China property 1H26 earnings under pressure; Jinmao upgraded to Overweight on improving sales

Overview

This report is Morgan Stanley's preview of 1H26 earnings for China property developers. It expects industry earnings to come in weaker than expected: revenue for the covered universe down more than 20% year over year and EPS down 40%-50% on average, with the core pressure coming from lower sales, weaker development revenue recognition, about 2 percentage points of compression in development gross margin, and asset impairment caused by declining home prices. The report also highlights the need to watch 2H pre-sales outlook, margin pressure, a high base for recurring income, and refinancing and rate-cut plans for private and quasi-SOE developers.

Core views

The core view is that caution is still warranted at the sector level, but stock selection should focus on high-quality companies with self-help improvement capability. Morgan Stanley expects smaller earnings declines for CR Land and C&D, mid-sized declines for COLI, Jinmao, and Seazen, larger declines for Poly, Longfor, CMSK, Yuexiu, and Greentown, and deep losses for Vanke and Gemdale. For Jinmao, the report believes its sales growth is better than peers, its land bank quality in core cities is relatively high, and its product strength is strong. With the current 0.4x P/B already reflecting short-term earnings pressure to a large extent, the stock is upgraded to Overweight.

Analysis framework

The report combines a top-down assessment of industry pressure with bottom-up company comparison: it first evaluates 1H26 revenue, EPS, development gross margin, asset impairment, and pre-sales trends for China property developers, then breaks down expected earnings decline ranges, key KPIs, and directions of consensus revisions by company; for Jinmao, it further uses NAV, SOTP, DCF, cap rate, and a developer scorecard for valuation.

Methodology notes

• Valuation methodsSOTP NAV

  sum-of-the-parts net asset value valuation

  Jinmao's estimated 2026 NAV per share is HK$2.75, consisting of development properties, investment properties, and net debt, and applying a 35% NAV discount under the base case yields the HK$1.79 target price.

• Valuation methodsDCF

  discounted cash flow for development properties

  The report uses DCF to value development properties, with a WACC of 8.2%, based on Jinmao's relatively low financing cost.

• Valuation methodsCap rate approach

  capitalization rate valuation for investment properties

  The report values investment properties using a 5%-8% NOI capitalization rate.

• company_qualityDeveloper scorecard

  developer scorecard

  The scorecard covers factors such as land bank, execution, scale, growth, profitability, financing, and leverage; Jinmao's scores include land bank 8/10, execution 7, scale 7, growth 9, profitability 7, financing 10, and leverage 6.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Jinmao Holdings Group Ltd (0817.HK)

  core upgraded name

  Strengths

  Sales growth outperforms peers, with year-over-year growth of 15% in 2025 and 8% in 1H26; a relatively high share of land bank in high-tier cities; strong recognition of product quality; favorable SOE background and financing support; current valuation already reflects short-term earnings pressure.

  Weaknesses

  From 2026 to 1H27, older high-cost projects may still weigh on development gross margin and earnings recovery; leverage remains higher than some peers after perpetual bond adjustments.

  Comparison

  Compared with the Top 100 developers, Jinmao's sales performance is clearly stronger; the report believes its pre-sales growth is not fully reflected in consensus expectations.

  Risks

  Sales and revenue recognition weaker than expected, slower-than-expected recovery in development gross margin, continued decline in secondary home prices, and slower-than-expected acquisition of city operation projects.

• China Resources Land Ltd. (1109.HK)

  one of the report's preferred high-quality names

  Strengths

  Large disposal gains can offset compression in development gross margin, and recurring profit is expected to be supported by mall rental income.

  Weaknesses

  Development gross margin may compress by 4-5 percentage points year over year, and asset impairment has a more visible impact on lower revenue recognition scale.

  Comparison

  1H earnings decline is expected at 0%-10%, better than most covered developers.

  Risks

  Decline in development profit, high base for mall retail, and continued decline in home prices.

