COUNTRY GARDEN (02007.HK) has designated 2026 as the most critical year for its operational transition. While the first-half financial results show some improvement in certain performance metrics, the company still faces multiple challenges to sustainable operations.

According to the performance report released on August 28, the company recorded a loss attributable to shareholders of approximately 15.62 billion yuan in the first half of the year, narrowing its losses by 18.1% year-on-year. Sales declined by double digits year-on-year, indicating that its cash-generating capacity has yet to fully recover.

While core indicators remain under pressure, some positive signals have begun to emerge. In the first seven months of the year, the company's operated sales area returned to the top 10 in the industry. Although debt restructuring has improved the balance sheet to a certain extent, the pressure of debt repayment persists. As of the end of June, the company had over 100 billion yuan in current liabilities, while cash and cash equivalents stood at only 5.74 billion yuan. The auditor declined to express a conclusion on this interim financial information.

Where the pressure lies

As a former leading real estate enterprise, COUNTRY GARDEN's financial report reflects the inevitable process of financial clearance for major distressed property companies. In the first half of the year, the company generated revenue of approximately 44.08 billion yuan, a year-on-year decrease of 39.3%. The loss attributable to shareholders was approximately 15.62 billion yuan, narrowing compared with the 19.08 billion yuan loss recorded in the first half of 2025.

Multiple factors affected profitability. The significant reduction in deliveries during the period led to lower operating revenue. Projects with previously high land costs were concentrated in settlement during a price-reduction destocking environment, negatively impacting profits. The company also recorded inventory impairment of 6.2 billion yuan and financial asset and financial guarantee impairment losses of approximately 3.8 billion yuan.

The narrowed losses were attributable to other income and gains of 4.1 billion yuan, including fair value changes of financial liabilities and debt restructuring gains, rather than improvements in core operations. Sales figures reflecting cash-generating capacity were also unsatisfactory. During the period, COUNTRY GARDEN achieved contracted sales of approximately 14.25 billion yuan and contracted sales area of approximately 1.825 million square meters, representing year-on-year declines of 15% and 11%, respectively.

Notably, according to statistics from Cric, in the first seven months of this year, the company ranked 10th in the industry with an operated sales area of 2.33 million square meters, temporarily returning to a leading position.

In 2025, COUNTRY GARDEN completed the restructuring of 17.7 billion US dollars in offshore debt and 13.77 billion yuan in onshore debt, achieving an overall debt reduction of over 90 billion yuan. This year, the focus of debt resolution has shifted to performance and execution. In April, the company repurchased onshore bonds with a principal amount of approximately 3.75 billion yuan for a consideration of approximately 450 million yuan, and plans to proceed with the implementation of other restructuring options, including stock options and general debt options.

The success of the debt restructuring has bought COUNTRY GARDEN breathing space in its self-rescue efforts, yet the recovery of sustainable operating capacity cannot be achieved overnight. Zhonghui Anda Certified Public Accountants could not express a conclusion on this interim report. Beyond the continued large-scale losses, the firm also noted that the company's total cash of 16.7 billion yuan (including restricted cash) cannot cover current liabilities of 101.5 billion yuan. Furthermore, as of the end of June, approximately 82.4 billion yuan of its borrowings had defaulted or cross-defaulted.

The firm believes COUNTRY GARDEN may be unable to realize assets and repay liabilities in the normal course of operations. The company remains aware of this fundamental situation, stating that in the second half of the year it will continue to repair the balance sheet and promote improvement in operating cash flow.

Transition still faces multiple hurdles

Over the three years since its default, COUNTRY GARDEN has implemented self-rescue measures under the core strategy of "completion and delivery, risk resolution, asset-liability repair, and sustainable operations." The task of securing housing delivery is nearing completion, with plans to fully clear the backlog by year-end.

Short-term risk resolution has been achieved through debt restructuring, and the future focus is now on asset-liability repair and sustainable operations. At a management meeting in July, co-chairman Mo Bin emphasized that the second half of the year represents a critical window for the company's operational transition, with the core goals being "stabilizing assets and liabilities, and stabilizing development," aiming for a smooth and orderly switch to "normal operations."

The path to stable development is "stabilizing existing stock first, then expanding increment." COUNTRY GARDEN is not short of land resources. As of the end of 2025, the company's equity land reserves reached 95.4 million square meters, with a book value of construction in progress and properties for sale exceeding 482.15 billion yuan. However, the market recovery has not yet reached the third- and fourth-tier cities where the company is heavily concentrated, making inventory destocking extremely difficult.

Mo Bin stated that business-line heads at headquarters and regional project leaders must go deep into frontline operations "driving the whole from point to area," acquiring a true understanding of the actual status of each inventory and land holding through on-site inspections, and personally present substantive solutions on the ground.

Chairman Yang Huiyan believes improving product strength is the core driver for sales destocking and achieving sustainable operations. She has instructed the company to select regional projects with suitable conditions, led by headquarters with PMO coordination and participation from design and marketing teams, to create benchmark cases.

Property development remains the cornerstone of COUNTRY GARDEN, while technology construction and entrusted management and construction bear the responsibility as growth engines. In the performance report, the company disclosed the progress of these two new businesses. Among them, Phoenix Zhituo has accumulated over 200 entrusted management and construction projects, with total entrusted management area of nearly 20 million square meters, covering four categories: government entrusted construction, commercial entrusted construction, capital entrusted construction, and management consulting.

In the technology construction segment, the company has developed nearly 50 construction robot products, with 28 put into commercial application and over 5,200 units delivered cumulatively. However, in terms of revenue contribution, the new businesses are not yet capable of carrying the growth banner. In the first-half revenue, property development contributed 96.1%, while technology construction and other segments accounted for only 3.9%. Moreover, affected by the sluggish real estate market, technology construction revenue declined by 67.7% year-on-year to just 474 million yuan.

"The Long March is long and arduous, yet we cross it step by step." At the management meeting, president Cheng Guangyu quoted Chairman Mao's famous verse to encourage employees. Although morale runs high, the road ahead is far from smooth. Operational transition is a complex systematic reconstruction project, and COUNTRY GARDEN still has many hurdles to overcome.