The settlement scale grew steadily, and industry sales rankings bucked the trend. Maintaining the “buy” rating, C&D International released its 2024 semi-annual report. The company's revenue increased year-on-year, net profit continued to grow, and net profit to mother declined. The company's overall business conditions are steady, the core Tier 1 and 2 cities have sufficient land storage, and the financing cost advantage is obvious. We maintain our profit forecast. We expect net profit to be 53.2, 64.5 and 7.83 billion yuan for 2024-2026, corresponding to EPS of HK$2.9, 3.5, and 4.3. The current stock price corresponds to PE 4.2, 3.5, and 2.8 times. Considering that the company's land acquisition remains strong, the performance is expected to remain steady and maintain a “buy” rating.

The scale of settlement has increased, and cash repayments guarantee operating efficiency

In the first half of 2024, the company achieved operating income of 32.753 billion yuan, up 34.5% year on year, of which property development revenue reached 31.011 billion yuan, up 36.4% year on year, mainly due to the company's large settlement volume in the first half of the year; property management revenue reached 1.742 billion yuan, up 7.85% year on year; realized net profit to mother of 0.817 billion yuan, down 36.4% year on year; and property development cash payback was about 64.7 billion yuan. The decline in profit was mainly due to (1) the decline in gross settlement margin, which was 11.92% in the first half of 2024, down 3.33 percentage points from the previous year; (2) the increase in inventory impairment provisions, and administrative expenses increased by 0.414 billion yuan in the first half of 2024, mainly due to an increase in inventory impairment provisions; and (3) the decrease in the equity ratio of settlement projects.

Sales amount declined, and sales rankings bucked the trend

In the first half of 2024, the company achieved a sales amount of 50.87 billion yuan and an equity sales area of about 2.459 million square meters, down 31.9% and 26.3%, respectively. According to Kerry statistics, from January to June 2024, C&D Real Estate's full-caliber sales volume reached 66.06 billion yuan, ranking 7th, and the company's ranking bucked the trend.

Abundant soil reserves guarantee performance room, and the debt structure is reasonable and healthy

By the end of the first half of 2024, the company's land reserves were about 14.448 million square meters. Among them, Hangzhou, Shanghai, Xiamen, Wuxi and Nanchang were the top five cities for the company's land storage, and the company had sufficient land reserves in core Tier 1 and 2 cities. At the end of the first half of 2024, the company's balance ratio was 79.06%, the net debt ratio was 45.72%, and the debt structure was reasonable and healthy. The company's financing costs continued to decline. The average financing cost for the company in the first half of 2024 was 3.65%, down 10BP from the end of 2023.

Risk warning: The recovery of the real estate industry fell short of expectations, and the decline in company sales fell short of expectations.