• C&D International Investment Group Ltd (1908.HK)

  one of the report's preferred high-quality names

  Strengths

  Development gross margin may come in above market expectations, and the balance sheet is improving due to lower leverage, reduced completed inventory, and a lower proportion of old projects.

  Weaknesses

  Lower development revenue recognition may cause 1H core profit to decline by about 10% year over year.

  Comparison

  Expected to post a relatively small earnings decline, with risk-reward considered attractive.

  Risks

  Sales recovery weaker than expected and margin improvement below expectations.

• Seazen Group Ltd (1030.HK) / Seazen Holdings Company Ltd. (601155.SS)

  one of the report's preferred risk-reward names

  Strengths

  Risk-reward is considered attractive at the current valuation and may benefit from refinancing and interest-saving plans.

  Weaknesses

  Lower development revenue recognition may lead to earnings decline.

  Comparison

  The report places it in the 10%-25% earnings decline group, weaker than CR Land and C&D but better than deep-loss companies.

  Risks

  Refinancing plans, interest savings, sales recovery, and margin changes.

Key data

• 1H26 revenue forecast for covered developersdown more than 20% year over yearAffected by lower sales and weaker development revenue recognition.
• 1H26 EPS forecast for covered developersdown 40%-50% year over year on averageMainly dragged by development gross margin compression and asset impairment.
• Pressure on development gross marginabout 2 percentage points of compressionThe report expects development GPM across the coverage universe to remain under pressure.
• Jinmao rating changeupgraded from Equal-weight to OverweightUpgrade date was 2026-07-16.
• Jinmao target priceHK$1.79Based on 2026 NAV of HK$2.75 with a 35% discount applied.
• Jinmao current priceHK$1.39The price date in the disclosure table is 2026-07-16.
• Jinmao 2026 NAVHK$2.75/shareIncluding HK$2.15 from development properties, HK$2.02 from investment properties, and a deduction of HK$1.42 for net debt.
• Jinmao 1H26 sales growthup 8% year over yearCompared with down 16% year over year for the Top 100 developers over the same period.
• Jinmao 2025 sales growthup 15% year over yearCompared with down 20% year over year for the Top 100 developers over the same period.
• Jinmao 3Q new launch resources11-12 brand-new projectsMainly located in high-tier cities, which the report expects to drive faster pre-sales growth.
• Jinmao land bank mixabout 35% in tier-1 cities and about 50% in tier-2 citiesTier-1 cities mainly include Shanghai and Beijing.
• Jinmao 2026 new saleable resourcesabout Rmb30bnFrom 12 projects in 1H26, of which about 40% are in tier-1 cities and about 60% in tier-2 cities.

Impact & implications

The investment implication is that industry earnings expectations still face downside revision risk, especially as development gross margin, asset impairment, and the pace of pre-sales recovery may continue to suppress valuations; however, among companies whose valuations already reflect substantial short-term pressure, names with high-quality land banks, strong financing capability, visible sales growth, and support from recurring income are more likely to generate relative returns. The report's positive view on Jinmao comes from accelerating sales growth, its land bank in core cities, product strength, and the potential for mid-term gross margin recovery.

Risks

• Continued decline in home prices causing development gross margin recovery to be slower than expected.
• Pre-sales and revenue recognition weaker than expected.
• Asset impairment pressure higher than expected.
• Insufficient progress in refinancing plans for private and quasi-SOE developers, keeping liquidity risk elevated.
• Mall retail and recurring income in 2H face pressure from a high base and weak consumption.
• Limited policy easing may fail to stabilize industry demand and prices.

What to watch

• 2H26 pre-sales outlook, and whether developers cut full-year sales growth targets.
• Pressure on development gross margin and asset impairment risk.
• Outlook for recurring income, especially mall rents and retail sales performance.
• Refinancing and interest-saving plans of private and quasi-SOE developers.
• Whether Jinmao's pre-sales growth accelerates after 3Q new launches.
• Support from Jinmao's new land bank in high-tier cities for sales and margins in 2027 and beyond.