Modern Innovative Digital Technology Company Limited Issues Supplemental Announcement on Impairment Losses

Key Points for Investors

• Impairment Losses: The Group recognized significant impairment losses as at 31 March 2025:
  • Trade and Account Receivables (Securities Broking Business): Impairment losses of approximately HK\$3.0 million, leaving a net balance of HK\$11.2 million.
  • Finance Lease Receivables: Impairment losses of approximately HK\$4.2 million, with a net balance of HK\$19.3 million.
• Independent Valuation: The impairment assessment was conducted by AP Appraisals Limited, a reputable independent professional valuer with experience in financial instruments and assets valuation for listed companies.
• Valuation Methodology: The expected credit loss (ECL) model was used, based on HKFRS requirements. Key inputs included probability of default, loss given default, forward-looking adjustments, and market data. The method remained unchanged during the period.
• Triggers for Impairment:
  • Impairment on margin loans mainly related to individual clients. These loans were granted before 2020, during a strong market period and before the COVID-19 pandemic impacted the economy.
  • Impairment on finance lease receivables arose primarily from one major client in the PRC hotel management sector. This client was severely affected by COVID-19 and the downturn in the PRC real estate market, resulting in a default on repayments. The loss from this client was HK\$3.6 million, with HK\$18.4 million still outstanding.
• Credit Assessment & Internal Controls:
  • Margin loans were subject to credit committee approval, with margin ratios reflecting market conditions, price volatility, liquidity, and stock financials.
  • Finance lease receivables involved thorough credit assessments, including identity and background checks, operational reviews, and bankruptcy/litigation searches.
  • Ongoing monitoring included prohibition of further stock purchases, margin calls, deposit requests, and forced liquidation of client stock positions.
  • For lease receivables, the management approached clients for repayment plans, and if unsuccessful, seized pledged assets.
• Recovery Actions: The Group initiated legal actions and asset seizures where appropriate. To date, HK\$12.5 million has been recovered, but full recovery has not been achieved due to continued weak economic conditions. Management continues to review and pursue further recovery options.
• Board Confidence: The Board believes due diligence and credit assessment procedures are sufficient and appropriate, supported by scrutiny from external and internal auditors. The impairments are considered to be beyond management’s reasonable expectations at the time the loans were granted.
• Board Composition: The Board comprises Mr. Ma Weihua (Chairman and non-executive Director), four executive Directors, and four independent non-executive Directors, reflecting a diverse and experienced leadership team.

Potential Price-Sensitive Information

• Material Impairment Losses: The recognition of HK\$7.2 million in impairment losses on receivables could impact the Group’s profitability and balance sheet. The substantial amount still outstanding (HK\$29.6 million) presents ongoing credit risk.
• Recovery Uncertainty: Despite partial recovery efforts, the challenging economic environment may hinder full recovery. Investors should note the risk of further impairments or write-offs.
• Legal and Operational Actions: The Group’s proactive approach, including legal actions and asset seizures, underscores management’s commitment to safeguarding shareholder value, but also signals heightened credit risk exposure.
• Economic Impact: The financial difficulties experienced by key clients, especially in the PRC hotel management sector, highlight the broader negative effects of COVID-19 and real estate downturns on the Group’s business.

Investor Takeaways

• The impairment losses and ongoing recovery efforts are significant developments that may affect the Company’s financial performance and share value.
• Investors should monitor further announcements regarding the recovery of outstanding receivables and any additional impairment provisions.
• The Group’s risk management and credit control processes are under scrutiny, and future changes in market conditions could lead to additional impacts.

Disclaimer

This article is for information purposes only and does not constitute investment advice or a recommendation to buy or sell shares in Modern Innovative Digital Technology Company Limited. All information is based on public disclosures and may be subject to change. Investors should conduct their own due diligence and consult a qualified financial advisor before making any investment decisions.

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