On December 15, 2025, Digital China Group Co.,Ltd. issued an announcement regarding related-party financial assistance. The company's wholly-owned subsidiary, Digital China (China) Co., Ltd., plans to provide cumulative shareholder loans not exceeding 150 million yuan to Beijing Digital China Property Development Co., Ltd. using its own funds, with an annual interest rate of 4.52%.
This is not the first time Digital China (China) has extended loans to the property company. Since its establishment in early 2016, the property company has received annual loan quotas from Digital China (China). However, based on actual lending activities, the property company has ceased borrowing from Digital China (China) since 2021, with the outstanding loan balance between the two decreasing from 233 million yuan in 2022 to 118 million yuan in 2025.
A 100-million-yuan liability does not represent a heavy burden for Digital China, which holds 6.6 billion yuan in cash on its books. However, using this as a starting point for examining the company's non-operational fund usage and external guarantees reveals potential hidden debt risks that cannot be ignored.
According to Digital China's December 19 announcement, the total amount of external guarantees provided by the company and its controlled subsidiaries has reached 65.245 billion yuan. Among these, guarantees totaling 60.5 billion yuan are for controlled subsidiaries with asset-liability ratios exceeding 70%, with the actual utilized amount of guarantees standing at 27.824 billion yuan.
Generally speaking, massive external guarantee amounts indicate high compensatory risks. If the guaranteed party encounters problems, the guarantor's net assets could be severely depleted.
This situation stems from Digital China's business model. The company initially built its business on IT distribution before later venturing into the real estate sector. Both traditional business segments heavily rely on capital-intensive operation models characterized by low margins, high turnover, and high leverage. With traditional businesses consistently facing profitability challenges and emerging businesses yet to become self-sufficient, Digital China confronts substantial difficulties.
Digital China primarily engages in To B IT distribution business, whose commercial logic differs significantly from the "short, fast, straightforward" sales service model of To C operations. Enterprise and government clients typically demonstrate higher decision-making complexity, budget sensitivity, customization requirements, and maintenance dependencies, demanding that suppliers provide comprehensive services covering equipment selection, integration, maintenance, and emergency response throughout the entire lifecycle.
To build these service capabilities, Digital China has established an extensive offline network. According to the company's 2024 annual report, its enterprise service system covers over 1,000 cities across China and connects with more than 30,000 enterprise service partners.
This model creates the following characteristics in the company's financial reports:
First, the company's service network possesses substantial resource value and high competitive barriers. The strong value-added nature of offline services has helped it withstand the impact of e-commerce growth. High entry barriers and strong customer recognition have delivered sustained high growth rates and high turnover ratios for Digital China.
Since its backdoor listing, the company's revenue has increased from 40.531 billion yuan in 2016 to 128.166 billion yuan in 2024, achieving an eight-year compound growth rate of 15.48%. The first three quarters of 2025 maintained growth of 11.79%. Furthermore, despite maintaining high inventory levels with inventory accounting for approximately 30% of total assets over eight years, the company's inventory turnover ratio has consistently remained above 8, recently hovering around 10, indicating relatively high efficiency.
These figures validate the exceptional reliability of the service network built through substantial investment and practice, enabling Digital China to establish highly efficient and smooth product distribution channels.
Second, distribution business inherently features "small margins but quick returns," characterized by large scale but relatively weak profitability. Efficient operation of the service network requires adequate inventory and working capital support, consequently demanding strong corporate financing capabilities.
Although Digital China's operating revenue has more than tripled since listing, its net profit attributable to shareholders has not shown significant growth, consistently remaining below 1 billion yuan except in 2022 and 2023, when it reached 1.004 billion yuan and 1.172 billion yuan, respectively.
Behind the revenue growth without corresponding profit improvement lies continuously declining gross margins. At the time of listing, Digital China's gross margin approached 5%. As the company explored potential market space, its gross margin fluctuated downward, falling below 4% for the first time in 2020 and reaching 3.55% in the first three quarters of 2025.
With profit margins continually squeezed, Digital China's net profit ratio has declined from an already low level of approximately 1% to recent levels of 0.6%-0.7%.
Simultaneously, business expansion necessitates substantial inventory and working capital requirements. Since listing, the company's inventory has nearly quadrupled from 4.6 billion yuan to 17.3 billion yuan, while accounts receivable have grown from 6.6 billion yuan to 11 billion yuan. Operating activities alone cannot meet the funding needs for asset-side expansion, leading to rapid growth in debt, particularly current liabilities.
Since listing, the company's current liabilities have nearly tripled, with short-term borrowings increasing from 4.371 billion yuan to 12.761 billion yuan, equivalent to an average annual compound growth rate of 14.33%, matching revenue growth. During the same period, monetary funds on the company's books amounted to only 6.574 billion yuan, creating a significant "gap" between cash and short-term debt.
While core business profitability remains persistently low, Digital China has also invested in real estate development during a major cyclical turning point. In 2017, the company began construction on its Shenzhen Bay headquarters project, which was only completed by the end of 2023. With total investment exceeding 7 billion yuan and a construction period spanning Shenzhen's real estate adjustment cycle, this project inevitably impacted the company's financial statements.
In 2024, Digital China's Shenzhen Bay headquarters project generated a fair value change of -386 million yuan, causing the company's net profit attributable to shareholders to plummet 36% year-over-year.
Clearly, Digital China needs to identify new business scenarios to escape its persistent profitability challenges.
Actually, since 2017, Digital China has included self-branded products and cloud services in its disclosure framework. Self-branded products include Digital China Kuntai general servers and AI servers, along with DCN network products. The digital cloud business has upgraded its self-developed platform "Digital China Wenxue" into an enterprise-level Agent platform, launching products like the Digital China Kuntai Wenxue all-in-one machine.
From 2019 to 2023, the company's R&D investment maintained high year-over-year growth rates exceeding 20%, reaching 32% in 2021.
Additionally, Digital China has actively expanded its R&D personnel structure. During large-scale recruitment in 2023, the number of R&D personnel increased from 791 at the beginning of the year to 1,195 by year-end, with the proportion of R&D staff rising from 15% to 19%.
From a revenue structure perspective, the competitive benefits derived from R&D investment may not yet be fully realized. The revenue contribution from self-branded products and cloud services remains relatively low. 2023 marked the highest revenue contribution for these two business segments at 9%. This figure approximated 6% in 2024 and around 7% in the first half of 2025.
Due to the low revenue contribution from self-branded products and cloud services, even with gross margins reaching 10% and 20% respectively, the combined gross profit contribution from these two segments remains around 20%, failing to deliver significant fundamental improvement to profitability.
Notably, from a growth perspective, these two business segments have maintained relatively high growth rates, though their contribution percentages have been diluted under the high-turnover, large-scale operation model of the IT distribution business.
Digital China currently stands at a critical transition period. During this year's interim results briefing, management shared perspectives and guidance on several key areas:
Regarding Xinchuang PCs, benefiting from national policies since the second half of this year, local governments have demonstrated significantly improved payment capabilities and procurement willingness in domestic substitution areas. The Xinchuang market may experience concentrated replacement peaks. The company believes the current timing represents the optimal moment to launch PC production lines and pursue economies of scale.
In AI, realizing generative AI's potential requires deep exploration of application scenarios. Currently, AI industry revenue primarily concentrates on underlying infrastructure, with upper-layer software and application platforms remaining in early commercial stages. Digital China plans to help customers identify and implement "low-cost, high-output" application scenarios while providing full-stack services from hardware to ecosystem.
Whether Digital China's clear current strategy can translate into future profitability and achieve deep business model reconstruction remains to be tested over time.
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