China Property 1H26 Earnings Remain at a Trough, with SOE Developers Relatively Better Positioned

Overview

This report is a 1H26 earnings preview for China's property sector. It believes that the sector's “trough has not yet passed”: developer profitability remains affected by property development settlements and margin compression, while property management companies show a diverging pattern in which SOEs and quality companies are relatively resilient and private companies remain under pressure. Despite weak earnings, investors may have partly anticipated these risks; subsequent contracted-sales momentum, impairment guidance, recurring-income growth, and liquidity developments are more likely to drive share-price performance.

Core views

For developers, core net profit is expected to decline a further 47% year on year, with a larger drop among private developers; SOEs excluding CMSK are expected to decline by 17% on average, while property development margins are expected to fall from 14.5% in 1H25 to 12.7% in 1H26E. CR Land may report flat profit due to asset sales to C-REITs, but earnings could still decline by more than 10% excluding this gain. For property management, core net profit is expected to decline 2% on average, with SOEs growing 4% year on year and private companies declining 11%; sector property management margins are expected to fall from 17.1% to 16.2%. The report believes SOE developers offer relative allocation value through Tier 1 city exposure, market-share gains, and relatively resilient balance sheets.

Analysis framework

The report compares 1H26 earnings forecasts, property development and property management margins, contracted-sales trends, recurring income, balance sheets, and liquidity conditions, and sets company target prices using forward P/B, P/E, or market capitalization-to-contracted-sales ratios.

Methodology notes

• Valuation methodsForward Price-to-Book Ratio

  Valuing developers using one-year forward P/B

  Target prices for companies including Longfor, Seazen, Vanke, and Poly are primarily based on target forward P/B, with differentiated discounts reflecting SOE status, operating quality, margin uncertainty, or degree of distress.

• Valuation methodsForward Price-to-Earnings Ratio

  Valuing property management companies using one-year forward P/E

  China Overseas Property Holdings' target price uses a target forward P/E of 7x, below the 10x to 15x range for SOE property-management peers, reflecting uncertainty over earnings and its governance track record.

• Valuation methodsMarket Capitalization-to-Contracted Sales Ratio

  Valuing companies based on market capitalization relative to contracted sales

  Distressed developers such as Country Garden and Shimao are valued using market capitalization-to-contracted-sales ratios, reflecting weak sales, negative equity, or restructuring risks.

• FundamentalsEarnings Quality and Liquidity Analysis

  Comparing margins, recurring income, sales, and debt-servicing pressure

  The report uses property development margins, impairments, contracted sales, recurring income from leasing and property management, as well as refinancing and debt pressure, as core assessment variables.

Asset mapping & comparison

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

• Longfor Group (0960.HK)

  Overweight

  Strengths

  Viewed as a resilient company among major non-SOE developers, with expanding recurring income and a medium-term rationale for transformation into an asset manager.

  Weaknesses

  Ongoing losses in the property development business and weak near-term earnings.

  Comparison

  Target valuation is below SOE peers but above distressed developers.

  Risks

  Sales below expectations, recurring income below expectations, and intensified liquidity pressure.

• Poly Developments & Holdings - A (600048.SS)

  Overweight

  Strengths

  Pure SOE status, a relatively strong balance sheet, and a market-share-gain thesis.

  Weaknesses

  High uncertainty in property development margins.

  Comparison

  Target forward P/B is 0.4x, slightly below the average level of SOE peers.

  Risks

  Margins or contracted sales weaker than expected.

• Seazen Group (1030.HK)

  Neutral

  Strengths

  Growth in recurring income helps offset pressure from property development, supporting a small core profit in FY25.

  Weaknesses

  Weak contracted sales, slowing rental-income growth, and some deterioration in the balance sheet.

  Comparison

  Target forward P/B is 0.2x, above distressed developers.

  Risks

  Weakening sales momentum, tighter refinancing conditions, delayed deliveries, and demand shocks in lower-tier cities.

• China Vanke - H (2202.HK) / China Vanke - A (000002.SZ)

  Underweight

  Strengths

  Additional liquidity support or large-scale asset disposals could improve expectations.

  Weaknesses

  Continuing losses, ongoing liquidity pressure, and uncertainty surrounding further support.

