Citi: The overall performance of the domestic property sector in the last quarter was below expectations, lowering the profit forecast and target price for Longfor Group

Citigroup's research report indicates that China's real estate industry continues to be weak in the fourth quarter, with sales declining in November. The sales of 37 listed real estate companies fell by 36% year-on-year in November, and it is expected that sales in December will decline by 40% year-on-year, resulting in an overall year-on-year decline of 39% in the fourth quarter. At the same time, housing prices in first-tier cities are accelerating their decline in the fourth quarter.

Citigroup stated that the overall performance of China's real estate industry in the fourth quarter is below expectations, and based on the overall market weakness, it has lowered the earnings forecasts and target prices for China Resources Land (01109.HK), Longfor (00960.HK), and Poly Developments (600048.SH).

Citigroup noted that after achieving a single-day sales amount of RMB 13.1 billion from the Shenzhen Bay project, China Resources Land is expected to reach sales of RMB 19 billion in December, but its cumulative sales for the first eleven months of this year have decreased by 19% year-on-year. Citigroup has lowered its earnings forecasts for 2025 to 2027 by 10% to 11% due to lower profit margins; the target price has been reduced from HKD 39.62 to HKD 35; maintaining a "Buy" rating.

Citigroup further stated that benefiting from the transformation of its business model, Longfor achieved a recurring profit of RMB 4 billion in the first half of this year, an increase of 3% year-on-year; it is expected that its recurring profit for this year will reach RMB 8 billion, with a net profit margin of 30%. However, due to the continued weakness in the industry in the fourth quarter, Citigroup has lowered its net asset value (NAV) estimates based on lower development property profit margins and has reduced its earnings forecasts for 2025 to 2027 by 25% to 89%; the target price has been lowered from HKD 15.8 to HKD 13.8; maintaining a "Buy" rating.

The bank also stated that Poly Developments is an industry consolidator with continuously optimized operations, and due to the downward revision of property development profit margin forecasts, it has lowered its earnings forecasts for 2025 to 2027 by 22% to 83%. Based on the revised earnings forecasts and a unchanged 12 times price-to-earnings ratio for 2026, the target price has been reduced from RMB 9.5 to RMB 7.5; maintaining a "Buy" rating.

Citigroup's investment ratings and target prices for the aforementioned domestic real estate stocks are as follows:

Stock | Investment Rating | Target Price (HKD)

China Resources Land (01109.HK) | Buy | 39.6 -> 35

Longfor (00960.HK) | Buy | 15.8 -> 13.8

Poly Developments (600048.SH) | Buy | 9.5 RMB -> 7.5 RMB