Thunderstorm!

Recently, Luxi Chemical (or the "Company") disclosed an announcement on the implementation of equity distribution in 2021.
The company will implement the annual profit distribution plan on July 15
.
Specifically, based on the company's total share capital of 1.
904 billion shares on December 31, 2021, a cash dividend of 20 yuan (tax included) will be distributed to all shareholders for every 10 shares, with a total dividend of 3.
809 billion yuan, no bonus shares, and no provident fund.
Increase share capital
.
However, from the disclosure of the distribution plan to the implementation period, the total share capital of the company has changed
.

Mainly because the company has completed the registration of the grant of shares for the 2021 restricted stock incentive plan, and the company's total share capital has increased from 1.
904 billion shares to 1.
920 billion shares
.
Therefore, this profit distribution will be based on about 1.
920 billion shares, and a dividend of 3.
839 billion yuan will be distributed
.

However, what is strange is that Luxi Chemical Co.
, Ltd.
has distributed 2021 annual dividends in a big way at a time of financial stress
.
On July 15 this year, a dividend of 3.
839 billion yuan was distributed, accounting for 83.
13% of last year's net profit
.

In recent years, Luxi Chemical has actively promoted industrial transformation and achieved obvious economic benefits
.
After making a big profit of 4.
619 billion yuan in 2021, in the first quarter of this year, the company made a profit of 1.
320 billion yuan again
.
In order to accelerate industrial transformation and upgrading, Luxi Chemical has built a comprehensive new material platform that has seen benefits, but its funds are stretched
.

On June 29, Luxi Chemical announced that it plans to invest in the construction of a 400,000-ton/year organic silicon project in the first phase of the 1 million-ton/year organic silicon project, with an estimated total investment of 3.
33 billion yuan
.
The project goal is to further expand the production capacity of silicone products, continue to enrich the industrial layout of the park, and continuously improve the company's competitiveness and comprehensive strength
.

The investment of up to 3.
330 billion yuan puts a huge financial pressure on Luxi Chemical
.
As of the end of the first quarter of this year, the company's book monetary funds were only 239 million yuan
.
The company said the project was funded by self-raised and bank loans
.

Insufficient liquidity and still massive dividends

At a time when the financial situation is becoming increasingly tense, it is quite surprising that Luxi Chemical Co.
, Ltd.
has distributed dividends on a large scale regardless of the situation
.

In 2021, Luxi Chemical will realize a net profit attributable to shareholders of the listed company (referred to as net profit) of 4.
619 billion yuan, and the amount of this dividend will account for 83.
13% of the net profit for the year
.

The dividend rate is as high as 83.
13%, and Luxi Chemical is generous enough
.
This is not the first time in the history of Luxi Chemical
.
In 2014 and 2020, the company's net profit was 361 million yuan and 825 million yuan respectively.
The annual dividend amount was 439 million yuan and 952 million yuan respectively, and the dividend rate was 121.
71% and 115.
44% respectively
.

After the dividend distribution in 2014, the company did not implement cash dividends in 2015 and 2016
.

If the company has sufficient liquidity, it will reward shareholders and investors through an active dividend strategy, which is advocated and supported by regulatory authorities and the market
.
However, dividend distribution should take into account the company's development, and it is necessary to ensure normal daily operations.
Excessive dividend distribution will inevitably affect the company's operation and development
.

The market questioned that the dividend distribution of Luxi Chemical was rather strange, and there were signs of excessive dividend distribution
.

As of the end of 2021, Luxi Chemical's monetary capital on the book was 379 million yuan, short-term loans of 3.
369 billion yuan, non-current liabilities due within one year of about 290 million yuan, short-term bonds payable about 2 billion yuan, long-term loans of 1.
048 billion yuan, The long-term debt payable is 2.
734 billion yuan, and the long-term and short-term debt is about 9.
441 billion yuan, of which the short-term debt that needs to be repaid within one year is 5.
659 billion yuan
.
Only 379 million yuan cannot cover the short-term debt as high as 5.
659 billion yuan anyway, which shows the large gap of funds
.

In fact, with only 379 million yuan in monetary funds, it is difficult to maintain normal operations
.
In 2021, the company's operating costs will be 22.
123 billion yuan, inventory will be 1.
771 billion yuan, a slight decrease from the end of 2020, and accounts receivable will be only 91 million yuan
.
In this case, generally speaking, if there is no capital expenditure for large-scale investment and construction, the company needs to maintain liquidity of about 3.
6 billion yuan
.

