at the numbers suggests that it’s facing intensifying profitability pressure as it tries to keep its revenue engine running."}],[{"start":31.27,"text":"https://www1.hkexnews.hk/listedco/listconews/sehk/2026/0320/2026032001772.pdf"}],[{"start":48.120000000000005,"text":"XXF’s revenue increased 27.2% to 1.86 billion yuan ($270 million) last year, which looks quite strong and far exceeds the growth rate for car sales in China, according to its 2025 results released last Friday. Yet the company’s gross profit rose just 9.3%, or about a third of the revenue growth rate. And while its net profit grew 15.3%, the figure inched up a mere 3.5% when share-based compensation expenses are stripped out. The wide gap between XXF’s revenue and gross profit growth can only mean one thing: a sharp compression of margins."}],[{"start":92.82000000000001,"text":"A combination of industry-specific challenges and macroeconomic conditions is squeezing profitability for China’s auto companies in general. At the industry level, automakers desperate to boost sales in the current climate of weak demand and massive overcapacity have unleashed a wave of subsidized low-interest and zero-interest loans with long terms. That’s forcing independent car sellers and lessors like XXF to cut their terms to remain competitive."}],[{"start":127.07000000000001,"text":"As defending its market position becomes increasingly difficult, XXF, which traditionally has focused on leasing non-luxury cars to customers in lower-tier cities, is turning to direct vehicle sales. Last year, revenue from the company’s business of direct car selling, which also includes a rapidly growing export operation, surged more than 400% to 411 million yuan. The huge jump lifted that part of the business to about 22% of its total revenue from just 5.4% in 2024. XXF sells both new cars directly procured from automakers in China, as well as previously leased vehicles whose leases expired."}],[{"start":174.67000000000002,"text":"But this shift is further dragging down XXF’s margins. The car sales business carries a paper-thin gross margin of just 4.4%, a tiny fraction of the 33% for its core auto leasing operations. As the car sales segment expanded, XXF’s overall gross margin shrank more than four percentage points to 25.7% in 2025."}],[{"start":202.8,"text":"The margin pressure appears to have sharply intensified in the second half of last year, given that XXF’s gross margin was 30% in the first half. At the same time, the company’s revenue increased sequentially from the first half of the year to the second. This probably reflects the broader industry’s descent into a year-end price war that saw the sector’s profit margin hit a record low of 1.8% in December, less than half the level of about 4% a year earlier."}],[{"start":234.98000000000002,"text":"Things aren’t likely to get any better this year. After notching 6.7% growth last year, a big part of that from inventory clearing at big discounts and people rushing to take advantage of government incentives, China’s domestic car sales fell 8.8% in the first two months of this year."}],[{"start":256.22,"text":"XXF’s growing focus on vehicle sales in the current weak industry climate creates another headache for the company. Constant price cuts by automakers lower the values of vehicles in XXF’s own inventory, which could force it to cut prices on those vehicles to attract buyers, potentially making it sell vehicles at losses."}],[{"start":277.35,"text":"Bet on exports"}],[{"start":279.83000000000004,"text":"As challenges mount in China, the company appears to be betting on exports to capitalize on the growing popularity of Chinese cars overseas. Its exports soared some 570% to 276 million yuan last year, accounting for more than two-thirds of total revenue from car sales. XXF said sales growth was particularly notable in Central Asia and the Middle East. To further beef up its presence in those markets, the company set up a new subsidiary in Uzbekistan last May and another one in Kazakhstan in December."}],[{"start":318.83000000000004,"text":"XXF’s expansion strategy, which is sharply eroding its profitability, will only pay off if it can scale its car selling business substantially. And that’s a big “if.” By comparison, among its direct competitors, Yixin (2858.HK) is focusing on improving margins through technology-driven products like software as a service (SaaS). As a result, Yixin’s gross profit increased far faster than its 17% revenue growth last year, lifting its net profit by 48% and its adjusted profit, which also excludes share-based compensation, by a third."}],[{"start":354.33000000000004,"text":"XXF is also looking to use technology to boost efficiency, doubling its number of “digital employees” to 200 by the end of 2025 from a year earlier. Moreover, late last year, it created a subsidiary dedicated to smart mobility services and formed partnerships with autonomous delivery firms. These new services may become significant revenue contributors one day. But for now, at least, they only represent nascent businesses with an uncertain future."}],[{"start":388.08000000000004,"text":"Not surprisingly, XXF shares have dropped nearly 10% since it reported its latest results last week. They still trade above their IPO price in 2023, fetching a price-to-earnings (P/E) ratio of nearly 50, far higher than 12 for Yixin. But the big gap is largely because XXF has a much smaller profit base, suggesting its stock has room to fall if the company fails to halt its margin erosion."}],[{"start":418.88000000000005,"text":"XXF’s ability to pivot to car sales and exports to keep growing in a tough Chinese auto market is commendable. But the concurrent margin erosion is more worrisome, and will only make the move worthwhile if it can quickly build enough scale for that part of the business. The case is similar for its other new ventures, which have higher margins but are in early stages. Failure on either front will only make XXF another case study of the pain that comes with growth at any cost in a hyper-competitive market."}],[{"start":464.8500000000001,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1774498359_8340.mp3"}