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Wins Finance Holdings Inc. (WINS)·Q1 2016 Earnings Summary

Executive Summary

  • Q1 FY2016 (three months ended September 30, 2015) produced net revenue of $2.22M, net income of $4.48M, and EPS of $0.21, with interest on short-term investments ($3.59M) exceeding operating net revenue, underscoring reliance on balance-sheet yield vs. core fee income .
  • Operating mix remained concentrated in guarantee fees ($1.75M) and leasing interest ($0.46M); no advisory/agency revenue was recognized in Q1, reflecting a soft demand environment for SME financing solutions in China .
  • Management flagged macro headwinds (weak SME loan demand, ~5% RMB depreciation, 125 bps of rate cuts) and is pivoting toward financial leasing, closing >$33M of leases in the past three months and signing RMB100M new-energy vehicle and RMB70M medical equipment purchase-leasebacks (post Q1) .
  • Strategic/financing updates: $8.5M insider 4% convertible note at $12 conversion price (January 4, 2016) and a favorable NASDAQ listing determination (February 2016), which together strengthen liquidity and reduce listing risk catalysts near term .

What Went Well and What Went Wrong

  • What Went Well

    • Profitability despite soft top line: net income of $4.48M and EPS of $0.21 in Q1, aided by $3.59M interest on short-term investments .
    • Leasing growth vector: “In the past three months, we have closed more than $33 million of financial leases and expect to ramp up this business in 2016,” with targeted focus on medical equipment and new energy sectors (management) .
    • New transactions signed (post Q1): RMB100M purchase-leaseback with SG Automotive (new energy vehicles) and RMB70M with Panjin Central Hospital (medical equipment), supporting leasing pipeline visibility .

  • What Went Wrong

    • Core operating revenue mix under pressure: no advisory/agency revenue recognized in Q1; net revenue leaned on guarantee fees ($1.75M) and leasing interest ($0.46M) amid weaker SME demand .
    • Structural decline in guaranteed loan balances tied to compliance and customer mix: two large customers’ contracts expired (March 2015) and the company stopped guarantees >10% of net assets per PRC rules, reducing net commission/advisory income (context discussed for Dec quarter; same demand trend persists) .
    • Macro headwinds weighed on activity and yields: management cites materially lower SME loan demand, ~5% RMB depreciation, and 125 bps interest rate cuts over the prior 12 months, which pressure fees and returns (tone spans the half-year) .

Financial Results

Income statement snapshot (oldest → newest; USD):

MetricQ2 FY2015 (3M ended Dec 31, 2014)Q1 FY2016 (3M ended Sep 30, 2015)Q2 FY2016 (3M ended Dec 31, 2015)
Net Revenue ($)$3,340,567 $2,216,163 $2,293,453
Interest on Short-term Investments ($)$3,945,773 $3,587,140 $3,522,153
Total Non-interest Expense ($)$(665,637) $(943,219) $(2,050,516)
Income Before Taxes ($)$6,620,703 $4,860,084 $3,765,090
Net Income ($)$5,893,962 $4,475,507 $3,412,473
Diluted EPS ($)$0.27 $0.21 $0.16
Weighted Avg Shares21,526,747 21,526,747 21,526,747

Revenue composition — Q1 FY2016 (USD):

ComponentQ1 FY2016 (3M ended Sep 30, 2015)
Net Commissions & Fees on Guarantee Services ($)$1,751,898
Net Direct Financing Lease Interest Income ($)$464,265
Financial Advisory & Lease Agency Income ($)$0
Net Revenue ($)$2,216,163

Business activity KPIs (balances, USD; context for trajectory):

KPIJun 30, 2014Jun 30, 2015Dec 31, 2015
Outstanding Guarantee Balance ($)$182,676,846 $126,186,812 ~$126,000,000 (as referenced)
Net Investment in Direct Financing Leases ($)$23,112,285 $25,829,055 $40,526,820
Short-term Investments ($)$142,938,358 $184,160,555 $185,621,640
Cash and Restricted Cash ($)$21,551,071 (sum) $38,377,308 (sum) $70,168,942 (sum)

Notes: Prior fiscal Q4 FY2015 quarterly details were not filed due to the reporting transition; therefore, “vs prior quarter” for Q1 relies on visible sequential context to Q2 FY2016 and year-end balances .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY2016/Q1None providedNone providedN/A (no formal guidance issued)
EPSFY2016/Q1None providedNone providedN/A (no formal guidance issued)
EBITDA/MarginsFY2016/Q1None providedNone providedN/A (no formal guidance issued)
Segment-specificFY2016None providedNone providedN/A (no formal guidance issued)

Management did not issue quantitative guidance; commentary emphasized macro headwinds and a pivot to leasing/opportunistic investments .

