CHINA RESOURCES LAND(1109.HK):RECURRING BUSINESSES NOW CONTRIBUTE MORE THAN 40% OF PROFIT
CR Land’s 2024 revenue grew 11.0% YoY to RMB278.8bn, 1.8% higher than our estimation. Between segments, property development revenue grew 11.8% while recurring revenue grew by 6.6%. Gross margin narrowed by 3.5ppts from 2023 to 21.6% in 2024, 0.4ppt better than our estimation. While development gross margin narrowed 3.9ppts to 16.8%, gross margin of investment property and property management revenue expanded 0.4ppt and 1.1ppts to 70.0% and 32.9%, respectively. As such, recurring business’s contribution to core net profit further increased by 6.3ppts to 40.7% in 2024. Due to increases in finance cost, reduction of results from JV and associates, as well as increase in NCI, core net margin at 9.1% was 0.6ppt below our estimation, representing 1.9ppts decline from the previous year. As a result, core net profit declined by 8.5% YoY, 4.6% below our estimation, and 0.6% below market consensus. We cut our 2025-26E earnings by 9.2-12.5%, respectively, reflecting lower development gross margin and higher NCI, and trimmed our TP by 6.5% to HK$32.37. We like CR Land’s strong recurring income and strong financial position, maintain BUY.
Key Factors for Rating
CR Land’s 2024 contracted sales declined by 15.0% YoY to RMB261.1bn, ranking number three among all developers in China. The decline rate was one of the smallest among all peers. Management targets to achieve some growth in terms of contracted sales in 2025. Saleable resources amounted to RMB500.9bn for 2025, compared to RMB530.8bn in 2024. During 2M25, the company has already achieved 21.8% YoY contracted sales growth to RMB25.1bn, outperforming most peers.
CR Land obtained 29 new projects in 2024, with total GFA of 3.93m sqm (attributable: 2.82m sqm). 66% of attributable land cost was spent in tier-1 cities (2023: 46%) and 28% in tier-2 cities (2023: 47%). According to CRIC, CR Land ranked number two among all China developers in terms of the value of land acquisition in 2024, only behind COLI. Overall speaking, land spending was still prudent as net gearing ratio further improved by 0.7ppt to 31.9%.
Management expects development gross margin to bottom out in 2025-26 at around 13-14%, compared to 16.8% in 2024. Thanks to more contributions from recurring revenue, we estimate 2025-26E overall gross margin to maintain at 20.5-20.9%, respectively (2024: 21.6%).
Key Risks for Rating
Property market recovery may be slower than expected.