On August 28, Yuexiu Property disclosed its interim results for the first half of 2026. A few days later, the capital market delivered its verdict: on September 1, the share price closed at HKD 3.02, tumbling 7.36% in a single day, bringing its year-to-date decline to over 23%. This interim report landed like a bucket of cold water on a developer that on the surface appears to be far from cash-strapped.
The company posted revenue of RMB 36.649 billion, down 23% year-on-year, while net profit attributable to shareholders plunged 93.6% to a mere RMB 87 million. Gross margin contracted to 6.2%, a 4.4-percentage-point drop from the same period last year. Just a year ago, the firm was earning around RMB 1.5 billion in the same window; now, it is left with only a fraction of that figure.
What makes this more unsettling is that Yuexiu Property is not one of those developers teetering on the brink of default. It remains fully compliant with the "three red lines," its financing costs have fallen to 2.91%, and it holds over RMB 50 billion in cash. Both S&P and Fitch continue to assign it investment-grade ratings. Its balance sheet reads like that of a top-tier student, yet its income statement resembles that of an underperformer. Where exactly is the money going? The dilemma for Yuexiu is not about survival—it's about whether, after surviving, it can find a path back to meaningful profitability.
Profit reduced to a negligible amount does not stem from weak sales. On the sales front, Yuexiu Property hasn't actually struggled to move units. In the first half, contracted sales reached RMB 50.51 billion, down 17.9% year-on-year, yet its industry ranking actually improved by one spot to eighth nationally. Sales area expanded by 16.2% year-on-year to roughly 1.7 million square meters. The paradox of selling more area but generating less revenue lies in pricing. The average selling price fell from RMB 42,100 per square meter a year ago to RMB 29,700, a decline of nearly 30%. This reflects a deliberate strategy of "exchanging price for volume."
Across its core markets, including Guangzhou, Shenzhen, Shanghai, and Beijing, Yuexiu has resorted to price cuts to accelerate sales. Market rumors even emerged that in the second half of 2025, its Beijing partner China State Construction Smart City had lodged a complaint against Yuexiu's Puyue project in Chaoyang District over pricing reductions on premium units, alleging unfair competition. Whether the rumor holds water or not, the signal is unmistakable: Yuexiu is willing to concede on price to clear existing inventory.
More critical is the structural shift. In the first half, sales contributions from ongoing projects surged to 81% of total sales, up from just 48% in 2025. This indicates that Yuexiu's operational focus has pivoted decisively—no longer relying on new project launches to drive momentum but concentrating on liquidating legacy inventory. Legacy inventory typically corresponds to higher land costs acquired in the past and slower sell-through cycles. Selling these at reduced prices brings in cash but squeezes profits to the bone.
The interim report shows that revenue recognized from property development sales stood at approximately RMB 33.377 billion, down 24.2% year-on-year. As the property market continues its deep correction, margins on legacy projects remain under severe pressure. The first-half gross margin of 6.2% marks an all-time low for Yuexiu Property. Stripping out higher-margin property management and investment income, the gross margin for the development segment alone could be even lower, potentially dipping below what is commonly regarded as the break-even threshold for developers. In other words, for every apartment Yuexiu sells, it is making virtually no profit.
Cost controls have indeed been tightened. Selling and marketing expenses fell 31.1% year-on-year to RMB 1.019 billion, bringing the expense ratio down to 2.8% from 3.1%. Administrative expenses dropped 9.6% to RMB 559 million, while finance costs declined 25.7% to RMB 357 million. Combined, the three expense ratios totaled approximately 4.5%, a 0.3-percentage-point improvement from the prior year. However, these savings only cushion the decline in profit; they cannot substitute for a recovery in the profitability of development projects themselves.
Gross profit came in at RMB 2.268 billion, down roughly 55% year-on-year. After deducting selling and administrative expenses, operating profit shrank to just RMB 840 million. Add in fluctuations from joint ventures and associates, and the attributable profit lands at RMB 87 million. This is the first layer of Yuexiu's current predicament: sales volume remains intact and its ranking has even improved, but profit has been eroded by price wars and inventory clearance. Selling more does not necessarily translate into earning more.
If one were to cover up the income statement and focus solely on the balance sheet, Yuexiu would likely be among the healthiest profiles among developers today. As of the end of June, the company held approximately RMB 51.5 billion in cash, bank balances, time deposits, and other restricted deposits, up 10.1% from the start of the year. Net operating cash inflow reached RMB 13.77 billion, a marked improvement from RMB 4.102 billion in the same period last year. A key driver is the sharp contraction in land investment.
The weighted average borrowing rate fell below 3% for the first time, reaching 2.91%, a year-on-year decline of 25 basis points, bringing it close to China Overseas Development's 2.76% level. Its leverage metrics—excluding advance receipts—stood at 65.2% for the debt-to-asset ratio, 49.2% for the net gearing ratio, and 2.1 times for the cash-to-short-term-debt coverage, keeping it firmly in the green zone under the "three red lines." S&P and Fitch both maintain their BBB- investment-grade ratings with stable outlooks. While peers scramble to refinance maturing debt, Yuexiu's financing costs are still heading lower.
