Core Viewpoint - The real estate industry is undergoing a significant transformation, with many companies facing increased profit pressure, while a few, like Longfor and China Resources, are successfully navigating this shift by focusing on operational business models and achieving positive profitability [2][9]. Industry Trends - The market is transitioning from a phase of large-scale expansion to one focused on improving existing assets, as indicated by recent government meetings [2]. - Companies are exploring new operational models to adapt to this systemic change, emphasizing the need for a shift from incremental to stock market strategies [2][8]. Company Strategies - Real estate firms are concentrating on three main transformation paths: enhancing stable income through property holdings, developing light asset businesses, and expanding into new business areas beyond traditional real estate development [2]. - Longfor's operational business revenue reached a historical high of 13.27 billion yuan, while China Resources achieved a core net profit of 6.02 billion yuan, contributing over 60% of its profits [5][6]. Operational Models - Longfor's operational business includes commercial investment, asset management, property management, and smart construction, with a focus on maintaining high occupancy rates and rental income growth [5]. - China Resources is adopting a large asset management model as a core strategy during the industry's transition, achieving regular income of 20.56 billion yuan [6]. Market Adaptation - The industry is encouraged to shift from investment-driven growth to service-driven revenue, focusing on operational and service enhancements [8]. - Companies like Poly Developments and China Merchants Shekou are actively pursuing new growth lines in commercial and property management [8]. Financial Stability - Moody's report highlights that increasing regular income enhances developers' profitability stability and financial resilience, with Longfor and China Resources showing higher operational income and profitability compared to peers [9].

Core Viewpoint - The real estate industry is under pressure but is transitioning towards a new growth model, focusing on product quality and operational resilience to navigate upcoming debt peaks [1][8]. Financial Performance - In the first half of the year, 286 listed real estate companies reported a total revenue of 1.85 trillion yuan and a net profit of 851.77 billion yuan, with 89 companies incurring losses totaling 191.2 billion yuan [2]. - Key reasons for performance pressure include a significant decrease in project settlement scale and low gross margins, alongside asset impairment provisions to accelerate inventory turnover [2][3]. Strategic Focus on Quality - The "good house" strategy is seen as both a policy direction and a future development goal for real estate companies, with many firms experiencing sales growth by enhancing product quality [3][4]. - Companies like Longfor Group and Yuexiu Property have successfully implemented strategies that emphasize product quality, resulting in increased sales prices and volumes [3][4]. Diversification into Operational Business - Many real estate firms are developing operational businesses as a second growth curve, with companies like China Resources Land achieving significant revenue from these sectors [5][6]. - Longfor Group reported record revenues from its operational services, while other firms are also expanding into commercial and property management sectors [6][7]. Debt Management and Financial Resilience - The industry faces a debt peak in the second half of 2025, with total debt due expected to reach 530.1 billion yuan, necessitating proactive debt management strategies [8][9]. - Companies are optimizing their debt structures and exploring diverse financing channels, such as operating property loans and public REITs, to enhance financial safety [9][10]. Future Outlook - The financing environment for quality real estate firms is improving, with a focus on stabilizing cash flows and reducing debt levels to navigate the upcoming challenges [10].

Investment Rating - The report maintains an investment rating of "Buy" for the company [1] Core Views - The company reported a revenue of 58.8 billion RMB for the first half of 2025, representing a year-on-year increase of 25%. However, the core and attributable net profits were 1.4 billion and 3.2 billion RMB, showing a decline of 71% and 45% respectively, which aligns with the earnings forecast. The profit drop is attributed to the ongoing adjustment phase in the development business, but operational business has become a crucial support for core profits, demonstrating strong resilience [1][2] - The company’s development business is still in a bottoming phase, focusing on digesting existing assets. The revenue from project handovers increased by 35% year-on-year to 45.5 billion RMB, but the gross margin decreased by 7.2 percentage points to 0.2%, indicating low profitability levels. The sales amount dropped by 30% to 24.5 billion RMB, and the land acquisition amount fell by 71% to 1.5 billion RMB, reflecting a decline in both sales and land acquisition activities [3][4] - The company has successfully reduced its debt scale, with interest-bearing liabilities decreasing by 9% to 169.8 billion RMB. The short-term debt ratio also decreased, and the cash-to-short-debt ratio improved to 1.74 times. The average financing cost dropped by 42 basis points to 3.58%, indicating an optimization in financing structure [4] Summary by Sections Operational Performance - The operational business maintained stable growth with a revenue increase of 2% year-on-year, accounting for 23% of total revenue by the end of 2024. The commercial segment saw a same-store sales growth of 3%, and rental income increased by 5% to 5.5 billion RMB. The company plans to open 10 new shopping malls in the second half of 2025, which is expected to further drive growth [2] Development Business - The development business is primarily focused on liquidating existing assets, with a significant amount of unsold land reserves valued over 200 billion RMB. The company anticipates a saleable value of 120 billion RMB in the second half of 2025, indicating a relatively abundant supply [3] Financial Outlook - The report adjusts the earnings per share (EPS) estimates for 2025-2027 to 0.83, 0.93, and 1.06 RMB respectively, reflecting a downward adjustment of 14%, 5%, and 2%. The target price is set at 13.86 HKD, based on a price-to-book (PB) ratio of 0.53 times [5][8]

