Financial Impact Analysis of Palm Co., Ltd.'s (002431.SZ) Equity-for-Debt Asset Activation Strategy

I have now collected detailed information about this equity transaction of Palm Co., Ltd. (002431.SZ). Based on this data, I will conduct a systematic and comprehensive financial impact analysis for you.

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According to the announcement released by Palm Co., Ltd. (002431.SZ) on January 12, 2026, the company plans to transfer 80% equity interest in

and 80% equity interest in , two of its subsidiary project companies, to its controlling shareholder The transfer price is , which will be fully used to settle the company’s debts owed to the transferee, who is not required to pay additional transaction consideration. After the equity transfer is completed, the company will no longer hold equity interests in the above two companies[0][1].

Palm Co., Ltd.'s current financial situation exhibits significant high-leverage characteristics. As of H1 2025, the company’s asset-liability ratio reached as high as

, an increase of 1.66 percentage points from the beginning of the year, which is at a relatively high level in the construction engineering industry[0]. The total asset size is RMB 18.554 billion, of which current assets amount to RMB 12.086 billion (accounting for 65.14%), and non-current assets amount to RMB 6.469 billion (accounting for 34.86%).

From the liability perspective, the company faces substantial debt repayment pressure. Total interest-bearing liabilities amount to

, including RMB 1.153 billion in short-term borrowings, RMB 500 million in bonds payable, and RMB 185 million in long-term borrowings. The current ratio is only and the quick ratio is , both below the warning line of 1, indicating the company’s weak short-term debt-paying ability[0]. In addition, the company’s guarantee balance to its subsidiaries is as high as , accounting for of net assets, representing high guarantee risk.

The company has incurred consecutive losses in recent years. In H1 2025, it achieved operating revenue of RMB 1.625 billion, a year-on-year increase of 2.77%, but the net profit attributable to shareholders of the listed company was

, with the loss narrowing by 24.73% compared to the same period last year[0]. The gross profit margin was 9.60%, an increase of 3.06 percentage points compared to the same period last year, but the net profit margin remained at -57.17% (TTM). The company’s ROE during the TTM period was , indicating severe damage to shareholders’ equity.

The net cash flow generated from operating activities was

, a significant decrease of 176.81% compared to the same period last year[0]. This is mainly due to a decrease in cash received from other operating activities and an increase in cash paid for other operating activities. The net cash flow from investing activities was -RMB 40 million, and the net cash flow from financing activities was RMB 225 million (a year-on-year increase of 255.51%), indicating that the company relies on external financing to maintain operations.

The company’s accounts receivable and contract assets total

, accounting for 47.48% of total assets, of which accounts receivable with an age of over 3 years account for 41.6%[0]. Long-term receivables include RMB 2.153 billion in PPP project payments and RMB 171 million in BT project payments, which have long collection cycles. The total amount of restricted assets is , covering various asset types such as monetary funds, fixed assets, investment properties, and accounts receivable. The reasons for restriction include freezing, mortgage, pledge, and counter-guarantee, among others.

The RMB 258 million equity transfer consideration for this transaction will be settled via debt offset, which will have the following impacts on the company’s asset structure:

After the transfer is completed, the company will no longer hold equity interests in Haikou Zongdao and Haikou Zonghai, and these two project companies will be excluded from the consolidated financial statements. According to the company’s 2025 semi-annual report, the book value of long-term equity investments is RMB 2.551 billion (including RMB 411 million in impairment provisions), and this transaction will directly reduce the scale of long-term equity investments. Although the specific scale of divested assets needs to be referenced from the evaluation report, it is expected that non-current assets will decrease accordingly, and total assets will be reduced correspondingly.

Although this transaction does not involve cash inflows, through debt settlement, the company can reduce liability items such as accounts payable or other payables, optimizing the asset-liability structure. At the same time, after divesting the project companies, the company can focus more on the development of core businesses, improving asset operation efficiency.

The RMB 258 million debt settlement will directly reduce the company’s payable debts to its controlling shareholder. Although this may mainly be reflected in a decrease in other payables or long-term payables, considering the company’s total interest-bearing liability scale of RMB 1.838 billion, the amount of debt offset this time accounts for approximately 14.03%, which will produce a certain deleveraging effect.

According to the company’s announcement, one of the purposes of this transaction is to “reduce the company’s financial expense expenditures”. Based on the company’s existing financing cost estimates (bond payable interest rate of 6.50%, short-term borrowing interest rate of approximately 4-6%), the RMB 258 million debt can save approximately in annual interest expenses, which will directly increase the company’s profits.