  Comparison

  Target forward P/B is 0.2x for H shares and 0.3x for A shares, benchmarked against distressed developers.

  Risks

  Deteriorating sales and further increases in liquidity pressure.

• Country Garden Holdings (2007.HK)

  Underweight

  Strengths

  Upside catalysts could arise if sales outperform expectations or lower-tier cities improve broadly.

  Weaknesses

  It remains distressed and is expected to continue losing market share to SOEs and non-distressed peers.

  Comparison

  Target market capitalization-to-contracted-sales ratio is 0.2x, benchmarked against distressed developers.

  Risks

  Significant sales slowdown in lower-tier cities, delivery delays, and worsening financial management.

• SUNAC China (1918.HK)

  Underweight

  Strengths

  Improving Tier 1 city sales, margin expansion, or faster deleveraging could provide catalysts.

  Weaknesses

  Its distressed status is pronounced, and liquidity pressure and market-share losses limit turnaround expectations.

  Comparison

  Target forward P/B is 0.1x, similar to developers facing liquidity concerns.

  Risks

  Delivery delays, replenishment of inventory below expectations, and continued margin pressure.

• Shimao Group Holdings (0813.HK)

  Underweight

  Strengths

  Improved sales, a resumption of refinancing, or significant asset disposals could drive upside.

  Weaknesses

  Refinancing difficulties, weak sales, slow asset disposals, and a lack of clear turnaround signs.

  Comparison

  Target market capitalization-to-contracted-sales ratio is 0.1x, benchmarked against distressed developers with negative equity and negative earnings.

  Risks

  Contracted sales below expectations and a deterioration in debt-restructuring outcomes.

• China Overseas Property Holdings (2669.HK)

  Underweight

  Strengths

  COLI sales growth, value-added service growth, and improved management incentives could serve as catalysts.

  Weaknesses

  Multiple earnings or governance issues in recent years have disappointed the market, creating valuation de-rating risk.

  Comparison

  Target forward P/E is 7x, below the 10x to 15x range for SOE peers.

  Risks

  Value-destructive acquisitions, slowing COLI sales growth, and margins below expectations.

Key data

• Developer Core Net Profit ForecastDown 47% year on year1H26E covered industry sample; private developers and CMSK are the main drags.
• SOE Developer Core Net Profit ForecastDown 17% year on yearExcluding CMSK.
• SOE Property Development Margin14.5% in 1H25; 12.7% in 1H26EFurther margin compression.
• Property Management Core Net Profit ForecastDown 2% year on year on averageSOEs grow 4%; private companies decline 11%.
• Property Management Margin17.1% in 1H25; 16.2% in 1H26ESOEs decline from 16.0% to 15.5%, while private companies decline from 18.5% to 17.1%.
• Longfor Group Target PriceHK$9.00As of June 2027; previously HK$10.70.
• Poly Developments & Holdings - A Target PriceRmb8.00As of June 2027; previously Rmb9.50.

Impact & implications

Sector allocation should continue to focus on SOE or quality developers with potential market-share gains, core-city exposure, relatively resilient balance sheets, and support from recurring income. For distressed private developers, target-price cuts reflect continuing losses, weak sales, refinancing difficulties, and liquidity pressure; low valuations alone do not constitute a basis for a turnaround. In property management, priority should be given to companies with stronger earnings delivery, while remaining alert to margin pressure and related-party business risks.

Risks

• Property sales and contracted sales remain weaker than expected.
• Further declines in property development and property management margins.
• Impairment charges exceed expectations.
• Restricted refinancing, unfavorable debt restructuring, or intensified liquidity pressure.
• Project delivery delays and weakening demand in lower-tier cities.
• Leasing, property management, and other recurring-income growth below expectations.

What to watch

• Statements on impairment charges in 1H26 earnings releases, especially COLI impairment guidance.
• Contracted sales and market-share changes of SOE developers in Tier 1 cities.
• Whether FY26E property development margins bottom out and whether recovery emerges in FY27E.
• Progress in improving recurring income, rental income, and cash flow at Longfor and Seazen.
• Liquidity, refinancing, and debt-restructuring developments at Vanke, Country Garden, SUNAC China, and Shimao.
• Changes in property management company margins, revenue mix, and dividend policies.