Yuexiu Property plunges 13.6% as BofA cuts rating to underperform

Yuexiu Property (00123.HK) fell 13.6% to close at HKD3.26 on Aug 31 after BofA Securities downgraded the developer to underperform, cutting its target price 28% to HKD3.6.

The downgrade follows Yuexiu's first-half core net profit plunging 94.6% year-on-year to about RMB80 million, "significantly missing expectations mainly due to margin pressure," BofA Securities said in a report. Net profit attributable to equity holders fell 93.6% to RMB87.2 million, while revenue dropped 23% to RMB36.65 billion with gross margin sliding to 6.2%. The profit slump stemmed from compressed margins on high land-cost legacy projects and shrinking investment income from joint ventures and associates.

BofA cut its FY2026-FY2028 earnings forecasts by 40% to 70%, postponed a meaningful earnings recovery from FY2028 to FY2029, and projected gross margin of 10% to 12% over the next two years, below the roughly 15% level of quality state-owned enterprise peers. The bank cited Yuexiu's substantial Guangzhou exposure, where inventory oversupply and pricing pressure persist, and a high proportion of old inventory in its land bank.

The stock's single-day slump pushed turnover to 68.5 million shares worth HKD232 million, with short selling at 38.99% of volume. Based on its FY2028 forecast, Yuexiu trades at about 10 times forward earnings versus 7 to 8 times for peers with better earnings recovery visibility, BofA said.

The downgrade contrasts with management's view that the market has passed its toughest phase. Yuexiu kept all "Three Red Lines" metrics in the green, cut its weighted average borrowing cost to 2.91%, and maintained its full-year RMB100 billion sales target after first-half contracted sales of RMB50.51 billion. It declared an interim dividend of HKD0.009 per share, down from the prior year.

The rating cut points to prolonged margin pressure for Yuexiu, whose recovery now hinges on clearing high-cost legacy projects and recognizing revenue from cheaper land acquired in recent years. The downgrade adds to headwinds for Hong Kong-listed Chinese developers, where Fitch expects a deeper decline in home sales this year. Investors will watch second-half contracted sales and land acquisitions for signs that gross margin can recover toward the 10% to 12% range BofA projects.

This article is for informational purposes only and does not constitute investment advice.