Major downward revision of performance guidance! Meiji Co., Ltd. expects negative net assets in 2025 or faces "*ST" status

Meizhi Co., Ltd. (SZ002856, stock price 13.40 RMB, market value 1.813 billion RMB) released a revised forecast for 2025 performance. The company originally expected a net profit of -113 million to -75 million RMB for 2025, revised to -198 million to -132 million RMB, compared to -257 million RMB in the same period last year; the original estimate for non-recurring net profit was -95.8237 million to -58.3237 million RMB, revised to -214 million to -148 million RMB, compared to -282 million RMB last year; the original expected basic earnings per share was -0.83 to -0.44 RMB, revised to -1.46 to -0.98 RMB.

Image source: Meizhi Co., Ltd. announcement

Meizhi Co., Ltd. also stated that the latest estimate of shareholders’ equity attributable to the parent company for 2025 is -75 million to -40 million RMB, compared to approximately 106 million RMB at the end of last year. According to Shenzhen Stock Exchange regulations, these matters will trigger a red warning line for delisting risk.

Three major financial adjustments after communication with auditors

The announcement shows that this downward revision of performance forecast is based on preliminary calculations by Meizhi Co., Ltd. As of today, the company’s 2025 annual report audit is still ongoing. However, Meizhi Co., Ltd. has pre-communicated with the annual audit accounting firm regarding the revision of this forecast. The company and the auditors have no major disagreements on the forecast revision, and the final financial data will be based on the company’s official disclosure of the 2025 annual report. The 2025 annual report is expected to be disclosed by April 29, 2026.

Regarding the reasons for the significant downward revision, Meizhi Co., Ltd. stated that during the progress of the 2025 financial audit, after full communication with the auditors, based on prudence and professional judgment, and considering the company’s current operating conditions and future profit expectations, the company has written down the previously recognized deferred income tax assets.

Additionally, Meizhi Co., Ltd. has re-evaluated its investment value based on the operating conditions of its equity subsidiaries, industry environment, and future earnings prospects. The company also thoroughly reviewed and assessed accounts receivable collection, customer credit risk, payment terms, as well as the performance risk, settlement progress, and recoverable amount of long-term unsettled projects, prudently increasing provisions for accounts receivable and contract asset impairments.

“The above matters are expected to result in negative shareholders’ equity attributable to the parent company at the end of the period,” said Meizhi Co., Ltd. in the announcement. Based on preliminary estimates, the company expects its net assets at the end of 2025 to be negative. According to Shenzhen Stock Exchange regulations, if the company’s shareholders’ equity attributable to the parent company at the end of 2025 is negative, the company’s stock trading will be subject to delisting risk warning after the 2025 annual report is disclosed (with the stock abbreviation prefixed with “*ST”).

To fully alert investors of this risk, Meizhi Co., Ltd. will issue at least two more risk warning announcements before disclosing the 2025 annual report, in accordance with Shenzhen Stock Exchange regulations.

Company’s net profit attributable to shareholders and non-recurring net profit have been negative for four consecutive years

According to Meizhi Co., Ltd.'s 2025 semi-annual report, the company is a comprehensive building decoration design and construction enterprise integrating architectural decoration, curtain walls, electromechanical engineering, electronics and intelligent systems, mechanical and electrical equipment installation, fire protection facilities, and environmental protection projects. Its main business involves design and construction of building decoration projects, serving large clients such as transportation agencies, cultural industries, financial real estate, government agencies, large general contractors, and high-end hotel groups, providing cross-field, all-around integrated engineering services. The projects mainly include public building decoration, residential fine decoration, and curtain wall decoration.

Financial reports show that in recent years, the building decoration industry, as a downstream segment of real estate, has been deeply impacted by ongoing adjustments in the property market. The decline in new home sales and construction area directly led to a shrinkage in new decoration projects, while longer payment cycles and credit defaults by some real estate clients have put cash flow and profits of decoration companies, which rely heavily on project settlements, under pressure.

Data indicates that from 2021 to 2024, Meizhi Co., Ltd.'s net profit attributable to shareholders and non-recurring net profit have been negative for four consecutive years.

The “Daily Economic News” reporter noted that many listed companies in the A-share decoration and renovation industry are seeking solutions. On March 16, Zhongtian Decoration (SZ002989) announced plans to sell some assets, including residential, apartment, commercial shops, and parking spaces, with a total transaction amount not exceeding 400 million RMB. The purpose of the asset sale is to activate existing assets, improve operational efficiency, and enhance economic benefits.

(Source: Daily Economic News)