Addentax Group Corp: Q4 2024 Financial Report Analysis

Recommendation: Hold While Addentax Group Corp (CIK: 0001650101) has shown some growth in certain segments, ongoing losses in key areas raise concerns. Investors should observe upcoming quarterly results carefully before making further investment decisions.

Snapshot of Key Information

• Reporting Period: Q4 2024 (ending December 31, 2024)
• Total Revenue: $1,059,362 (3 months); $3,251,873 (9 months)
• Net Loss: $(356,992) (3 months); $(828,732) (9 months)
• Total Assets: $49,566,926
• Convertible Debt: $15 million issued
• Major Customer Concentration: Customer A (54.7%), Customer B (45.3%)

Financial Overview

Revenue Performance

Addentax Group reported total revenues of $1,059,362 for Q4 2024, a decline from $1,468,496 in Q4 2023. For the nine months ended December 31, 2024, revenues totaled $3,251,873, down from $3,856,316 in the previous year. This decline reflects challenges in the garment manufacturing and logistics services segments.

Segment Analysis

1. Garment Manufacturing:

• Revenue: $33,773 (Q4 2024); up from $27,015 (Q4 2023).
• However, segment losses of $(31,220) in Q4 raise concerns about profitability.

2. Logistics Services:

• Revenue: $831,103 (Q4 2024); down from $1,189,004 (Q4 2023).
• The segment reported a profit of $8,707 for Q4 but a cumulative loss for the nine months.

3. Property Management and Subleasing:

• Revenue: $194,486 (Q4 2024); down from $252,477 (Q4 2023).
• Significant losses reported, with $(234,264) in Q4.

Equity and Capital Structure

The company issued 1,940,750 shares before a reverse stock split, indicating efforts to manage its capital structure. A total of $15 million in convertible debt was raised, with a conversion price of $0.6214, down from $1.0245 in the previous year. This suggests a strategic move to attract investment but may dilute existing shareholder value.

Related Party Transactions

The report highlights significant transactions with related parties, including amounts due from CEO Zhida Hong (over $2.96 million) and others. The reliance on related party transactions raises governance concerns, particularly as these relationships could affect financial transparency and risk management.

Legal and Operational Risks

Addentax is exposed to risks associated with customer concentration; two major customers accounted for 37.6% of total revenue in Q4. Additionally, the company's operations in China expose it to geopolitical and economic fluctuations, which could impact profitability.

Debt and Lease Obligations

The company has significant operating lease liabilities amounting to $28,256,652, with a weighted average discount rate of 4.9%. The declining total assets from $52 million earlier in the year to $49.57 million indicate asset impairments or liquidations that could affect future operational capabilities.

Conclusion and Outlook

Despite some growth in garment manufacturing, the overall revenue decline, high customer concentration risks, and substantial losses in key segments suggest that Addentax Group is navigating a challenging landscape. The reliance on convertible debt and related party transactions further complicates the financial outlook.

Investors should closely monitor the company's performance over the next quarters to assess whether it can stabilize its operations and improve profitability. Caution is advised as the company works to address these ongoing challenges.

Final Recommendation: Hold Investors should wait for clearer signs of recovery or improvement before making significant changes to their investment positions in Addentax Group Corp.