Core Viewpoint - Longfor Group has successfully transitioned from a traditional developer to a high-quality development model, focusing on stable cash flow and operational efficiency, which enhances its resilience against market fluctuations [3][4]. Financial Performance - In the first half of 2025, Longfor Group reported a revenue of 58.75 billion yuan, a year-on-year increase of 25%, with development business revenue at 45.48 billion yuan and operational business revenue at 13.27 billion yuan, up 1.3% [1]. - The core net profit after rights was approximately 1.38 billion yuan, with operational business gross margin at 77.7% and service business gross margin around 30% [1][3]. Business Model Transition - Longfor's operational and service businesses have become significant contributors to revenue, with operational income accounting for 22.6% of total revenue in the first half of 2025, up from less than 10% in 2022 [3]. - The company has invested over 100 billion yuan in cultivating its commercial investment and operational businesses, leading to a balanced business structure [3][4]. Debt Management - Longfor has reduced its interest-bearing debt by 6.53 billion yuan in the first half of 2025, bringing the total to 169.8 billion yuan, with a target to further reduce debt by approximately 20 billion yuan by the end of the year [7]. - The average financing cost is 3.58% with an average loan term of 10.95 years, both at historical lows [7]. Land Acquisition Strategy - In the first half of 2025, Longfor achieved a contract sales amount of 35.01 billion yuan, with 90% of sales concentrated in first- and second-tier cities [8][9]. - The company remains cautious in land acquisition, prioritizing financial safety and maintaining a land reserve of 28.4 million square meters, with unsold value exceeding 200 billion yuan [10]. Future Outlook - Longfor plans to open approximately 10 new shopping malls in 2026 and 2027, continuing to expand its operational footprint [5]. - The management expresses optimism about the long-term development of the real estate market, particularly in core urban areas where demand for quality housing remains strong [10].

Core Viewpoint - Longfor Group anticipates a significant decline of approximately 70% in core profit attributable to shareholders for the first half of 2025, primarily due to a decrease in gross profit margin from real estate development amid industry downturn [1] Group 1: Company Performance - Longfor Group's operating revenue reached approximately 16.47 billion yuan (including tax) by the end of July 2025, with operational business revenue at about 8.76 billion yuan and service business revenue at around 7.71 billion yuan [2] - Despite the pressure on development business profitability, Longfor Group remains one of the few companies in the industry still achieving positive earnings [1][2] - The company has successfully reduced its debt scale and optimized its debt structure, with positive operating cash flow including capital expenditures [2] Group 2: Industry Context - As of August 15, 2025, over 60% of the 74 listed real estate companies that released performance forecasts are expected to report losses, continuing the trend from the previous year [1] - Morgan Stanley's report indicates that, despite some alleviation of liquidity risks, the decline in profit margins for real estate development will lead to disappointing performance for Chinese developers in the first half of the year [1] Group 3: Future Outlook - DBS Bank projects that Longfor's strategy of maintaining cash flow and reducing inventory will help lower debt, with potential land investments resuming in early 2026, which could accelerate the recovery of profit margins in real estate development [3] - Longfor Group emphasizes a customer-centric approach to enhance product and service capabilities, aiming for steady growth in development, operational, and service businesses to ensure sustainable development through positive operating cash flow [3]

Core Viewpoint - Longfor Group reported strong financial performance for 2024, with total revenue of RMB 127.47 billion and net profit of RMB 10.4 billion, highlighting the resilience of its operational and service segments amid a challenging real estate market [1][3] Financial Performance - Longfor's operational and service business generated revenue of RMB 26.71 billion, a year-on-year increase of 7.4%, contributing 21% to total revenue [1] - The company achieved a net debt ratio of 51.7% by the end of 2024, with cash on hand amounting to RMB 49.42 billion and a cash-to-short-term debt ratio of 1.63 [1] - The board proposed a final dividend of RMB 0.1 per share, with a total dividend payout of RMB 0.32 per share for the year, representing a payout ratio of approximately 30% [2] Sales and Market Position - Longfor maintained a stable sales figure exceeding RMB 100 billion, ranking among the top tier in the industry, with a total contract sales of RMB 101.12 billion for 2024 [3] - The company reported a sales return rate exceeding 100%, with significant sales in 19 cities across the country [3] Strategic Focus - Longfor aims to balance its revenue structure between development and operational services by 2028, prioritizing debt safety over new investments [3] - The company plans to launch over RMB 160 billion in saleable inventory, with more than 80% located in first- and second-tier cities [4] Operational Insights - Longfor's operational business, excluding tax rental income, reached RMB 13.52 billion, a 4.5% increase year-on-year, with a gross profit margin of 75% [7] - The commercial segment generated rental income of RMB 10.98 billion, with a 7% increase and a significant rise in both sales and foot traffic [9][11] Land Acquisition and Development - In 2024, Longfor acquired land reserves totaling 830,000 square meters, with an average acquisition cost of RMB 13,285 per square meter [5] - The company maintained a cautious investment approach despite a recovering land market, focusing on strategic locations and avoiding aggressive bidding [6] Debt Management - Longfor's financial discipline has led to a reduction in total borrowings to RMB 176.32 billion, down over RMB 30 billion from peak levels, with a significant shift towards operational property loans [22][23] - The average financing cost decreased to an annual rate of 4%, with a loan maturity of 10.27 years, indicating a stable debt structure [22]