Profit fell due to the decline in gross margin, and dividend payments remained at the level of dividends. In the first half of 2024, revenue from property delivery and animal development increased 8.3% year over year to 59.1 billion yuan (RMB, same below), and overall revenue increased 8.4% year over year to 79.1 billion yuan. However, due to the 4.6 percentage point drop in gross margin of property development to 12.4%, overall gross margin fell 3.4 percentage points to 22.3% year over year. Gross profit/net profit/core net profit decreased 5.9%/25.4%/4.7% year over year to 17.6/10.3/10.7 billion yuan. However, if we further deduct the one-time revaluation benefits brought about by the spin-off of the housing estate, we estimate the core profit to be about 7.5 billion yuan, down about 33% from the previous year. The company proposed a mid-term dividend of 0.2 yuan per share, up 1.0% year-on-year, and maintaining a dividend ratio of roughly 13%.

Leverage remains low, and financing costs have declined. Net interest-bearing debt ratio of 33.6% at the end of June 2024 (end 2023:32.6%). The weighted average cost of financing fell further by 32 basis points to 3.24%, the lowest level in the industry (end of 2023:3.56%), while the average debt tenure increased to 6.5 years. Furthermore, the share of non-RMB net debt exposure fell to only 2.0% (end of 2023:4.4%).

The performance of non-housing development businesses is stable. Contract sales for the first half of the year were 124.7 billion yuan, down 26.7% year on year, and the average sales price fell 1.4% year on year to 23,930 yuan. The company plans to sell 368.7 billion yuan of resources in the second half of the year. Estimated at a 40-50% removal rate, we expect contract sales for the whole year to be about 270-300 billion yuan.

The scale of asset management increased 5.1% from the end of 2023 to 449.1 billion yuan, and shopping center/office/hotel operating revenue was about 9.5/0.95/1.04 billion yuan, +9.7%/-4.9%/-3.8% year-on-year. By the end of June, there were 82 shopping malls in operation. The company expects the number of shopping malls in operation to increase to 110 by the end of 2027, and expects revenue from the operating real estate business to maintain an annual increase of more than 10% over the next three years.

Keep buying. China Resources Land's debt ratio remains low in the industry, and we believe that lower average financial costs can mitigate the impact of declining gross margin. The sales volume of unsettled contracts in the first half of the year was 321.4 billion yuan, of which 166.1 billion yuan will be settled in 2024, fully locking in our revenue forecast for the whole year. Furthermore, the stable performance of its investment property portfolio can offset the impact of the declining gross margin of the industry.

We maintained our buy rating and lowered our target price to HK$24.94, a 50% discount on our net asset value.