Earnings Call Themes & Trends

No earnings call transcript was filed for Q1 FY2016. Key narrative themes across recent disclosures:

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q1 FY2016)Trend
SME financing demand/macroManagement cited significantly lower SME loan demand, ~5% RMB depreciation, and 125 bps rate cuts over 12 months (Q2 press release) .Q1 operating mix shows no advisory revenue and reduced guarantee-driven net revenue, consistent with weaker SME demand .Deteriorating demand pressures core fees .
Strategy pivot to leasing“Closed >$33M leases in past three months; focus on medical equipment and new energy” (Q2 press release) .Q1 shows leasing interest income contribution; post-Q1, RMB100M and RMB70M lease deals signed .Accelerating leasing growth .
Regulatory/complianceShift to cap single-customer guarantees ≤10% of net assets; listing compliance actions undertaken (8-K MD&A; NASDAQ determination) .Q1 revenue mix reflects post-cap environment; listing risk reduced by Panel ruling .Compliance-driven mix shift; listing stabilized .
Concentration/region riskHigh concentration in Jinzhong City/Shanxi Province highlighted in risk factors .Operating revenue concentration persists in guarantee/leasing; advisory nil in Q1 .Ongoing concentration risks .

Management Commentary

  • “2015 was a transformative year… business combination… continued listing on NASDAQ… our long-term growth strategy focused on value accretive investment opportunities and assets…” — Jianming Hao, Chairman & Co-CEO .
  • “In the near-term… quarterly results to be impacted by our current exposure to the financial guarantee business in China… demand for loans from Chinese SMEs has declined significantly… RMB has depreciated by more than 5% and interest rates have been cut by 1.25%.” — Jianming Hao .
  • “In the past three months, we have closed more than $33 million of financial leases… plan to focus… medical equipment and new energy sectors…” — Renhui Mu, Co-CEO & COO .
  • Post quarter updates: RMB100M lease with SG Automotive (new energy vehicles) and RMB70M lease with Panjin Central Hospital (medical equipment) .
  • Financing: $8.5M 4% convertible note sold to Chairman/Co-CEO at $12 conversion price to fund growth (press release) .

Q&A Highlights

No earnings call or Q&A transcript was filed for Q1 FY2016 [ListDocuments showed none].

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 FY2016 EPS/Revenue/EBITDA was unavailable due to missing S&P Capital IQ mapping for WINS; consequently, we cannot assess beats/misses versus Street for this quarter. We attempted to retrieve S&P Global estimates but no mapping was found (tool returned missing mapping) [GetEstimates error noted].

Key Takeaways for Investors

  • Core profitability in Q1 was sustained largely by interest income on short-term investments ($3.59M), while operating net revenue was modest ($2.22M) with no advisory fees recognized; this revenue quality mix may drive higher earnings volatility if yields or balances change .
  • Guarantee-driven revenues are structurally constrained (cap at ≤10% of net assets per customer and expiration of two large contracts), and management signaled persistently weak SME loan demand; expect slower growth from guarantee fees without new customer diversification .
  • Leasing is the near-term growth engine: >$33M closed in recent months and two sizable purchase-leaseback deals (RMB100M and RMB70M) announced post Q1 underpin a ramp in leasing balances and prospective lease interest income .
  • Liquidity/capital runway improved via $8.5M insider convertible note at $12 conversion, aligning sponsor interests and providing funding for leasing/investment initiatives .
  • Listing overhang reduced: NASDAQ Panel determination to continue listing removes a material technical risk and supports investor access/liquidity .
  • Risk monitor: concentration in Shanxi/Jinzhong region, regulatory changes, PFIC risk for U.S. holders, and reliance on short-term investment income remain key diligence points for valuation and position sizing .
  • Near-term catalysts: execution on the leasing pipeline (medical/new energy), continued shift in revenue mix away from guarantees, and any subsequent capital solutions to scale leasing while managing credit risk .

Citations:

  • Q1/Q2 financials and composition tables:
  • Management commentary and strategic updates:
  • New leasing transactions:
  • Convertible notes financing:
  • NASDAQ listing determination:
  • Guarantee balances and risk disclosures:
  • Short-term investment/cash balances:
  • Structural/compliance context on guarantee/customer mix: