Why didn't the revenue rebound produce a comparable improvement in profit?

  • In the third quarter of 2026, the company's revenue was RMB 32.8 billion, up 66% year over year from a low base last year but down 46% quarter over quarter; operating profit was RMB 2 billion, up 89% year over year and down 77% quarter over quarter.
  • The third-quarter operating margin was 6%, up 1 percentage point year over year but down 8 percentage points quarter over quarter, and below Goldman Sachs' forecast of 11% for the second half. Goldman Sachs attributed the fluctuation to the relatively small amount of revenue recognized in the third quarter, consistent with seasonal patterns.
  • Revenue for the first three quarters rose 27% year over year to RMB 130.4 billion, while operating profit rose just 10% to RMB 14.5 billion; the operating margin was 11%, down 2 percentage points year over year and slightly below Goldman Sachs' and the market's full-year forecasts.

How much did land acquisitions accelerate in the third quarter?

  • The company's third-quarter land investment was RMB 49.2 billion, exceeding 120% of contracted sales in the same period; by comparison, the ratio was 7% in the first half. New projects included high-value projects in Shanghai's Putuo district and Shenzhen's Nanshan district.
  • Goldman Sachs also noted that, following the 8/28 policy, the stronger state-owned developers it tracks all slowed their land acquisitions quarter over quarter; since the start of October, the company's investment activity has remained relatively subdued compared with some peers.

What must the company achieve in the fourth quarter to deliver full-year sales growth?

  • Contracted sales in September were RMB 15.6 billion, down 23% year over year; the cumulative total for the first three quarters was RMB 181 billion, up 6% year over year. Over the same period, developers covered by Goldman Sachs saw an average decline of 18%, while stronger state-owned developers saw an average decline of 3%.
  • Goldman Sachs expects full-year 2026 contracted sales of RMB 274 billion, up 9% year over year, implying that fourth-quarter sales must rise 15% year over year. The company has arranged RMB 400 billion of saleable resources for the second half, of which 85% are in core cities and one quarter are newly launched projects.

Why does Goldman Sachs maintain its Buy rating?

  • Goldman Sachs believes the quality of the company's land bank in core cities and its balance sheet are among the best of the developers it covers, giving it room to continue investing and pursue market share. The bank expects that about two-thirds of unsold inventory at the end of 2026 can still use the old presale model, providing a buffer for contracted sales and reinvestment.
  • Goldman Sachs expects that, following disruption from the transition to the new sales model, the company's contracted sales may return to their 2026 level in 2030 to 2031; by 2029, gross margin and core profit margin are expected to recover to above 20% and close to 10%, respectively. Sales, margins or land acquisitions below expectations would affect this assessment.
  • Goldman Sachs maintains its earnings forecasts, Buy rating and 12-month target price of HK$17.2; the target price is based on a 10% discount to its forecast net asset value per share at the end of 2027.