Chen Xuping's third year leading Longfor, Longfor reports its first core loss

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Chen Xuping’s third year leading Longfor, the first time the company reports core losses

Wang Lin

On March 6, Longfor Group (00960.HK) released its 2025 annual earnings forecast. The company’s attributable profit is expected to be about 1 billion yuan for the year, while core profit attributable to shareholders, excluding fair value changes of investment properties and derivative financial instruments, is projected to be a loss of 1.5 to 2 billion yuan. In the same period in 2024, these figures were 10.4 billion yuan and 6.97 billion yuan, respectively.

This is the first time Longfor has reported a core loss since its listing. The announcement explains that the main reason is the continued adjustment in the real estate market, with pressure on both volume and prices leading to a decline in settlement income from development operations and further reduction in gross profit margins.

This is also Chen Xuping’s third full year in charge of Longfor since taking over as chairman in October 2022. Over these three years, Longfor has persisted in reducing debt, maintaining positive cash flow, and transforming into an operational service provider, forging its own path at the bottom of the industry cycle.

However, challenges remain. On March 9, Morgan Stanley published a research report indicating that Longfor’s core loss in 2025 exceeds their expectations, mainly due to lower-than-expected profit margins in development operations, which could pose downside risks to earnings per share in 2026-2027. They also forecast that Longfor will continue to be in a loss-making state in 2026.

Development business faces profitability difficulties

According to previously released data, Longfor’s total contracted sales for 2025 are approximately 63.16 billion yuan, down 37.54% year-on-year. This decline is consistent with the overall industry trend. It marks the first time since 2017, when sales exceeded 100 billion yuan, that sales have fallen below that threshold again after eight years.

Regionally, the western, Bohai Rim, and Yangtze River Delta regions remain the core support, with sales of 18.24 billion yuan, 15.21 billion yuan, and 17.17 billion yuan, respectively, accounting for over 80% of total sales.

During the same period, the company achieved operating revenue of about 26.77 billion yuan (including tax, approximately 28.54 billion yuan), setting a new record. Operating income was about 14.19 billion yuan (including tax, about 15.19 billion yuan), and service income was about 12.58 billion yuan (including tax, about 13.35 billion yuan).

Although real estate development remains Longfor’s main revenue source, profitability in this sector worsened in 2025, directly causing the company’s core equity profit to turn negative for the year. The profit changes from the semi-annual report to the full-year forecast clearly reflect this trend: first-half core profit was 1.38 billion yuan, but full-year core attributable profit is expected to be a loss of 1.5 to 2 billion yuan. The sharp deterioration in profitability in the second half is the main reason.

The 2025 semi-annual report shows Longfor achieved operating revenue of 58.75 billion yuan, up 25.4% year-on-year. The core driver was real estate development, which contributed 45.48 billion yuan, up 34.7%, accounting for 77.4% of total revenue, remaining the group’s main income source.

However, profit margins showed a clear divergence: in the first half, attributable profit was 3.22 billion yuan, down 45.2% year-on-year. Excluding fair value changes of investment properties and derivatives, core profit was only 1.38 billion yuan. The decline in core profit directly reflects the profitability challenges in development operations.

Additionally, gross profit margins continued to be under pressure, dropping to 12.6% in the first half, nearly 8 percentage points lower than the same period in 2024. The gross margins for development, operation, and service businesses were approximately 0.2%, 77.7%, and 30%, respectively, forming a stark contrast. The entry of high land price projects into settlement cycles, combined with market downturns causing sales price inversion, are the main reasons for the low gross profit margins in development.

Looking into 2026, sales continue to decline. Data for the first two months show Longfor’s total contracted sales amount to 4.45 billion yuan, compared to 9.94 billion yuan in the same period in 2025.

Longfor CFO Zhao Yi predicted at the mid-year earnings conference: “In the next 1-2 years, development settlement volume will gradually decrease. As inventory is gradually cleared and new projects with healthy gross margins stabilize, the impact of development on overall group profits will gradually recover.”

Transformation achieves phased results

While development operations face pressure, Longfor’s operating business has steadily grown, becoming a “ballast” during the cycle.

Data shows that in 2025, Longfor achieved operating income of about 26.77 billion yuan (including tax, approximately 28.54 billion yuan), nearly unchanged from 2024’s 26.71 billion yuan. Operating income was about 14.19 billion yuan (including tax, about 15.19 billion yuan), and service income was about 12.58 billion yuan (including tax, about 13.35 billion yuan).

Latest unaudited operating data shows that in the first two months of 2026, Longfor’s operating income reached about 4.4 billion yuan (including tax, approximately 4.7 billion yuan), close to the 4.45 billion yuan of contracted sales in the same period. Operating income was about 2.44 billion yuan (including tax, about 2.62 billion yuan), and service income was about 1.96 billion yuan (including tax, about 2.08 billion yuan).

