Summary of Longfor Group Conference Call Company Overview - Longfor Group is a well-established real estate company founded in 1993, headquartered in Chongqing, with over 30 years of development history. The company operates in three main segments: development, operation, and services, covering both first and second-tier cities [5][4]. Key Points and Arguments Business Segments - Longfor's commercial investment segment is a key differentiator, with 89 operational malls covering over 9.4 million square meters by the end of 2025, primarily located in first and second-tier cities, showcasing significant location advantages and growth potential [2][6]. - The rental efficiency of Longfor's commercial properties showed a narrowing decline in the first half of 2025, indicating a transition into a phase of realized benefits from upgrades and renovations of older projects [2][9]. - The C-REITs framework provides a revaluation opportunity for Longfor's commercial real estate, with an implied equity value exceeding 199.3 billion RMB if revalued at a capitalization rate close to 5% [2][10]. Financial Health - Longfor's financing situation is robust, with interest-bearing debt decreasing from nearly 210 billion RMB in 2022 to under 170 billion RMB mid-year 2023, maintaining a healthy cash flow and compliance with financial regulations [3][16]. - The company’s financing costs have reduced by approximately 60 basis points to 3.58% in 2025, comparable to state-owned enterprises, indicating strong financial security [18][19]. Growth Potential - The service segment, although not separately listed, is considered highly valuable, with significant growth potential driven by technological empowerment [11][22]. - Longfor's smart living segment has a third-party project ratio of 60% and a non-residential business ratio of 30%, with a gross margin significantly above the industry average [2][12][13]. Market Position and Future Outlook - Longfor's development business faced a 32% year-on-year decline in sales amounting to approximately 35 billion RMB in the first half of 2025, but the company remains competitive in first and second-tier cities [15][19]. - The company is expected to achieve a net profit of approximately 3.7 billion RMB in 2025, increasing to 4.8 billion RMB in 2026, and around 7.3 billion RMB by 2027, indicating a recovery in performance despite current market challenges [19][20]. Valuation and Investment Opportunity - The fair value assessment of Longfor suggests a total equity value of approximately 114.7 billion RMB, with a target price of 15.21 HKD, indicating over 50% potential upside [20][21]. - The undervaluation of Longfor is attributed to three main factors: the revaluation potential of the commercial operations, the growth potential of the service segment, and the resilience of the development business amidst market adjustments [21][22]. Additional Important Insights - Longfor's commercial projects are strategically located in first and second-tier cities, with over 80 malls being TOD (Transit-Oriented Development) projects, which are expected to have strong long-term advantages [7][8]. - The company has maintained a compound annual growth rate of nearly 30% in mall opening area from 2013 to 2022, with a projected annualized growth rate of 14% from 2022 to mid-2025 [8][9]. - Longfor's smart manufacturing segment has seen a year-on-year increase of 87% in newly signed area, ranking fifth in the industry, showcasing its competitive edge and extensive collaboration with state-owned enterprises [14][15].