COLI’s 1H25 revenue declined by 4.3% YoY to RMB83.2bn, with the decline rate larger than our FY25 estimation at 1.8%. Gross margin narrowed by 4.7ppts to 17.4%, better than our FY25 estimation at 17.0%, The gross margin was only slightly lower than FY24’s 17.7%, and improved from 2H24’s 13.8%. Development gross margin recorded at 15.8%, 0.5ppt below FY24’s 16.3%, and remain at top level among all developers. As such, core net profit margin stayed at double digit level of 10.6%, down 1.7ppts YoY, higher than our FY25 estimation at 8.3%.
　　As a result, core net profit grew 17.5% YoY to RMB8.78bn, accounting for 57% of our FY25 estimation. We stay cautious and maintain our estimation and TP unchanged. We like COLI’s strong exposure to tier- 1 cities, relatively decent contracted sales performance, and industry leading gross margin which is locked in its sizable unbooked revenue, and maintain BUY rating on the stock.
　　Key Factors for Rating
　　COLI’s 7M25 contracted sales declined by 18.3% YoY to RMB132bn, which is a relatively decent performance among peers. Apart from the market, one reason behind the decline is RMB64bn less saleable resources compared to 7M24, as RMB40bn worth of key projects in tier-1 cities were launched during the same period last year. Sell-through rate was actually better in 7M25 than 7M24.
　　Management guided for ample saleable resources for 2H25 at RMB450bn, among which 56% are in tier-1 cities. RMB110bn of new launches are planned in 2H25, with several key projects in tier-1 and core tier-2 cities. As such, we expect FY25 contracted sales decline to narrow to single digit.
　　While ranking second in terms of contracted sales in 7M25, COLI ranked the first among China developers in terms of land spending, pointing to continued leading position. In 7M25, COLI acquired 22 new land parcels with attributable land premium of RMB55bn, among which 86% are in tier-1 and 2 cities.
　　Unbooked revenue excluding COGO amounted to RMB175bn by 1H25, among which 50% is expected to be recognised in 2H25, largely locking in our development revenue estimation for 2H25 at RMB77.8bn. Overall gross margin of unbooked revenue reached 18.8%, among which the gross margin for the part to be booked in 2H25 is 16.1%, and 22% for the rest.
　　Key Risks for Rating
　　Property market recovery may be slower than expected.
　　Valuation
　　Our target price of HK$16.71 is derived from 10% discount to our estimated NAV at HK$18.57/share. The stock currently trades at 0.4x 2025E P/B, and 25.6% discount to NAV, which we think is undemanding, considering COLI’s strong balance sheet, higher exposure to tier-1 cities, relatively decent contracted sales performance, and industry leading gross margin.