Longfor Earnings: Cut Valuation by 24% on More Conservative Property Sales and Margin Outlook

We lower our fair value estimate for no-moat Longfor to HKD 11.00 per share from HKD 14.50 as the company printed underwhelming first-half 2024 results. A pronounced 32% year-on-year drop in the property development segment's bookings reflected Longfor’s presale decline in 2022-23, while lower home selling prices for that period also weighed on the segment’s gross margin. As Longfor’s contracted sales (mostly presale) continued to slump by 37% in first-half 2024, we expect a lingering headwind on its top-line through 2025 before a mild rebound thereafter. As such, we cut our revenue forecast by 14% and 21% for 2024 and 2025, respectively. We also reduce our midcycle operating margin assumption to 12.3% from 14.0% given more subdued profitability of property sales and elevated operating costs. Following these adjustments, we view Longfor’s shares as fairly priced.