This very tight financial situation has not changed in the first quarter of this year
.
As of the end of March this year, the company's long-term and short-term debt still reached 9.
279 billion yuan, of which short-term debt was 5.
498 billion yuan, while the book's monetary funds decreased to 239 million yuan
.

The seriousness of the problem also lies in the fact that in 2021, the company's net operating cash flow inflow is 9.
464 billion yuan, a substantial increase from 3.
011 billion yuan in the previous year, but in the first quarter of this year, the net inflow of operating cash flow is 1.
219 billion yuan, a year-on-year decrease.
701 million yuan
.

The net inflow of operating cash flow has decreased year-on-year, and the liquidity is seriously insufficient.
It is puzzling that Luxi Chemical has distributed dividends on a large scale
.

Large-scale investment and construction rely on loans

Luxi Chemical's high proportion of cash dividends has been questioned.
Another important factor is that the company still insists on distributing dividends on a large scale despite large-scale capital expenditures
.

The predecessor of Luxi Chemical was a 10,000-ton small nitrogen fertilizer plant established in 1976.
In May 1998, Luxi Chemical Group was established and listed on the Shenzhen Stock Exchange
.
In recent years, the company has made frequent moves around the industrial layout
.
Today, the company is no longer a traditional fertilizer company, but a comprehensive new chemical material platform integrating the production and sales of chemicals, new chemical materials and fertilizer products
.
Among them, new chemical materials are the focus of its industrial layout, involving polycarbonate industry, caprolactam industry, nylon 6 industry, polyol industry, silicone industry, fluorine material industry and other subdivisions
.
The construction of the 300,000-ton caprolactam-nylon 6 first-phase project, the 240,000-ton ethylene and downstream integration project, and the high-end fluorine material integration project have been successively promoted
.

With the industrial transformation, the operating performance of Luxi Chemical also improved significantly
.
In the 10 years from 2007 to 2016, although the operating income showed an upward trend, the net profit hovered between 200 million and 400 million yuan
.

In 2017, the company's profitability increased significantly
.
From 2017 to 2020, the company's net profit was 1.
950 billion yuan, 3.
067 billion yuan, 1.
692 billion yuan, and 825 million yuan, respectively, and declined in 2019 and 2020, mainly due to market fluctuations, raw material price increases and other factors influence
.
In 2021, as the market recovers, the company's operating income will reach 31.
794 billion yuan, breaking the 30 billion yuan mark for the first time, with a net profit of 4.
619 billion yuan, a year-on-year increase of 459.
95%.
The net profit after deducting non-recurring gains and losses is 5.
268 billion yuan.
The year-on-year growth rate reached 622.
15%
.

In the first quarter of this year, the company's operating income and net profit were 7.
651 billion yuan and 1.
320 billion yuan respectively, with year-on-year growth rates of 23.
09% and 32.
15%, which are still considerable
.

The substantial increase in operating performance since last year is the result of the recovery of the market on the one hand, and the result of the company's active promotion of industrial layout and the release of production capacity on the other hand
.
However, the large-scale investment and construction have burdened Luxi Chemical with a heavy burden of debt
.

At the end of March this year, the company's debt was close to 10 billion yuan.
In 2021, the company completed a fixed increase and raised 3.
289 billion yuan.
All these funds have been used to repay debt and supplement working capital
.

In the future, Luxi Chemical will face a substantial increase in debt
.
Because, the company increased its debt to facilitate the construction of the project
.

On February 16 this year, Luxi Chemical's 300,000-ton/year caprolactam-nylon 6 project started construction with a total investment of 6.
461 billion yuan.
This is the first phase of its 600,000-ton/year caprolactam-nylon 6 project, with a planned investment of 3.
3 billion yuan , is expected to be completed in September 2022
.

As of the end of March this year, the company's projects under construction amounted to 2.
949 billion yuan
.

Going back to the 400,000 tons/year organic silicon project of the first phase of the 1 million tons/year organic silicon project that Luxi Chemical plans to invest in and construct, the announcement stated that the preliminary work has been carried out after the discussion and approval of the company's party committee in October 2020.
As of the first half of 2022, the project has completed the approval procedures of relevant government departments, and the construction will start soon
.
The total investment of the project is 3.
33 billion yuan, and the sources of funds disclosed by the company are self-raised and bank loans
.

It can be seen that the construction of the 3.
33 billion yuan project is about to start, and Luxi Chemical needs to rely on borrowing to promote the construction, which will inevitably increase the financial pressure
.