Poly Developments returns to profit in the third quarter as faster land purchases add to cash flow pressure

What drove the third-quarter return to profit?

The company reported net profit of 374 million yuan in the third quarter of 2026, compared with a loss of 783 million yuan a year earlier. Goldman Sachs still expects a full-year net loss of 900 million yuan in 2026.
The improvement mainly reflected a 2-percentage-point year-on-year rise in gross margin from a low base, lower operating expenses, and a shift in joint venture earnings from a large loss a year earlier to a small profit.
The improvement was not uniform: third-quarter gross margin fell 1 percentage point quarter on quarter; interest expense doubled from a low year-earlier base, while tax expense also increased year on year because the prior-year loss had generated a tax reversal.

Contracted sales in September were 16.2 billion yuan, down 21% year on year. Sales in the first nine months of 2026 totaled 181 billion yuan, down 10% year on year and equivalent to 81% of Goldman Sachs’s full-year forecast, close to the 80% achieved in the first nine months of 2025.
Goldman Sachs’s full-year forecast implies fourth-quarter contracted sales of 44 billion yuan, down 15% year on year. The bank believes the company’s land bank is of relatively weak quality, with a smaller share of projects in tier-one cities than leading peers.
Construction activity remained subdued: third-quarter new starts and completions by floor area fell 7% and 35% year on year, respectively.

Third-quarter land acquisition investment was 40 billion yuan, about 90% of contracted sales for the quarter, up from 28% in the first half. The acquired projects are expected to have a gross margin of about 23%.
Goldman Sachs attributed the wider operating cash outflow in the quarter to intensive land acquisitions: the third-quarter outflow was 17 billion yuan, up 86% year on year. Cash at quarter-end was 119 billion yuan, down 11% quarter on quarter; the cash-to-short-term-debt ratio fell by 0.3 times, while the net gearing ratio rose 6 percentage points quarter on quarter.
Third-quarter land acquisitions were not spread evenly: approximately 84% by value and 63% by area occurred before 28 August. Land acquisitions in September were broadly in line with a year earlier, while those in October were markedly lower year on year.

Goldman Sachs believes the company’s land bank spans different acquisition periods and includes a relatively large number of projects in lower-tier cities and non-residential projects, making the outlook for sales absorption and margins relatively unfavorable. The gap between contracted sales and regular capital and operating expenditure needs could also make deleveraging more difficult than for its centrally owned state enterprise peers.
The bank also acknowledged management’s stronger budget and balance sheet management and the company’s access to low-cost financing. Following the results, Goldman Sachs kept its 2026–2029 earnings forecasts broadly unchanged and retained its neutral rating and 12-month target price of 6.1 yuan. The target price is based on a 10% discount to estimated net asset value per share of 6.8 yuan at the end of 2027.
Goldman Sachs calculates that the company’s share price trades at a 21% discount to estimated net asset value at the end of 2027, with an estimated 2027 price-to-book ratio of 0.3 times. Domestic peers average a 20% discount and 0.6 times, respectively. Sales of inventory projects, recognition of earnings from projects with historically high land costs, and changes in home prices in key markets will continue to affect margins and liquidity.