1H24's core net profit fell 4.7% year on year. The performance was in line with market expectations China Resources Land announced 1H24's results: revenue +8.4% YoY to 79.1 billion yuan, and the YoY core net profit was -4.7% to 10.7 billion yuan, in line with market expectations. The interim dividend payout increased 1% year over year to $0.20.

Recurring business maintains growth momentum and accelerates business structure optimization. Retail sales of 1H24's shopping malls were +21.9% YoY (non-luxury +25.7%, heavy luxury +16.7%), overall same-store ratio +7.5% (non-luxury +10%, heavy luxury +4%); occupancy rate increased marginally by 0.8ppt to 97.3% compared to the end of last year, helping shopping mall rents +9.7% to 9.5 billion yuan YoY. In addition, the company's asset-light management revenue was +17.6% year-on-year, and 1H24's recurring revenue was +9.0% to 20 billion yuan, which fully realized the optimization of the business structure. 1H24 recurring business contributed 25.3%/51.4% to total revenue/core profit, respectively.

Lean operations are compounded by non-real estate contributions, and the financial market is stable and refined. Thanks to its firm elimination of inventory and close focus on sales payments, the company was able to moderately replenish positions while optimizing the financial market: as of the end of 1H24, the net debt/withheld debt ratio remained low at 33.6%/56.4%, and the short-term cash debt ratio was 1.54x, which remained stable in the “three red lines” green; the average financing cost of 1H24 fell 32BP to 3.24% at the end of last year, further highlighting the low credit advantage of the industry.

New home sales and settlement margins are under pressure, yet they still show superior resilience compared to peers with high-quality land storage. The company's 1H24 contract sales were -27% year-on-year (42% compared to the top 100 in the same period), and remained ranked 41st. As the sales price pressure project entered the settlement cycle, the company's 1H24 housing settlement gross margin/core profit margin declined, to -4.6pp/ -3.0ppt to 12.4%/8.8% year-on-year, respectively, but compared to the industry, it is still at the top.

Development trends

The growth trajectory and asset management transformation capabilities are complete, and the pace is firm. Driven by the opening of 16 new shopping malls during the year, the company expects rents to maintain a 10% year-on-year increase. In addition, asset-light service revenue is also expected to achieve double-digit growth, helping to double the annual recurring revenue coverage of dividends and interest. The company reaffirms the importance of the “big asset management” business. Based on its abundant underlying assets and superior management capabilities, we believe that the company can continue to lead the issuance and expansion of consumer infrastructure REITs, supplement them with cash flow and profits, and help the company enjoy fairer pricing as an “asset manager”.

Adequate saleable resources protect cash flow, and outstanding sales support the implementation of performance. The company's 2H24 saleable sources are of high quality and sufficient quantity (total value of 368.7 billion yuan, of which 72% are residential and 85% are located in Tier 1 and 2 cities with healthy supply and demand relationships), and it is expected that it will continue to support cash flow repayments. The company plans to settle the 166.1 billion yuan of outstanding sales of the development and sales model in the second half of the year, which will strongly support the annual business revenue and profit scale of Housing Development, and continue to play the role of a “stabilizer” of performance.

Profit forecasting and valuation

Maintaining profit forecasts and outperforming industry ratings, we lowered our target price by 15% to HK$28.83 (7.0/7.0x 2024/25 P/E, 38% upside) in view of worsening risk appetite. Currently trading at 5.1/4.9x 2024/25 P/E with a dividend ratio of 7.3/ 7.5%.

risks

High-end consumption outflows exceeded expectations; depreciation of development and sales inventories exceeded expectations.