On March 17, SUNAC China (01918.HK) issued a profit warning on the Hong Kong Stock Exchange, forecasting an attributable loss to company owners of between 12 billion and 13 billion yuan for the 2025 fiscal year. This represents a significant narrowing from the approximately 25.7 billion yuan loss recorded in 2024, with the reduction in loss nearing 50%. This preview highlights the notable effectiveness of debt restructuring efforts while also revealing persistent operational pressures stemming from the broader industry environment. The primary driver behind the reduced loss was the full implementation and accounting recognition of gains from the 2025 offshore debt restructuring. On December 23, 2025, the restructuring of SUNAC's approximately $9.6 billion in outstanding offshore debt officially took effect, marking one of the largest and most thoroughly executed offshore debt restructurings among private real estate enterprises. According to accounting standards, this restructuring generated a pre-tax gain of approximately 64.8 billion yuan. Combined with gains from onshore debt restructuring, the total pre-tax restructuring gains for the full year reached 70 to 75 billion yuan. These gains directly offset operational losses, serving as a critical variable in the performance improvement. The accounting treatment of these gains is fully compliant with Hong Kong Financial Reporting Standards, with no regulatory disputes. However, excluding the debt restructuring gains, SUNAC's operational pressures remain pronounced. The announcement specified that operational losses primarily stemmed from three factors. First, recognized revenue declined substantially, impacted by the ongoing adjustment in China's real estate market throughout 2025, leading to a contraction in project deliveries and revenue recognition scale. Revenue for the first half of the year alone was 19.988 billion yuan, a decrease of 41.7% year-on-year. Second, gross profit margins continued to face pressure, with the overall industry downturn compounded by factors such as project mix and pricing, further compressing profitability. Third, asset impairment and provision accruals were made as the company took steps to solidify asset quality, further writing down the value of related projects, inventory, and investment assets, while also increasing provisions for contingent liabilities. Performance on the sales front also reflects the operational strain. SUNAC's full-year 2025 contracted sales amounted to approximately 36.84 billion yuan, down 21.85% year-on-year. Sales area was approximately 1.453 million square meters, a decrease of 35.74% year-on-year, placing the sales volume at a low point in recent years. A noteworthy point, however, is that the average selling price for the full year rose to 25,350 yuan per square meter, an increase of 21.5% year-on-year. This was primarily driven by contributions from core projects in first-tier cities, such as SUNAC The One Bund in Shanghai and SUNAC The One in Beijing. Such projects can contribute billions of yuan in sales per month, thereby lifting the overall average price. Furthermore, sales in December showed a significant month-on-month recovery, with sales value increasing by 163.4% and sales area by 195.6% compared to November, mainly driven by the launch of key projects. From an industry perspective, China's real estate market continued its overall adjustment trend in 2025. New home sales showed marginal weakness, while the secondary market continued to prioritize volume over price. Real estate enterprises generally faced pressure to reduce inventory and stabilize sales. Against this backdrop, SUNAC did not expand in the public land market throughout the year. Instead, its operational focus remained on debt repayment, ensuring project deliveries, and revitalizing existing assets, aligning with its strategic shift from "heavy-asset expansion" to "core asset operation." Overall, SUNAC's performance improvement in 2025 was primarily reliant on the one-time gains from debt restructuring, constituting a reduction in losses at the "financial statement level." The operational side has not yet genuinely emerged from its trough. As a private real estate developer that has reported losses for four consecutive years, with cumulative losses nearing one hundred billion yuan, SUNAC has alleviated short-term repayment pressure through debt restructuring. However, achieving a genuine turnaround to profitability will subsequently depend on an industry recovery, a rebound in sales, and the continued revitalization of core assets, enabling it to break through in the wave of high-quality development within the real estate sector.
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