Net Profit Plummets 85%, How Does Yuexiu Real Estate Still Hold Steady?

Listing | Zhongfangwang

Audit | Li Xiaoyan

On March 6, Moody’s, an international rating agency, downgraded Yuexiu Property (00123.HK) and related subsidiaries on multiple ratings, while changing the outlook from negative to stable. This rating adjustment reflects both the industry’s deep adjustment cycle, with the market’s phased review of property developers’ profitability and leverage levels, and confirms Yuexiu Property’s strong advantages as a core state-owned enterprise in Guangzhou, in terms of financial resilience, resource support, and operational stability. Despite short-term profit pressures and a slowdown in deleveraging, the company’s long-term steady development remains unchanged. Relying on its state-owned background, high-quality land reserves, and diversified business layout, Yuexiu Property is steadily navigating industry fluctuations.

This Moody’s rating adjustment mainly involves the company’s family rating, medium-term note program, and related bond ratings, all downgraded from Ba1 to Ba2. The core reason is that the company’s leverage is expected to remain high over the next 12-18 months, with deleveraging progress slower than expected, coupled with a temporary decline in profitability during the industry downturn. However, it is noteworthy that Moody’s also revised the outlook to stable, a key positive signal: the agency recognizes Yuexiu Property’s solid operating foundation, liquidity safety, and support from its parent company, and believes its credit metrics will gradually stabilize without systemic risk.

Moody’s explicitly states in its report that Yuexiu Property has achieved better-than-market sales performance thanks to its stable business profile, which will help gradually stabilize its credit indicators. The company will maintain good liquidity and continue to benefit from strong support from its parent company. The upgrade of its rating sub-level also reflects this core advantage. As a leading Guangzhou state-owned enterprise, Yuexiu Property is jointly held by Yuexiu Group and Guangzhou Metro, both fully owned by the Guangzhou municipal government. This government-backed, dual state-owned enterprise ownership structure is the company’s strongest foundation for resisting industry risks and maintaining stable financing channels.

In terms of debt management, Yuexiu Property currently has seven outstanding USD bonds totaling $1.729 billion, with only two maturing within a year, indicating a reasonable debt maturity structure. The company has diversified financing channels, including equity, bonds, and bank loans. As of the end of June 2025, its weighted average borrowing cost was only 3.16%, among the industry’s lowest, giving it a low-cost financing advantage that effectively offsets financial pressure from profit fluctuations.

Despite industry adjustments causing temporary profit declines, Yuexiu Property’s fundamentals remain robust. The “three red lines” remain in the green zone, serving as the core support for stable operations. As of June 2025, the company’s total assets are 383.674 billion yuan, with total liabilities of 272.438 billion yuan, and an asset-liability ratio of 71.01%. Excluding prepayments, the asset-liability ratio is 64.6%, with a net debt ratio of 53.2%, and a cash-to-short-term debt ratio of 1.7 times, all meeting green zone standards, indicating sufficient short-term debt repayment capacity.

Liquidity-wise, the company holds cash and cash equivalents of 42.253 billion yuan, far exceeding the 25.39 billion yuan of short-term debt maturing within a year. Its cash coverage ratio for short-term debt exceeds 1.6 times, indicating minimal short-term repayment pressure. Regarding debt structure, current liabilities account for 69% of total debt, with long-term borrowing mainly comprising long-term loans. The scale of long-term interest-bearing debt is 78.472 billion yuan, with total interest-bearing debt at 103.862 billion yuan, and interest-bearing debt ratio at 38%. The high proportion of long-term debt and slow repayment pace provide ample room for the company to optimize its financial structure.

