Morgan Stanley lowers target prices for some mainland property stocks, expects the industry to remain under pressure in the second quarter

Morgan Stanley published a report stating that domestic property developers remain generally cautious about the outlook for the property market. However, some state-owned enterprises in the domestic property sector expect gross margins and profits to gradually recover starting in 2026, mainly benefiting from improved profit margins on developed properties and steady growth in rental income.

The firm noted that the performance of major domestic property developers in 2025 is expected to be weak, in line with market expectations. Core earnings are projected to decline by an average of 29% year-on-year, primarily due to an 11% year-on-year drop in revenue and a 1.1 percentage point narrowing of development gross margins, resulting in an industry ROE of only 0.6%. The industry's liquidity risk has largely eased at this stage, with developers generally reducing debt and maintaining stable cash coverage ratios, although there remains significant differentiation among individual companies.

State-owned domestic property companies continue to outperform the market, recording strong earnings performance, higher gross margins, and healthier balance sheets.

The firm indicated that at the end of January, it had anticipated a pullback in the industry following a sentiment-driven rebound. In the second quarter of 2026, the industry's performance may still lag behind the market, as a renewed decline in property prices will further affect market sentiment. It remains optimistic about China Resources Land (01109.HK), Seazen A shares (601155.SS), and Jianfa International (01908.HK). At the same time, it maintains a pessimistic view on Greentown China (03900.HK), Vanke A (000002.SZ), and Gemdale (600383.SS).

Morgan Stanley has also lowered the target prices for some domestic property companies, listed as follows:

Company | Rating | Target Price

China Merchants Shekou (001979.SZ) | In line with the market | CNY 8.31 → CNY 7.03

Gemdale (600383.SH) | Reduce | CNY 2.12 → CNY 1.1

Longfor (00960.HK) | In line with the market | HKD 8.2 → HKD 8

Vanke A shares (000002.SZ) | Reduce | CNY 2.7 → CNY 2.15

Vanke H shares (02202.HK) | In line with the market | HKD 3 → HKD 2.45