The conglomerate warned that impairment provisions tied to its real estate investments, along with other charges, caused its net loss to balloon last year

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Key Takeaways:

• Fosun lost up to 23.5 billion yuan last year, as it took major impairment provisions on its real estate holdings and intangible assets related to some non-core businesses
• The warning reveals that despite years of downsizing, Fosun remains vulnerable to China's prolonged property downturn

Fosun International Ltd. (0656.HK) has been busy downsizing these last three years, shedding non-core businesses after an aggressive overseas expansion push plunged it into a high-profile liquidity crisis in 2022 and 2023. Unfortunately for Fosun, the assets it retained still include sizable Chinese real estate holdings, and it's paying a hefty price for remaining exposed to one of the most vulnerable spots in the country's economy right now.

Last Friday, billionaire Guo Guangchang's conglomerate warned that it expects to report a staggering net loss of as much as 23.5 billion yuan ($3.3 billion) for 2025, far larger than its 4.35 billion yuan loss for 2024. It attributed the massive loss to asset impairments.

For starters, it wrote down its properties and booked related impairment charges as China's never-ending real estate downturn continues to take its toll on home and commercial building values.

"During the 2025 financial year, the real estate industry has continued in a downward cycle with overall weak market demand, exerting pressure on the group's real estate business segment," Fosun said. "In accordance with the principle of prudence, the company has made substantial asset impairment provisions for certain real estate projects with impairment indicators."

Fosun subsidiary Shanghai Yuyuan Tourist Mart (Group) Co. Ltd. (600655.SH) — whose vast operations span more than 10 segments, including jewelry, fashion and real estate — accounts for about 55% of Fosun's provisions, according to a Bloomberg report citing unnamed people familiar with the situation. Last month, Yuyuan flagged a net loss of 4.8 billion yuan for 2025 in its own profit warning. That led Citi to slash its target price for Fosun's stock by 16% to HK$5.60, still well above the company's Tuesday close of HK$3.84.

Fosun also wrote down goodwill and intangible assets related to some non-core businesses. Basically, that means the company conceded that those assets may never generate expected returns that can justify premiums it paid when it acquired them during its buying binge in the 2010s.

Fosun didn't provide the exact size of all its provision charges. But the magnitude of its annual loss means they must be massive enough to not only wipe out the 661 million yuan net profit it made in the first half of last year, but then push it more than 20 billion yuan into the red. Put differently, the company's projected loss for 2025 amounts to more than a quarter of its total revenue for the first six months of the year.

Property exposure

Fosun's real estate exposure that was a major factor behind its 2025 loss includes residential and commercial properties, which are both grappling with falling sales and values.

A contracting population and weak economy in an uncertain employment environment are suppressing housing demand, keeping inventory at high levels. Fitch Ratings expects new residential property sales in China to decline another 7% to 8% in 2026, while S&P Global is even more bearish, forecasting a 10% to 14% drop.

Things are equally dire for commercial real estate. Supply far exceeds demand after a long construction boom, resulting in high vacancy rates for office and retail spaces. Making matters worse, companies are consolidating offices in their drive to cut costs. Retail property owners are grappling with a shift to online shopping that is reducing foot traffic and in-store purchasing.

Yuyuan is vulnerable to all of these changes as its portfolio is comprised of retail, office and mixed-use properties across China. The fact that Fosun recorded huge impairment charges for properties tied to Yuyuan and other subsidiaries suggests that their values have fallen sharply over several years, prompting the company to write them down.

But property exposure isn't Fosun's only problem. The company remained profitable in the first half of last year, but its net profit shrank by about 9% year-on-year as its revenue dropped more than 10%. During the six months, the company's "happiness" segment, its biggest revenue generator that includes Yuyuan's jewelry business, along with Club Med and other consumer assets, swung to a loss from a profit a year earlier.

Fosun's intelligent manufacturing segment, which produces steel and new materials, and provides factory automation services, saw a revenue decline of more than a quarter in the first half of last year, partly due to sales of some businesses in the aftermath of its debt crisis. Fosun lost 974.8 million yuan from asset management services during the six-month period, although the figure is smaller than the unit's loss in the first half of 2024.

The company's health segment, which encompasses drug and medical device makers, as well as healthcare service providers, was the only notable bright spot in an otherwise downbeat report, delivering a 48.3% net profit increase, even though its revenue slipped.

Not surprisingly, investors initially dumped Fosun shares the next trading day after its profit warning. But a pre-market announcement that same day of a pledge by controlling shareholders and senior executives to purchase stock worth up to HK$500 million ($72.6 million), on top of a previously unveiled HK$1 billion share buyback program, triggered a rebound. Even after the dust settled, Fosun stock still trades at a measly price-to-sales (P/S) ratio of 0.15, well below the unimpressive 0.79 for CK Hutchison Holdings (0001.HK), another conglomerate whose portfolio also includes large real estate holdings.

The question now is whether Fosun's grand asset write-down represents simply some short-term pain that it needs to face just this once as part of its post-crisis rebuilding. But the problem with many diversified conglomerates is that they contain many different parts across a range of sectors, and a particularly weak performance by just a few of those can sometimes drag down a company's bottom line like what happened to Fosun in the first half of last year.

While its pharmaceutical assets look promising, tourism, which Fosun is exposed to through Club Med, is susceptible to global economic cycles. Yuyuan's jewelry and retail operations are exposed to weak consumption in China. And while the latest property write-downs have probably brought those assets down to current market values, it's quite likely that more write-downs will be needed in the future until the sector finally stabilizes.

Fosun has certainly done some needed streamlining following its debt crisis, improving its balance sheet. But its slimmed-down version still contains many pieces that could create problems for the company in a weak Chinese economy.

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.