Longfor Group 1H26 Preview: Development business margins remain weak, while deleveraging progress is broadly on track

Overview

This report is Goldman Sachs' 1H26 earnings preview on Longfor Group (0960.HK). The core view is that the company's development-property business remains under downward pressure, with contracted sales, land replenishment, gross margin, and earnings forecasts all revised down; meanwhile, income growth from investment properties such as malls, along with operating cash flow and the pace of debt reduction, keeps liquidity risk relatively manageable. Goldman Sachs therefore maintains a Neutral rating and lowers the target price to HK$7.5.

Core views

Goldman Sachs believes Longfor Group's 1H26 operating data remain under pressure. Development-property contracted sales fell 53% YoY to RMB17.0bn, significantly weaker than the average level across industry coverage; land investment remains subdued, and against the backdrop of deleveraging plans, old inventory, and a continued property downcycle, the company may not resume land acquisition until the later part of next year. The report expects a slight core net loss in 1H26, mainly due to a double-digit decline in development-property revenue and a roughly 2 to 3 percentage-point YoY drop in gross margin. Non-development businesses are still expected to deliver low-single-digit revenue and profit growth, especially supported by improving mall income, though long-term rental apartments and property services may be weighed down by macro pressure and intensifying competition.

Analysis framework

The report mainly forms its rating and target price through a top-down view on industry sales pressure, comparison of the company's contracted sales with sellable resources budgeting, development-property gross margin assumptions, non-development business growth assumptions, net profit forecast revisions, and NAV discount valuation. Goldman Sachs also compares the company's valuation with the covered peer average and focuses on the cushioning effect of debt reduction and rental-supported operating cash flow on liquidity.

Methodology notes

• Valuation methodsNAV-based target price

  Target price based on net asset value

  Goldman Sachs' 12-month target price is HK$7.5, based on end-26E NAV with a 25% discount; this target price is 14% lower than previously.

• Relative valuationP/B and NAV discount comparison

  Comparison of price-to-book and NAV discount

  The report states that Longfor Group is trading at about a 32% discount to end-26E NAV and about 0.3x 2026E P/B, versus the covered peer average of about a 34% NAV discount and 0.5x P/B.

• Risk scoringM&A Rank

  M&A probability rating

  The report discloses the company's M&A Rank as 3, representing a low probability of being acquired and typically not included in the target price.

• Factor analysisGS Factor Profile

  Goldman Sachs factor profile

  GS Factor Profile compares a stock's relative characteristics versus the market and industry peers across growth, financial returns, valuation multiples, and composite factors.

Asset mapping & comparison

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

• Longfor Group (0960.HK)

  Covered company in the report

  Strengths

  Investment property and mall income are still growing, rental income supports operating cash flow, and the pace of debt reduction is considered broadly on track.

  Weaknesses

  Development-property contracted sales have fallen sharply, land bank replenishment is insufficient, old inventory accounts for a high proportion, and development-business gross margin is under pressure.

  Comparison

  1H26 contracted sales were -53% YoY, weaker than the covered developers' average of about -15%; 1H26 rental income was +4% YoY, lower than CR Land's +13% but higher than Seazen's +2%.

  Risks

  Policy execution, deleveraging, sales sell-through, margins on old projects, and rental growth could all be better or worse than expected.

Key data

• 1H26 contracted salesRMB17.0bn, YoY -53%Significantly weaker than the average YoY decline of about 15% for covered developers.
• 2026E contracted sales targetRMB26.0bn28% lower than the previous forecast, implying YoY -42% and a sell-through rate of about 35%.
• 2026E development-property gross margin-16%Goldman Sachs believes pricing pressure in non-core markets and old inventory leave limited room for margin recovery.
• 2026E net profit forecastLoss of RMB2.4bnPrevious forecast was a loss of RMB471mn.
• 2027E/2028E net profit forecastRMB1.1bn/2.2bnPrevious forecasts were RMB2.2bn/3.3bn.
• Target priceHK$7.512-month NAV-based target price, lowered by 14%.
• Current priceHK$6.79As of the close on July 16, 2026.
• Implied upside10.5%Based on the target price and current price.
• 2026E P/B0.3xCovered peer average is about 0.5x.
• Expected debt reductionAbout RMB10.0bn per year in 2026E-2028EBelow the average of about RMB20.0bn per year in 2023A-2025A, but the report believes progress remains broadly on track.

Impact & implications

The report has a cautious implication for Longfor Group: earnings recovery in development property may be slower than the market expects, with a larger net loss possible in 2026E, while 2027E-2028E earnings may also come in below consensus expectations. However, rental income, improving mall operations, and debt reduction provide the company with some defensive qualities. For investors, the near-term key is not whether valuation is low, but whether old inventory destocking, the gross margin inflection point, the resilience of rental growth, and deleveraging execution can be delivered.

Risks

• Execution of supply-side liquidity support and demand-side easing policies may be stronger or weaker than expected.
• Deleveraging plan execution may be better or weaker than expected, causing liquidity conditions to be stronger or weaker than expected.
• Project sales sell-through may be stronger or weaker than expected.
• Gross margins on old inventory projects, especially those acquired before the current downcycle, may be better or weaker than expected.
• Rental growth may be higher or lower than expected.

What to watch

• Management guidance in the 1H26 results on inventory impairment, earnings impact, the strength of rental income growth, and the timing of the net profit inflection point.
• Progress in destocking old inventory through regular project sales, land rezoning, or land swaps with local governments.
• Whether the company resumes land acquisition and replenishes higher-quality, higher-margin land reserves.
• Social retail sales trends, and whether Longfor Group's GMV can continue to outperform and drive further rental growth.
• Progress in debt reduction and debt structure optimization, such as replacing high-interest financing with low-cost operating loans backed by investment properties.
• Policy catalysts related to employment, consumer confidence, and property supply-side support.