Goldman Sachs: China Resources Land (01109) may deepen impairment of development properties, but sale proceeds and stable rental income provide a buffer.

Goldman Sachs released a research report stating that the current stock price of CHINA RES LAND (01109) is discounted by 17% compared to the forecasted Net Asset Value (NAV) at the end of 2026, maintaining its "buy" rating, with a target price of 36.6 Hong Kong dollars based on NAV calculation for the next 12 months. The operating data of CHINA RES LAND in the first half of 2026 was stable, with contract sales of development properties increasing by 6% to 117 billion yuan year-on-year, outperforming the average performance of state-owned developers in the industry. Rental income during the period rose by 13%, significantly higher than the low single-digit growth of industry peers. However, considering the continued weakness in property prices outside of tier-one cities, the bank has lowered the forecasted gross profit margin for CHINA RES LAND's development properties in 2026 by 4 percentage points to 13.4%, to reflect deeper impairments, and has averaged a 4 percentage point reduction in gross profit margin for development properties for 2027 to 2028. Goldman Sachs pointed out that it is expected that the net profit of CHINA RES LAND in the first half of 2026 will remain flat year-on-year, due to the negative impact of contracting development property income and declining gross profit margins. However, the stable growth in investment properties and property management business during the period, as well as the tens of billions in selling proceeds from the listing of Chengdu Vanke City property asset REITs, will provide a cushion for profit performance. The bank expects the company's profitability to bottom out by the end of this year and start to see improvements by 2028. Goldman Sachs stated that due to conservative profit margin forecasts, the bank has lowered its average core profit forecast for CHINA RES LAND by 15%, expecting a 10% decline in earnings per share for 2026, with a recovery starting from 2027 as development property profit margins bottom out. The bank's revised revenue and core profit forecasts are 6% and 13% lower than market consensus, respectively.