COLI’s 2024 revenue decreased by 8.6% YoY to RMB185.2bn, 1.7ppts below our estimation. Gross margin narrowed by 2.6pps to 17.7%, 0.3ppt below our estimation. SG&A as % of revenue increased by 0.3ppt, and was 0.3ppt more than our estimation, which we believe is a result of less recognition booking amid increase in contracted sales.
As such, core net profit decreased by 33.5% YoY to RMB15.7bn, 8.3% below our estimation. DPS declined by 20.0% YoY to HK$0.60, 11.9% higher than our estimation, translating to 38.3% payout ratio, up 4ppts from 2023. We cut our 2025-26E core EPS by 14.8-14.9%, respectively, on more conservative revenue booking and gross margin assumptions. Our TP is maintained as the impact is offset by stronger than expected OCF at RMB46.5bn which brought net gearing down by 9.5ppts to 29.2%, despite value accretive land acquisitions with the scale ranking no. 1 in China in 2024 according to CRIC. We think the high quality land acquisition with a focus in tier-1 cities, combined with further improvement in financial position, would support COLI to continue outperforming peers in contracted sales. Maintain BUY rating.
Key Factors for Rating
COLI’s contracted sales amounted to RMB310.7bn in 2024, up 0.3% YoY. It was the only top-10 China developers with positive contracted sales growth in 2024.
Excluding COGO, projects in tier-1 cities contributed 61% of contracted sales, with COLI securing top market share in Beijing, Shanghai and Shenzhen.
RMB603.4bn saleable resources are planned for 2025 (2024 actual: RMB670- 680bn). Excluding COGO, saleable resources from tier-1 cities accounted for 58% of total, up from 46% in 2024. In 2M25, COLI’s contracted sales grew by 32.8% YoY, faster than most peers. For FY25, we expect COLI’s contracted sales to record single digit decline, and to continue outperforming most peers.
Excluding COGO, COLI spent RMB80.6bn land premium in 2024 (attributable: RMB69.6bn), which gave it the top position in terms of land spending in 2024.
Including COGO, the total land spending amounted to RMB85.8bn (attributable: RMB71.6bn). 73% of its attributable land spending in 2024 are in tier-1 cities (71% counting COGO), up again from the 60% in 2023, further securing COLI’s superior landbank quality. Despite ranking number one, land spending as % of revenue at 26% was still lower than previous years, as such we see significant improvement of net gearing by 9.5ppts to 29.2%.
Key Risks for Rating
Property market recovery may be slower than expected.
Valuation
Our estimated NAV is maintained at HK$18.57/share, as lower margin assumption is offset by better-than-expected improvement in net gearing even after sizable value accretive land acquisition. The stock currently trades at 0.4x 2025E P/B, and 25.1% discount to NAV, which we see as undemanding given COLI’s superior landbank quality, stronger contracted sales performance, and solid financial position.
Unbooked Revenue and Gross Margin
Unbooked revenue excluding COGO amounted to RMB218.2bn by end-2024, 17.4% more than end-2023. According to management, 50-60% is expected to be booked in 2025, giving revenue visibility a good support.
Overall gross margin for unbooked revenue reached 21.4%, which we believe is attributable to COLI’s excellent counter cyclical timing for landbanking especially in tier-1 cities after 2H21. For the part expected to be booked in 2025, gross margin is estimated to be c.18.1%, while that for the part expected to be booked in 2026-27, gross margin is estimated to be 27.2%. However, gross margin for completed inventory expected to be recognised upon sales in 2025 is lower. As such, overall development gross margin in 2025 is expected to be below 14-16% (2024: above 16% for development properties). As such, we estimate overall gross margin in 2025 to be 17.0%, down 0.7ppt. For 2026-27, despite the higher gross margin from unbooked revenue as mentioned above, we remain cautious and estimate overall gross margin to further decline to 17.4% and 17.2%, respectively.