Core net profit was -5% year-on-year, and recurring business contributed 51% to profit. With 2024H1, the company achieved operating income of 79.1 billion yuan, of which recurring business revenue was 20 billion yuan, +9%, accounting for 25%; realized core net profit of 10.7 billion yuan, or -5%, of which recurring business contributed 5.5 billion yuan to core net profit, +14% over the same period last year, accounting for 51%. 2024H1, the company's core net profit margin was 13.6%, down 1.9 percentage points from the previous year. The main reason was the comprehensive gross profit margin of 22.3%, down 3.4 percentage points from the previous year. Among them, the gross margin of development properties fell 4.6 percentage points to 12.4%, while the gross margin of investment properties increased 0.2 percentage points to 71.5%, helping the company operate steadily. 2024H1, the company's dividend was 0.2 yuan per share, the same as the previous year, with a slight increase in the mid-term dividend ratio of 13.3%.

The development and sales business is operating steadily. 2024H1, the company's development and sales business revenue was 59.1 billion yuan, +8% year-on-year; contracted sales were 124.7 billion yuan, -27% year-on-year. Among them, Tier 1 and 2 cities accounted for 92% of sales. The industry sales ranking remained 4th, and the market share remained 2.6%. The company invested cautiously. 2024H1 added 2.02 million square meters of land storage area, compared to -75%. Among them, the investment intensity in Tier 1 and 2 cities accounted for 87%, and the investment intensity in terms of land acquisition amount/sales amount was 21%. Although the investment intensity was reduced, by the end of 2024H1, the company's total land storage area was 56.99 million square meters, of which the development and sales business had a land storage surface of 47.71 million square meters, accounting for 84%, and Tier 1 and 2 cities accounted for 71%, which is still abundant.

The shopping center's performance is still impressive. 2024H1, the total rental income of the company's operating real estate business, that is, investment properties, was 11.5 billion yuan, +7% year over year, mainly dragged down by the office and hotel business, while the rental income of shopping centers was 9.5 billion yuan, +10% compared to the same period last year, accounting for 83%. As of the end of 2024H1, the company had 82 shopping malls in operation, of which 69 projects ranked in the top three in local retail sales, accounting for 84%. 2024H1, the shopping center's gross profit margin was 77.4%, and the overall occupancy rate was 97.3%, all of which continued to increase.

Finances have remained steady, and financing costs have been further reduced. By the end of 2024H1, the company's three red line indicators were green. The short-term cash ratio was 1.54 times, the net interest-bearing debt ratio was 33.6%, and the balance ratio excluding advance payments was 56.4%; the weighted average financing cost was 3.24%, down 32 basis points from the end of 2023.

Investment advice: Considering the settlement scale of the development and sales business and downward pressure on gross margin, we slightly lowered the company's profit forecast. The company's revenue for 2024-2025 is estimated to be 277/251.1 billion yuan (original value was 290.1/287.5 billion yuan), respectively, and net profit to mother in 2024-2025 was 26/26.3 billion yuan (original value was 30.4/31.9 billion yuan), respectively. The corresponding earnings per share were 0.50/0.47 billion yuan, respectively. The PE stock price was 5.4/5.3 times, respectively, maintaining the “superior to market” rating.

Risk warning: Sales and settlement of the company's development properties fell short of expectations, rental income from investment properties fell short of expectations, the decline in profit levels exceeded expectations, or the decline in industry fundamentals exceeded expectations, and the effects of policy implementation fell short of expectations.