On the surface, this transaction does not involve actual cash flow, so there is no direct change in the cash flow situation. However, from the perspective of indirect effects:

• Debt Settlement Reduces Cash Outflows
  : The cash that would have been used to repay debts to the controlling shareholder is retained, which can be used for daily operations or repaying other debts
• Reduced Liquidity Pressure
  : The current ratio and quick ratio are expected to improve marginally, easing short-term debt repayment pressure
• Improved Credit Rating Expectations
  : If the debt level decreases, it may have a positive impact on the company’s bank credit lines and financing capabilities

This transaction constitutes a connected transaction (the transferee is the controlling shareholder). According to the

, connected transactions are required to go through corresponding approval procedures and information disclosure obligations[1]. From a positive perspective, the controlling shareholder helping the company resolve debts through an equity-for-debt approach reflects the major shareholder’s supportive attitude towards the company’s development.

By divesting the equity interests in project companies, the company can further focus on its core business of green urban and rural construction, optimizing its business structure. In its semi-annual report, the company clearly proposed strategic directions of “promoting reform of the construction business segment” and “optimizing the structure of existing businesses”, and this asset activation initiative is consistent with these directions.

The company currently faces significant debt pressure, with accumulated litigation amounts reaching RMB 3.902 billion (RMB 38.269 billion in initiated lawsuits, RMB 933 million in responded lawsuits). Through this debt settlement, the debt relationship with the controlling shareholder can be partially eased, reducing the impact of litigation risks and judicial preservation risks on the company’s normal operations.

The company’s stock price has increased by more than 90% from August 2024 to January 2026, showing that the capital market has positive expectations for the company’s fundamentals[0]. If this asset activation initiative can effectively improve the financial structure, it may further enhance investor confidence.

Divesting project companies may lead to a contraction in the company’s business scale. Palm Co., Ltd.'s operating revenue growth has slowed in recent years, with only a 2.77% increase in H1 2025. If business structure adjustment leads to a reduction in orders in hand, it may affect future revenue growth.

The counterparty of this transaction is the controlling shareholder. Although resolving debts through connected transactions can improve the financial situation in the short term, the company still needs to rely on its own operational improvements to achieve sustainable development. If the profitability of the core business cannot be effectively improved, reliance on connected transactions may continue.

The company’s long-term receivables include RMB 2.153 billion in PPP project payments. Existing PPP projects are affected by factors such as the macroeconomic environment and government fiscal budgets, and there are still uncertainties in project progress and payment collection[0]. After divesting some project companies, the risk exposure of the remaining PPP projects is still significant.

The company has incurred losses for three consecutive years, with a loss of RMB 273 million in H1 2025. Although equity-for-debt can improve the asset-liability structure, it cannot fundamentally solve the problem of insufficient profitability. The company needs to achieve a turnaround through business transformation, cost reduction, and efficiency improvement, among other measures.

Palm Co., Ltd.'s asset activation strategy of using equity to settle debts is a positive measure for the company to cope with the predicament of high debt and continuous losses. In the short term, the RMB 258 million debt settlement will produce the following effects:

Impact Dimension	Expected Outcome
Asset Scale	Slight decrease, optimized asset structure
Liability Scale	Reduction of RMB 258 million, decrease in the proportion of interest-bearing liabilities
Financial Expenses	Annual interest expense savings of approximately RMB 15-17 million
Short-Term Debt-Paying Ability	Marginal improvement in current ratio and quick ratio
Connected Transactions	Reflects major shareholder support, reduction in the scale of connected transactions

However, this strategy cannot fundamentally solve the three core challenges faced by the company:

, , and . The company’s future sustainable development still depends on the recovery of core business profitability and substantial improvement in asset quality.

Based on the above analysis, investors should pay attention to the following risk factors:

1. The company is still in a state of continuous losses, and it will take time for performance to improve
2. High asset-liability ratio brings heavy debt repayment pressure and financial expense burdens
3. The large scale of accounts receivable and contract assets poses impairment risks
4. Litigation risks may affect the company’s normal operations and asset safety
5. The proportion of connected transactions is relatively high, and the company’s governance and independence need to be observed

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[0] Palm Co., Ltd. 2025 Semi-Annual Report - Sina Finance (http://vip.stock.finance.sina.com.cn/corp/view/vCB_AllBulletinDetail.php?stockid=002431&id=11340500)

[1] Palm Co., Ltd. (002431.SZ): Plans to Transfer Project Company Equity to Settle Debts - Sina Finance (https://finance.sina.com.cn/stock/bxjj/2026-01-12/doc-inhhaeyt5583691.shtml)

[2] Palm Co., Ltd.: Plans to Transfer Equity in Two Project Companies to Settle Debts, Debt Offset Amount RMB 258 Million - Securities Times (https://www.stcn.com/article/detail/3588002.html)