Morgan Stanley lowers Longfor Group's target price to 9.1 yuan and revises earnings forecast downwards

Morgan Stanley published a report indicating that Longfor Group (00960.HK) may experience an expansion of losses in its development business due to a rapid decline in average sales prices. Combined with lower-than-expected rental growth, it is predicted that Longfor's core profit will rebound to about 75% of the 2024 level by 2027. As housing prices accelerate their decline and Longfor clears out old project inventory, its development business gross margin may drop to negative 3-6% between 2025 and 2027.

The report states that Longfor is constrained by weak consumer spending in first-tier cities and intense competition in mid-range shopping malls, leading to rental income growth rates that may fall below expectations in the coming years, with an average annual compound growth rate of about 5%. The rating is maintained at "in line with the market," but earnings forecasts for 2025 to 2027 have been lowered to 3%, 13%, and 14%, respectively. The target price has been reduced from HKD 9.6 to HKD 9.1