CR Land's 1H24 revenue grew by 8.4% YoY to RMB79.1bn, in line with our estimation. Development property (DP) and recurring revenue grew by 8.3% YoY and 9.0% YoY, respectively, in line with our estimation. DP revenue grew despite the decline in contracted sales, which we believe was thanks to sizable unbooked revenue (end-2023: RMB284bn, end-1H24: RMB321bn). Gross margin narrowed by 3.4ppts to 22.3%. Development property gross margin narrowed by 4.6ppts to 12.4%, worse than the 15% we estimated, while investment property (IP) gross margin improved by 0.2ppt to 71.5%. The worse-than- expected gross margin was partially offset by less-than-expected SG&A expenses as % of revenue, which reduced by 1ppt. As a result, core net profit declined by 4.7% YoY, in line with our estimation. Recurring business contributed 25.3% of revenue and 51.4% of core net profit in 1H24. We cut our 2024-26E core EPS by 3.1-5.3%, respectively, applying more conservative assumptions on gross margin, and cut our TP by 4.1% to HK$34.61. We like CR Land's strong recurring income and solid financial position. Maintain BUY rating.
Key Factors for Rating
Revenue from recurring business increased by 9% YoY to RMB20bn, accounting for 25.3% of total revenue, up 0.2ppt YoY. Core net profit from recurring business increased by 14.4% YoY to RMB5.5bn, accounting for 51.4% of total core net profit, up 8.6ppts YoY. Revenue from IP grew by 7% YoY, with gross margin improving by 0.2ppt to 71.5%. Rental income from shopping malls increased by 9.7% YoY, with gross margin improving by 0.6ppt to 77.7%. Retail sales grew 21.9% YoY, with SSSG being 7.5% YoY. Retail sales of luxury malls and non-luxury malls grew by 16.7% YoY and 25.7% YoY, respectively. 6 new shopping malls were launched in 1H24, and another 10 are to be opened in 2H24.
CR Land' 7M24 contracted sales amounted to RMB140bn, down 25.2% YoY, with the rate of decline better than most peers. Saleable resources for FY24 amount to RMB530.8bn, among which 88% is located in tier-1 and 2 cities. During 1H24, CR Land obtained 11 new projects with a total land premium of RMB25.6bn (attributable: RMB18.33bn), adding a total GFA of 2.02m sqm. Management pointed out that the company has shifted more focus from buying new projects to de-stocking of existing projects.
Key Risks for Rating
Luxury consumption may slow down under challenging economic environment
Valuation
We cut our estimated NAV by 4.1% to HK$38.45/share, applying more conservative margin assumptions. The stock currently trades at 0.5x 2024E P/B and 45.6% discount to NAV, which we think is undemanding, given CR Land's solid financial position and strong recurring income.