Shenzhen Metro Group, once praised as “China’s most profitable subway company,” reported its first loss in ten years in the first half of this year.
According to a report by the Southern Metropolis Daily on September 7, Shenzhen Metro Group Co., Ltd. (referred to as “Shenzhen Metro Group”) recently disclosed its financial report for the first half of 2024, showing that the group achieved operating income of 9.299 billion yuan in the first half of the year, a year-on-year increase of 50.95%. However, the net profit attributable to the parent company recorded a loss for the first time in ten years, amounting to 3.793 billion yuan. As of the end of June, Shenzhen Metro Group’s total assets amounted to 742.463 billion yuan, with total liabilities of 419.997 billion yuan, resulting in an asset-liability ratio of 56.57%, slightly higher than the previous year.
Historical data shows that in 2019 and 2020, Shenzhen Metro Group’s annual net profit attributable to the parent company reached as high as 11.812 billion yuan and 11.272 billion yuan, respectively. However, the net profit began to decline rapidly thereafter. From 2021 to 2023, the net profit attributable to the parent company was only 2.997 billion yuan, 1.043 billion yuan, and 0.551 billion yuan respectively. In the first half of this year, Shenzhen Metro Group’s net profit attributable to the parent company incurred a loss of 3.793 billion yuan, officially entering the loss zone.
The report mentions that historically, due to the public nature of subway fare income, ticket revenues could not cover operating costs. Besides government subsidies, the development of “station-city integration” has become an important source of income and profit for Shenzhen Metro Group.
China Chengxin International’s “2024 Shenzhen Metro Group Co., Ltd. Credit Rating Report” pointed out that the profitability of Shenzhen Metro Group’s “station-city integration” development has declined in recent years. Property development is susceptible to changes in the real estate market and national regulatory policies, necessitating attention to the risks posed by related business expansion.
In the past, Shenzhen Metro borrowed the successful experience of Hong Kong railways to develop “station-city integration,” which involves developing real estate and commercial projects along the subway lines to reap substantial profits. This model not only supported rail construction and subway operating costs but also earned Shenzhen Metro the title of “China’s most profitable subway company.”
The rating report indicated that as the largest shareholder of Vanke, Shenzhen Metro Group’s equity corresponds to approximately 14% of the total assets of the company, with the investment income it contributes being an important supplement to the company’s annual profits. However, in recent years, Vanke’s business performance has significantly declined, leading to a decrease in the contribution of investment income.
Professor Zheng Tianxiang, from the Guangdong-Hong Kong-Macao Greater Bay Area Infrastructure Research Center at Sun Yat-sen University, stated in an interview with Lianhe Zaobao that the transition of Shenzhen Metro from profitability to losses marks the end of the golden era when China’s subway system relied on real estate to support rail construction and operation.
He said, “The growth of Shenzhen’s urban population and urbanization process has reached saturation point, and the city’s attractiveness may decline due to industrial relocation, or even witness de-urbanization. In addition, with China’s population beginning to shrink and birth rates declining, subway companies will find it challenging to increase revenue significantly by boosting passenger volume.”