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Key Takeaways:
XXF's revenue jumped 27.2% last year, but its gross profit rose at just a third of that rate, underscoring severe margin compression
The company is ramping up its car selling to boost revenue, but that business has paper-thin gross margins compared with its core car leasing business
At first glance, the latest annual results from XXF Group Holdings Ltd. (2473.HK) seem to show the auto leasing company is faring surprisingly well despite operating in a rapidly stalling Chinese car market. But a closer look at the numbers suggests that it's facing intensifying profitability pressure as it tries to keep its revenue engine running.
XXF's revenue increased 27.2% to 1.86 billion yuan ($270 million) last year, which looks quite strong and far exceeds the growth rate for car sales in China, according to its 2025 results released last Friday. Yet the company's gross profit rose just 9.3%, or about a third of the revenue growth rate. And while its net profit grew 15.3%, the figure inched up a mere 3.5% when share-based compensation expenses are stripped out. The wide gap between XXF's revenue and gross profit growth can only mean one thing: a sharp compression of margins.
A combination of industry-specific challenges and macroeconomic conditions is squeezing profitability for China's auto companies in general. At the industry level, automakers desperate to boost sales in the current climate of weak demand and massive overcapacity have unleashed a wave of subsidized low-interest and zero-interest loans with long terms. That's forcing independent car sellers and lessors like XXF to cut their terms to remain competitive.
As defending its market position becomes increasingly difficult, XXF, which traditionally has focused on leasing non-luxury cars to customers in lower-tier cities, is turning to direct vehicle sales. Last year, revenue from the company's business of direct car selling, which also includes a rapidly growing export operation, ...
