Investment Rating - The report assigns an "Outperform the Market" rating to the company, indicating an expected performance that exceeds the market index by more than 10% [5][36][37]. Core Views - The company is a leading state-owned enterprise with a strong market position, focusing on development, asset operation, and property services, with a stable shareholding structure [1][8][10]. - Despite a 36% decline in net profit year-on-year for 2024, the company has adequately provisioned for asset and credit impairments, which totaled approximately 6 billion yuan, reflecting a 150% increase from the previous year [1][15]. - The company maintains a healthy financial status with a debt-to-asset ratio of 62% and a net debt ratio of 56%, consistently staying within the green zone of the "three red lines" policy [22]. Summary by Sections Financial Performance - In 2024, the company achieved an operating revenue of 178.9 billion yuan, a 2% increase year-on-year, while net profit was 4 billion yuan, down 36% [1][4][15]. - The gross profit margin for the company was reported at 15.6%, a decrease of 1.5 percentage points compared to the previous year [1][15]. Sales and Development - The company recorded a sales amount of 219.3 billion yuan in 2024, a 25% decrease year-on-year, while the sales area fell by 24% [2][20]. - The company acquired 26 land parcels in 2024, with a total planned construction area of approximately 2.25 million square meters and a total land cost of about 48.6 billion yuan [2][20]. Financial Health and Cost of Capital - The company has a comprehensive financing cost of 2.99%, which is 48 basis points lower than the beginning of the year, maintaining an industry-leading level [22]. - The company successfully secured 9.2 billion yuan in operational property loans and raised 15.5 billion yuan in public market financing, with the lowest coupon rates in the industry [22]. Profit Forecast - The company is expected to generate revenues of 161.8 billion yuan, 153 billion yuan, and 156.9 billion yuan for the years 2025, 2026, and 2027, respectively, with net profits projected at 4.1 billion yuan for each of those years [3][28][31]. - The report anticipates a gradual recovery in performance as high land cost, low margin projects are completed, leading to a stabilization in earnings [3][36]. Valuation - The absolute valuation estimates the company's per-share value at 11.38 yuan, indicating a potential upside of 20% from the current share price [31][35]. - Relative valuation suggests that the company's valuation is comparable to peer companies, with a 2025 dynamic PE ratio of 17.2, which reflects a premium due to the quality of land and strong financing background [36].

Core Viewpoint - The article discusses the recent credit rating downgrades of Longfor Group by S&P and Fitch, highlighting the challenges faced by the company in the declining real estate market and its efforts to diversify and reduce leverage [2][4][14]. Group 1: Financial Performance - Longfor Group issued a profit warning on March 7, 2024, forecasting a core profit decline of approximately 35% to 40% for 2024, estimating a range of CNY 68.1 billion to CNY 73.8 billion, down from CNY 113.5 billion in 2023 [2]. - The company's revenue for the first half of 2024 was CNY 468.6 billion, a 24.5% decrease year-on-year, marking the lowest half-year revenue in five years [8]. - The real estate development business, which is the core revenue source, generated CNY 337.6 billion in the first half of 2024, down 32.31% from the previous year [8]. Group 2: Credit Rating Downgrades - S&P downgraded Longfor's long-term issuer credit rating from "BB+" to "BB" on March 5, 2024, citing concerns over the company's future debt repayment ability and operational status [2][3]. - Fitch followed suit in October 2024, lowering Longfor's long-term foreign currency issuer default rating (IDR) from "BB+" to "BB," with a negative outlook due to weaker-than-expected sales and cash flow [4][14]. - S&P expects Longfor's debt-to-EBITDA ratio to remain high at around 8 times from 2024 to 2025, up from 6.4 times at the end of 2023 [3][6]. Group 3: Sales and Market Conditions - Longfor's confirmed real estate development gross margin is projected to be constrained at 5%-6% for 2024, down from 11% in 2023 and 18% in 2022 [3][5]. - The total contract sales amount for Longfor was CNY 1,011.2 billion by the end of 2024, a 42% decrease from CNY 1,734.9 billion at the end of 2023 [7]. - In January 2025, Longfor's monthly contract sales were CNY 44.6 billion, a 36% decline compared to January 2024 [7]. Group 4: Business Diversification and Future Outlook - Longfor has been diversifying its business, with non-development revenue sources such as operational and service businesses contributing CNY 131 billion, although this is less than 30% of total revenue [12]. - The company aims to enhance the contribution of non-development business income and profit, focusing on high-quality development and maintaining positive operating cash flow [12][14]. - Despite the challenges, Longfor's existing cash reserves and financing channels through commercial property loans are expected to meet its debt obligations in the next 12 months [13].