Highlights

• Expect a broadly breakeven bottom line in 1H26. We expect 1H26 revenue of recurring business to grow over 3% yoy, led by malls (rental +~9%, tenant sales +16%). However, PD gross margin is expected to widen to a ~10% loss (from -6.9% in 2025).   
   
• Debt reduction on track. Interest-bearing debt would have fell over Rmb5b in 1H26. For the RMb7.2b debt maturity in 2026, Rmb2.6 has been paid, while there are solid repayment plans for the remaining amount. 
   
• Maintain BUY with a lower SOTP target price of HK$10.12 due to a lower PD book value estimate. We expect higher margin pressure in 2H26 due to higher booking volume and year-end destocking, thus further cutting earnings 26/27/28 forecast to Rmb-3b/194m/1.4b, respectively.
   

Analysis

• We conducted a channel check on Longfor Group (Longfor) on 16 July. Key takeaways are:

1. Weak contracted sales and expanded booking loss of property development (PD) in 1H26. Contracted sales fell 52.7% yoy in 1H26 to Rmb16.6b, which is weaker than market expectations of an around 20% yoy decline. This is mainly due to Longfor’s weak exposure in Tier 1 cities and thin new-launch pipeline. We expect continued weakness of sales in 2H26, lowering our forecasted sales decline from -20% to -40% in 2026. Booking margin for property development is forecasted to fall further from -6.9% in 2025 to around -10% in 1H26. 
    
2. More cautious and strategic on land acquisition. In 1H26, Longfor bought four plots of land (in Qingdao/Wuxi/Dalian/Lanzhou) for a total consideration of Rmb1.36b, which is equivalent to 8.2% of sales.  Through the acquisition of these four lands, Longfor can further improve the terms of its other inventories in the same cities. We expect this kind of strategic land acquisition to become a main investment focus.
    
3. Malls remain the standout. We expect 1H26 mall rental income to grow about 9% yoy (same-store rental growth +~3% yoy) and tenant sales to grow around 16% yoy (same-store tenant sales +~8% yoy), showing that Longfor is largely on track to achieve its target of 5% same-store rental growth and 10% rental growth in 2026, helped by 2025's asset-enhancement (AEI) upgrades to nine large malls. Among categories, retail (including boutique supermarkets) and F&B led while entertainment stayed soft.