CICC: Maintains LONGFOR GROUP (00960) Outperform Rating, Target Price of 11.5 Hong Kong Dollars.

Zhongjin released a research report stating that, considering the significant improvement in market risk appetite, LONGFOR GROUP (00960) has solidified its financial security, maintaining an outperform industry rating and a target price of HK$11.5, corresponding to 0.46 times the 2025 target P/B and 9% upside potential. The company is trading at 0.4 times the 2025 P/B and a 1.1% dividend yield (assuming a full-year dividend payout ratio of 34%). The company reported 1H25 performance, with revenue increasing by 25% year-on-year to 58.75 billion yuan, mainly due to an increase in development settlement scale; core net profit attributable to shareholders was 1.38 billion yuan, in line with market expectations. The company announced a mid-year dividend of 0.07 yuan per share, with a slightly increased dividend payout ratio of 34.2%. Key points from Zhongjin: Debt reduction and optimization of debt structure are progressing orderly In the first half of the year, the company's interest-bearing liabilities decreased by 65 billion yuan from the end of 2024 to 169.8 billion yuan, leading to a decrease in the net debt ratio and the pre-deduction debt ratio by 0.5 ppt and 1.2 ppt to 51.2% and 56.1% respectively compared to the end of 2024. Credit bonds and the Central Bonds Increased credit bonds have been fully repaid with due dates in the year. In terms of structure, operating property loans and long-term rentals increased by 100 billion yuan from the end of 2024 to 930 billion yuan, accounting for 55%; as a result, the company's financing cost in 1H25 decreased to 3.58% and the average borrowing period increased to 10.95 years. Operational and service business continues to play a cornerstone role in profit In 1H25, the company's operating business revenue increased by 2.5% year-on-year to 7.01 billion yuan, with retail sales in shopping centers increasing by 17% year-on-year (3% on a same-store basis) to 40.2 billion yuan, and rental income increasing by 5% year-on-year to 5.5 billion yuan, mainly affected by the partial renovation of key projects such as Chongqing Beicheng Tianjie. In 1H25, service business revenue remained basically stable at 6.26 billion yuan, with property management in about 400 million square meters (approximately 4.1 billion square meters at the end of 2024), mainly due to the company's proactive withdrawal from some low-quality and inefficient third-party projects. Overall, the company expects the core net profit contribution from operating and service businesses in the first half of the year to be approximately 4 billion yuan. Optimizing debt structure and cash flow management are the company's key strategic directions The company expects that by the end of 2025, its interest-bearing liabilities will further decrease by approximately 20 billion yuan to around 145 billion yuan, of which about 100 billion yuan will be operating property loans and long-term rentals. The proportion of credit financing is expected to continue to decrease, further solidifying the company's financial security. In terms of cash flow management, in the first half of the year, the company's net operating cash inflow was more than 2 billion yuan, and the company expects a net inflow of about 10 billion yuan for the whole year, with positive contributions from development and diversified cash flows. Continued development momentum in recurring business The company expects the growth rate of mall rental income to normalize from 2026 onwards. Considering that the company will open 10 shopping malls in the second half of the year (7 heavy asset malls and 3 light asset malls), and the company's key renovated projects are expected to gradually release rental contributions next year. The bank predicts that operating and service businesses will continue to serve as the cornerstone of the company's cash flow and core net profit.