COLI’s October contracted sales amounted to RMB41.6bn, up 66.0% YoY and 121% MoM. According to CRIC, COLI delivered the fastest YoY growth among all large scale developers in China in October. Most peers were still posting negative YoY changes. Such growth was delivered without particular low base effect. Also, there was no particularly large scale launch of key projects during October. As such, the outperformance of COLI was a product of its superior geographic exposure, with over 50% of its land acquisition concentrated in tier-1 cities during 2022-23. As for 10M24, COLI’s contracted sales amounted to RMB240.4bn, representing a YoY decline of only 9%, while the vast majority of peers registered over 20% YoY decline. With the base for November and December not being particularly high, we believe the YoY decline of FY24 is likely to further narrow to low single digit. We lifted our TP by 15.5% to HK$17.94 considering improved market condition. We like COLI’s superior land quality with higher exposure in tier-1 cities and lower cost thanks to strategic acquisition timing, and its lower-than-peers valuation. Reiterate BUY rating.
　　Key Factors for Rating
　　There was no low base effect for the strong October YoY growth as the RMB25bn figure in October 2023 was normal compared to other months. Also, COLI’s October contracted sales surged by 121% MoM, while we calculated the average for most peers was at around 70%. This shows the superiority of COLI’s project locations. According to management, there was no large scale new launches for key projects in October. Instead key projects were only being sold on a regular basis, which is also going to be the case for November and December. With the base being lower in November and December, we believe FY24 contracted sales YoY decline is likely to narrow to low single digit, significantly outperforming most peers.
　　COLI recently disclosed 3Q24 operating profit margin at 9.4%, down 3.1ppts YoY. We believe part of the reason was that property market reached a low point in 3Q24, causing the margin of the sales of ready-to-deliver projects to be low. Our model also indicates that certain lower margin projects should be delivered during the period, despite the company’s overall gross margin of unbooked revenue being at over 18% as at end-2023. As such, we believe the company is not facing larger-than-peers margin pressure ahead, and maintain our 2024E core net profit decline at 19.4% YoY, in line with 9M24 figure.
　　Key Risks for Rating
　　Property market recovery may not be sustainable without further policy support
　　Valuation
　　We narrowed our target discount to NAV from 20% to 10% considering improving market condition. The stock currently trades at 22% discount to our estimated NAV at HK$19.94/share, and 0.4x 2024E P/B, which we see as attractive, given the company’s landbank with superior location, quality and reasonable price, as well as its solid financial position.