This RMB 87 million net profit is, in essence, a trade-off: sacrificing the income statement to secure cash flow safety and unimpeded financing access. During the industry's deleveraging phase, whether this trade is worthwhile is open to debate, but the priority is clear—survive first, then worry about profitability. Yet herein lies the problem. Low financing costs, ample cash, and solid debt metrics form the first layer of Yuexiu's safety margin to weather the cycle. They ease debt rollover pressure and buy time for inventory clearance, delivery guarantees, and judicious land acquisitions. But a safety margin buys time, not profit. No amount of interest savings can convert a house sold at a discount back into a high-margin project.
Yuexiu also has a second layer of support derived from shareholder synergy. In May, Yuexiu Property transferred a package of assets—including the Nansha International Finance Centre, Yungu Industrial Park, Zhigu Industrial Park, Bijie Hotel, and its health and wellness operations—to various entities under its parent group. This transaction achieved both off-balance-sheet treatment and injected RMB 4.46 billion in cash, lowering its capital-liability ratio by 1.3 percentage points. Backed by the Yuexiu Group, Yuexiu Property enjoys an additional avenue for capital and asset maneuvers that most developers lack.
However, shareholder synergy can address urgent needs but cannot solve the profitability puzzle. Asset transfers generate cash and reduce debt, yet they also diminish future earnings. What could genuinely transform Yuexiu's asset structure and booking quality is the Racecourse project in the Zhujiang New Town area of Guangzhou. In February, the Yuexiu Group secured the Racecourse site for RMB 23.6 billion, setting a new record for floor-area land prices in Guangzhou. The project has already attracted premium commercial and hospitality resources, including SKP and Waldorf Astoria, with residential units slated for launch in the first quarter of 2027. Market watchers view it as a significant potential asset to upgrade Yuexiu Property's asset composition and booking quality, but for now, the project remains at the group level.
At the results briefing, Chairman Lin Zhaoyuan's remarks were notably non-committal: there is currently no concrete plan to inject the Racecourse project into the listed entity, though injection cannot be ruled out if conditions mature, with specifics subject to future announcements. This statement leaves room for speculation but also for uncertainty. Should the project be injected, Yuexiu Property's asset quality could see marked improvement; if not, the group-level advantage may struggle to translate directly into listed-company profits.
The safety net lies in RMB 132.44 billion of contracted sales not yet recognized as revenue, and so is the concern. When assessing a developer's trajectory, one cannot look only at current profits—one must also examine the backlog for future booking. As of the end of June, Yuexiu's contracted sales awaiting revenue recognition totaled RMB 132.44 billion, up a marginal 0.3% year-on-year. This means revenue for this year and next is cushioned by a "reservoir." Management has set a second-half goal of achieving quality sales toward the full-year target of RMB 100 billion. Total saleable resources for the year stand at RMB 215.7 billion, with over RMB 160 billion available in the second half alone.
Land acquisition remains disciplined. In the first half, Yuexiu secured just six parcels in Guangzhou, Shanghai, Hangzhou, Chengdu, and Qingdao—far fewer than the 13 sites acquired a year earlier. Equity investment in land amounted to approximately RMB 7 billion, with 96.8% concentrated in six core cities. The company maintains its full-year investment intensity of RMB 30 billion, aiming to restore profitability through "investment-driven stability." Of its total land bank of 16.57 million square meters, 94% is located in tier-one and tier-two cities. The CFO noted that the average premium rate for the six parcels acquired in the first half was below the industry average. In an era of record land prices in core cities, this discipline is more valuable than aggression.
Yet the unrecognized contracted sales are both a shield and a potential weakness. The RMB 132.44 billion backlog can secure future revenue, but it does not guarantee future profits. If a substantial portion of these projects were sold during the price-cutting cycle, gross margins upon booking will remain under pressure. Management's view is that the 6.2% gross margin likely marks the bottom of this cycle, not the new normal. But what the market needs to see is not forecasts—it's data-backed validation.
Yuexiu's predicament is, at its core, that of an "honor student in distress." It is not insolvent, nor is its product unsellable; rather, its erstwhile profit model has broken down. In the past, developers made money through rising land values, escalating home prices, and leveraging up. Now, Yuexiu has chosen to trade price for sell-through, profit for cash flow, and reduced investment for financial safety. This strategy has allowed it to remain stable through the industry's clearing phase, yet it has also brought its income statement to near-zero.
The capital market, however, focuses on profits and returns. Consequently, Yuexiu's share price has fallen, pushing its price-to-earnings ratio into an anomalous zone where higher losses paradoxically suggest a "more expensive" valuation. A safety margin can underpin the balance sheet, but it cannot support the valuation. Shareholder synergy can tide over emergencies, but it cannot resolve the profitability issue. Core-city assets are a future bet, but they hinge on a market recovery and product delivery. For investors, the only three things worth tracking are: when gross margins will stabilize, whether the RMB 100 billion sales target is met, and whether the 2.91% financing cost can be maintained. If gross margins find their footing, the current low profit is a strategic concession at the cyclical bottom; if they fail to recover, even the thickest safety margin merely delays the problem rather than solving it.
This interim report from Yuexiu is a report card of "the worst profitability with the strongest fundamentals." Behind the RMB 87 million net profit lies a hard-fought battle to exchange profit for survival. Staying alive is not the hard part; becoming profitable again is. Yuexiu's dilemma mirrors the broader industry's clearing process: when home prices no longer rise in a straight line and land no longer appreciates on its own, the question developers must answer is not "Can we still borrow money?" but "Can we still make money from the development business?"