COLI’s 1H24 revenue edged down by 2.5% YoY to RMB86.9bn, better than our estimation of c.10%. Gross margin narrowed by 0.5ppt to 22.1%, better than our estimation at 18.5% which is the same as 2H23. Development property gross margin was 20.7%, one of the highest among all peers. As such, gross profit declined by 4.8% YoY, better than our estimation of double-digit decline. However, due to c.RMB460m impairment loss on inventory, 52.2% decrease of share results from JV and asso. as well as 68.1% increase of NCI, core net profit declined by 23% YoY to RMB10.3bn, more than the 20% we estimated. DPS declined by 14.3% YoY to HK$0.30, while interim dividend payout ratio up 4ppts to 28.3%. We cut our 2024-26E core EPS by 6.6-7.0%, respectively, factoring in less contribution from JV and asso. as well as higher NCI, and cut our TP by 7.2% to HK$15.95. We like COLI’s outstanding contracted sales performance, supported by its high quality landbank with a unique focus on tier-1 cities and lower cost thanks to excellent timing of landbanking. As such, we think the 0.3x 2024E P/E is attractive, and maintain BUY rating for the stock.
Key Factors for Rating
COLI’s 7M24 contracted sales amounted to RMB161.6bn, declining by 15.9% YoY, a smaller decline than almost all peers we track. Excluding COGO, 61% of the Group’s 1H24 contracted sales was from tier-1 cities. Total saleable resources for 2H24 amounts to RMB550bn. Saleable resources excluding COGO amounts to RMB460bn, among which RMB232bn are in tier-1 cities. Underpinned by such high quality landbank, COLI continues to outperform peers, delivering 10.4% YoY contracted sales growth in July, and is on track to registering another positive one in August. Management maintains a target to deliver flat contracted sales in FY24. If achieved, this means over 20% YoY growth for August to December.
COLI carried out conservative landbanking in 1H24, spending only RMB12.9bn on land premium, of which 67% was located in tier-1 cities. One of the reasons for the low spending in 1H24, according to management, is the decline of land supply in tier-1 cities. We believe COLI has already accumulated sufficient high quality landbank to support the company to deliver outstanding contracted sales in the near future. In 2022 and 2023, land premium spend in tier-1 cities accounted for 51.2% and 62.4%, respectively.
Key Risks for Rating
Property market recovery may be slower than expected
Valuation
We cut our estimated NAV by 7.2% to HK$19.94, factoring inventory impairment, and lower profitability from JV and asso projects. The stock currently trades at 0.3x 2024E P/E, and 41.6% discount to our estimated NAV. We see such valuation as attractive, given COLI’s high quality landbank, solid financial position, and outperforming contracted sales.