In its 2025 earnings forecast, Longfor stated that its operational and service businesses are steadily developing, continuously contributing stable profits to the group. Looking ahead, the company will prioritize safety, maintain positive operating cash flow, continue to reduce debt in an orderly manner, and promote business transformation. The goal is to drive growth through operational and service businesses, evolving from a traditional developer to an operational service provider.

Since proposing the “Space as a Service” strategy in 2018, Longfor has been steadily transforming from a traditional developer into an operational service provider, with phased success. From the revenue structure, in the first half of 2025, operating and service income accounted for 22.6% of total revenue, with an expected further increase for the full year. Its stable cash flow and cyclical resilience have become Longfor’s “second growth curve.”

Cash flow remains positive for three consecutive years

In a declining industry cycle, cash flow and debt safety are the bottom line for real estate companies. 2025 marks the third year of Longfor’s steady and orderly debt reduction, and also the third year of positive operational cash flow, two key indicators that provide a “safety cushion” for navigating the cycle and laying the foundation for transformation.

Semi-annual data shows that in the first half of 2025, Longfor’s net cash flow from operating activities reached 11.97 billion yuan, laying a solid foundation for full-year positive cash flow. Despite a decline in sales scale compared to last year, Longfor strengthened receivables management, maintaining a high collection rate, and strictly controlling land acquisition pace. The company adhered to a “buy good land, buy less land” strategy, reducing capital expenditure’s impact on cash flow.

Chen Xuping repeatedly emphasized that cash flow safety is the premise of all operations. Maintaining positive operating cash flow is the core goal, giving Longfor confidence to navigate the cycle. Three consecutive years of positive operating cash flow not only ensures debt repayment but also supports expansion of operational businesses.

On the debt side, Longfor has steadily reduced leverage over the past three years. Facing significant repayment pressures in 2025, Longfor used early repayments, installment payments, and debt swaps to successfully pass peak repayment periods, continuously optimizing its debt structure.

Longfor CFO Zhao Yi previously revealed that in 2025, the company will repay over 60 billion yuan of debt. By 2026 and 2027, repayment amounts are expected to be around 20 billion yuan each year, further decreasing to about 10 billion yuan in 2027 and 2028. Longfor’s interest-bearing debt is expected to stabilize around 100 billion yuan.

Entering 2026, Longfor’s debt repayment remains on schedule with no overdue payments: on March 2, Longfor completed fund transfers to repay the maturing “16Longfor04” with a remaining principal of 1.47 billion yuan and interest of about 6 million yuan. Simultaneously, Longfor transferred about 19 million yuan in interest for “20Longfor04.” Previously, on January 5, Longfor also made timely payments for the principal and interest of “21Longfor02,” totaling about 1.038 billion yuan.

Financially, Longfor demonstrates strong risk management. As of June 30, 2025, its interest-bearing liabilities totaled 169.8 billion yuan, down 6.53 billion yuan from the end of 2024. The net debt ratio was 51.2%, and the asset-liability ratio after deducting prepayments was 56.1%. The short-term debt to non-restricted cash ratio was 1.14, with financing costs further optimized to 3.58%. Bank financing accounted for 87% of total liabilities, and the debt structure continues to improve.

Transformation still in progress

Overall, 2025 for Longfor presents a “mixed bag”: concerns over declining development volume and prices, bottoming gross profit margins, and turning core profits negative; but also positives such as steady growth in operating income, continuous positive cash flow, manageable debt levels, and clear transformation direction.

Despite notable progress in risk control and transformation, the company still faces practical challenges amid deep industry adjustments.

On one hand, profitability recovery in development depends on market recovery and product mix optimization. However, industry sales remain sluggish, and 2026 will still be challenging, with uncertain profit improvement pace and difficulty in quickly reversing the cycle bottom. On the other hand, operating business income and profit contribution are still relatively low, not yet providing an absolute support for overall profitability.

From the revenue structure perspective, there is still a significant gap to reach the long-term goal of “more than half of revenue from operating businesses.” In the first half of 2025, real estate development revenue was 45.48 billion yuan, up 34.7% year-on-year; operating and service revenues were 7.01 billion yuan and 6.26 billion yuan, respectively, with slight increases of 2.5% and 0.02%.

Looking into 2026, Longfor faces dual tasks: first, to continue safeguarding financial safety by reducing debt, maintaining cash flow, and ensuring delivery; second, to accelerate transformation by expanding operational business scale and profitability, optimizing revenue and profit structures, and truly upgrading from a traditional developer to an operational service provider.

In Chen Xuping’s third year at the helm, Longfor has maintained safety, stabilized fundamentals, and made progress in transformation, but also faced the industry’s harsh realities. The coming year will be critical for validating profit recovery, testing transformation quality, and strengthening financial resilience.