On the operational front, Yuexiu Property demonstrates strong cyclical resilience. In 2025, it achieved contracted sales of 106.2 billion yuan, though it did not reach the annual target of 120.5 billion yuan, it still maintained a sales scale of over 100 billion yuan amid the industry downturn, remaining among the top tier. In the first two months of 2026, contracted sales reached 7.106 billion yuan, with some fluctuations year-on-year, reflecting the typical phase of the national real estate market adjustment rather than individual operational issues. Since 2024, the company has invested 126.95 billion yuan in land acquisitions, focusing on high-quality sites in first- and second-tier cities, with land acquisition costs accounting for 56% of sales, demonstrating a counter-cyclical strategic layout and a reserve of quality assets to support future recovery.

Market concerns about profit decline are temporary industry phenomena rather than indicators of core competitiveness deterioration. According to earnings forecasts, Yuexiu Property’s core net profit for 2025 is expected to be between 250 million and 350 million yuan, down 80%-85% year-on-year, mainly due to industry-wide gross margin declines and project settlement structure changes. Although this decline appears significant, it is an inevitable result of the industry shifting from high-turnover, high-margin models to high-quality, steady-income models. Most real estate companies face profit compression, and Yuexiu Property still maintains positive profitability, which is commendable.

From a long-term development perspective, Yuexiu Property’s growth foundation remains solid. As one of the first comprehensive real estate companies and the first red-chip property enterprise in China, it owns two listed platforms: Yuexiu REIT (00405.HK) and Yuexiu Services (06626.HK), forming a full industry chain of development, holding, and property management. Commercial properties generate stable rental income, and property management services provide ongoing cash flow, smoothing out the cyclical fluctuations of residential development. Yuexiu REIT is the world’s first Hong Kong-listed REIT investing in mainland China properties, and Yuexiu Services is a leading TOD integrated property management company. These platforms provide continuous, stable non-development income, enhancing profitability resilience.

In land reserve strategy, Yuexiu Property focuses on core cities, with 94% of land reserves in first- and second-tier high-energy cities. In 2025, land acquisitions in Guangzhou exceeded 10 billion yuan, making it the city’s top land buyer, ensuring high-quality land reserves for future sales and profit realization. The company’s mature TOD model, leveraging Guangzhou Metro’s strategic shareholder position, continues to expand its project footprint. This type of development has strong scarcity, stable cash flow, and high appreciation potential, becoming a key future profit driver.

As a benchmark Guangzhou state-owned enterprise, Yuexiu Property bears the responsibility of stabilizing the market and supporting urban development. This sense of SOE responsibility translates into a unique competitive advantage. During periods of liquidity tension in the industry, the backing of a state-owned background provides more stable support from financial institutions, access to better land resources, and a more relaxed financing environment—advantages that private developers cannot easily match. Moody’s also explicitly recognizes the strong support from its parent company, which is a core safeguard for Yuexiu Property’s credit fundamentals.

Meanwhile, the company continues to promote refined management and cost reduction, accelerate deleveraging, and optimize its asset structure. Despite some accounts receivable and phased outflows of financing cash flows, which exert short-term refinancing pressure, the company’s ample cash reserves, diversified financing channels, and SOE credit backing enable it to fully manage short-term challenges. As the industry stabilizes and high-quality projects from earlier layouts enter settlement phases, profitability is expected to gradually recover, and leverage levels will decline steadily.

This rating adjustment reflects a short-term correction within the industry cycle rather than a reassessment of long-term value. Yuexiu Property’s green-zone financials, billion-yuan sales, SOE backing, and diversified layout demonstrate its ability to navigate cycles. Short-term profit fluctuations and slower deleveraging do not alter the company’s long-term steady growth trend but instead provide opportunities for structural optimization and efficiency improvement.

The real estate industry is shifting from scale expansion to quality enhancement. With its deep urban roots, solid financial foundation, strong resource support, and clear strategic layout, Yuexiu Property is well prepared to face industry cycles and seize opportunities. As a leading Guangzhou SOE in real estate, Yuexiu Property will continue to adhere to prudent management, respond calmly to changes, and focus on quality to strengthen its competitive edge, unlocking long-term value amid industry transformation.