Poly Developments raises its 2026 investment target, but earnings pressure remains significant

Overview

This report is UBS's summary of key points from Poly Developments' (600048.SS) 2025 earnings release conference. The report focuses on the company's higher 2026 investment target, ongoing destocking plans, the significant decline in 2025 earnings, and the current valuation level. UBS maintains a 12-month Neutral rating, believing management confidence has improved, but earnings quality and inventory clearance remain key constraints.

Core views

The core views include: first, the 2026 investment target is set at Rmb85-100bn, higher than the Rmb79bn land acquisition amount in 2025, reflecting stronger market confidence from the company; second, the company will continue optimizing inventory through sales, land swaps with local governments, conversion to investment properties, and spin-offs into REITs; third, 2025 net profit attributable to shareholders fell 79% year over year, and the real estate development and investment property businesses were close to loss-making after excluding the contribution from property services; fourth, the current 0.36x 2026e P/B is below the industry average, but the rating remains Neutral.

Analysis framework

The report adopts a combination of earnings conference research, breakdown of company operating data, analysis of key income statement items, and relative valuation comparison, with a focus on comparing investment targets, inventory structure, earnings changes, P/B valuation, and 12-month return assumptions.

Methodology notes

• Valuation methodP/BV valuation

  Using price-to-book as the basis for the target price

  The report explicitly states that the target price is based on the P/BV method and compares the company's 0.36x 2026e P/B with the industry average of 0.51x.

• Rating frameworkFSR and MRA

  Forecast stock return relative to the market return assumption

  UBS defines forecast stock return as the expected share price appreciation over the next 12 months plus the total dividend yield; Neutral usually corresponds to FSR being within a 6% range above or below MRA.

• Short-term quantitative assessmentQuantitative research review

  Questionnaire-based scoring of short-term factors

  In the report's quantitative research review, questions on industry structure, regulatory environment, recent stock performance, EPS surprise, and earnings risk are all assigned a score of 3, indicating broadly no significant change or balanced risks.

Asset mapping & comparison

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

• Poly Developments (600048.SS)

  Primary subject of coverage and investment rating target in the report

  Strengths

  A large state-backed developer with a higher 2026 investment target and the ability to continue acquiring land and revitalizing inventory.

  Weaknesses

  2025 net profit attributable to shareholders fell sharply, with lower gross margin, impairments, and losses from associates and joint ventures dragging on earnings.

  Comparison

  0.36x 2026e P/B is below the industry average of 0.51x.

  Risks

  Contracted sales miss expectations, tighter policies, falling home prices affecting gross margin, and inventory clearance coming in below expectations.

• Poly Property Development (6049.HK)

  Property management subsidiary controlled by Poly Developments

  Strengths

  The property services business contributes profit; the report mentions its 2025 earnings of Rmb1.55bn.

  Weaknesses

  This report does not focus on 6049.HK and does not provide a standalone valuation or rating.

  Comparison

  Its earnings contribution highlights that Poly Developments' real estate development and investment property businesses are close to loss-making.

  Risks

  If the parent company's development business remains under pressure, it may affect the growth of related businesses and market expectations.

Key data

• 2026 investment targetRmb85-100bnHigher than the Rmb79bn land acquisition amount in 2025.
• Old inventory digested over the past five yearsRmb1.43trnUBS expects this portion of inventory will be very unlikely to break even.
• 2025 saleable land bank56.5mn sqmOf this, 47.3mn sqm was old inventory, down 10% year over year and 5% quarter over quarter.
• Sales contribution from old inventoryRmb95bn, accounting for 38% of total contracted salesThe share was 40% in 2024.
• 2025 net profit attributable to shareholdersRmb1.0bn, down 79% year over yearIn line with the previous profit warning.
• 2025 gross margin12.7%Down 1.0 percentage point from 13.7% in 2024.
• 2025 impairmentsRmb6.5bnRmb5.1bn in 2024.
• Profit/loss from associates and joint venturesNet loss of Rmb1.4bnNet profit of Rmb1.2bn in 2024.
• 12-month target priceRmb6.60Based on P/BV valuation.
• Current share priceRmb5.97Price date is April 21, 2026.
• Forecast share price upside10.6%Forecast dividend yield of 0.6% and forecast stock return of 11.1%.
• Market return assumption6.8%Forecast excess return of about 4.3%.

Impact & implications

The investment implication is that, as a leading Chinese property developer, the company remains in a phase of inventory digestion and earnings recovery. The higher investment target may improve the market's assessment of the company's willingness to expand and confidence in the sector, but the profitability of old inventory, impairment pressure, and the pace of sales recovery will determine the scope for valuation recovery. The current valuation is below the industry average, but UBS maintains Neutral, indicating that the risk-reward profile remains fairly balanced.

Risks

• Tighter real estate policies.
• Disappointing contracted sales performance.
• Falling home prices negatively affecting gross margin.
• Old inventory clearance failing to reach break-even.
• Continued rise in impairment pressure.
• Losses from associates and joint venture projects dragging on profits.

What to watch

• The actual execution pace of the Rmb85-100bn investment target in 2026.
• Whether the scale of old inventory and its share of contracted sales continue to decline.
• Progress in revitalizing inventory through sales, land swaps, conversion to investment properties, and REITs.
• Whether gross margin stabilizes or recovers in 2026.
• Volume and price performance of contracted sales and changes in the policy environment.
• Whether the discount between the target price and the share price narrows.