We estimate CR Land's 1H24 revenue to grow by high single digit YoY. We estimate both development and recurring revenues to grow by high single digit, with the former supported by its RMB284.1bn unbooked revenue by end-2023 while the latter is expected to be lower than the disclosed double-digit operating figure because of the asset injection to REITs. We expect development gross margin to reduce from 2023's c.20% to below 15%, partially due to impairment on inventory given the deep market correction. As such, we estimate 1H24 core net profit to decline by c.5% YoY. We cut our 2024-26E EPS by 7.8-12.7%, respectively, based on lower margin assumptions, and trimmed our TP by 7.6%. We like CR Land's strong recurring income, and solid financial position. Maintain BUY rating for the stock.

Key Factors for Rating

CR Land's 1H24 contracted sales amounted to RMB124.7bn, representing 26.7% YoY decline, outperforming most peers. In particular, CR Land delivered 19.0% YoY contracted sales growth in June, making it one of the few that achieved positive growth. CR Land's RMB530.8bn saleable resources planned for 2024 earlier this year included new land acquisition in 2024. Therefore, with prudent land acquisition, we expect actual amount to be less. Nevertheless, considering fading high base, we expect YoY decline to narrow in 2H24.

Land acquisition was prudent in 1H24 compared to previous years with RMB25.6bn total spending or RMB18.3bn attributable spending, down 75% YoY. According to CRIC, CR Land ranked the 3rd among all peers in terms of land spending in 1H24, as most peers are also very conservative in spending. We estimate OCF before land payment to be positive and after land payment to be slightly negative, and expect net gearing to maintain at around 30%.

CR Land disclosed that 1H24 rental income grew by 16.5% YoY. Given that some properties are injected into REITs, we estimate the consolidated rental income growth in 1H24E was lower than 10%. Management guided encouraging retail sales growth for shopping malls at 21% (SSSG: 6%). Our channel check showed some weakening in June, so we estimate that June same store retail sales may have seen some slight YoY decline.

Key Risks for Rating

Property market recovery may be slower than expected

Valuation

We trimmed our estimated NAV by 7.6% to HK$40.11/share given lower gross margin. The stock currently trades at 0.6x 2024E P/B, and 38.8% discount to our estimated NAV. We see such valuation as undemanding, given CR Land's strong recurring income and solid financial position.