KWG LIVING (03913) issues profit warning, expecting a net loss of approximately HK$280 million in the midterm, compared with a profit in the same period last year.

KWG LIVING (03913) announced that the group expects to incur a net loss of no more than approximately RMB 280 million for the current period (six months ending June 30, 2025), while a net profit of approximately RMB 69.9 million was recorded for the six months ending June 30, 2024. The Board believes that the expected net loss for the current period is mainly due to the following factors: (i) The group has made an impairment provision of no more than RMB 238 million for trade receivables. This is mainly due to the continued downturn in the Chinese real estate industry, with significant changes in the market environment including weakening demand and downward pressure on property prices, posing challenges to the overall business environment and slowing down the collection of trade receivables owed to the group. Therefore, the company has prudently assessed the amount of impairment provision for trade receivables and made reasonable accounting estimates. (ii) The group's deferred tax assets have decreased, resulting in a tax expense of no more than RMB 133 million for the current period. This decrease is mainly due to the continued economic pressures, leading to continuous increases in impairment provisions for trade receivables. The group has reduced the carrying amount of deferred tax assets of certain subsidiary companies, as the group expects that these subsidiary companies are unlikely to generate sufficient taxable profits in future periods to utilize the benefits of these deferred tax assets. (iii) The group has made an impairment provision of no more than RMB 114 million for goodwill and property, plant, and equipment. This is mainly due to intense market competition, which has led to several contracts of subsidiary companies acquired in previous periods not being renewed. The expansion of new customer base for these subsidiary companies has also not met expectations, coupled with an increase in costs to improve service quality, resulting in a decrease in revenue and operating profit for these subsidiary companies. Despite the decrease in operating profit for these subsidiary companies, they still achieved a net operating profit for the current period.