Key points of investment:

2024H1's performance was -38% year-on-year, lower than expected, with -20% advance payments at the end of the reporting period. The company released its 2024 mid-year report. 2024H1 achieved revenue of 319.01 billion yuan, -16.8% YoY; net profit to mother of 1.2 billion yuan, or -37.7% YoY; and earnings per share of 0.33 yuan, or -41.1% YoY. The company's revenue declined. By business, revenue from the Supply Chain Operations Division and Real Estate Division decreased by -24.8% and +55.6%, respectively; net profit to mother decreased by 0.725 billion yuan year on year, by segment, 1) Net profit from the supply chain operations segment was 1.421 billion yuan, a year-on-year decrease of 0.252 billion yuan; 2) Net profit from the real estate business segment was 0.155 billion yuan, a year-on-year decrease of 0.095 billion yuan, of which C&D Real Estate contributed 0.346 billion yuan Billions of yuan and MediaTek Group contributed 0.285 billion yuan; 3) Net profit from the home furnishing mall operating business segment - 0.377 billion yuan, mainly due to factors such as the phased decline in Macalline shopping mall occupancy rates, increased business stabilization and retention concessions granted by Macalline to merchants, and an increase in losses due to changes in the fair value of investment real estate. 24H1's comprehensive gross profit margin was 4.8%, +2.0pct year on year; period rate 2.8%, +1.1 pct year on year; net profit margin to mother 0.4%, -0.1 pct year on year. In addition, corporate taxes and surcharges were 1.25 billion yuan, +103.9% year over year; investment income was 0.38 billion yuan, -28.0% year over year; asset and credit impairment losses were 2.41 billion yuan, +209 percent year over year, reducing net profit to mother by 1.3 billion yuan. By the end of 24H1, advance payments (including contract liabilities) were 245.1 billion yuan, -20% year-on-year.

Real estate: Settlement profit margins have bottomed out, and sales rankings continue to rise. The company announced that 24H1's real estate division revenue was 51.2 billion yuan, +55.6% year on year; net profit of 1.6 billion yuan, -1.9% year on year; net profit to mother 0.15 billion yuan, -38.0% year on year; gross profit margin of the real estate division was 13.1%, -1.9 pct year on year; net profit margin was 3.1%, -1.8 pct year on year. 24H1 achieved a sales amount of 74.27 billion yuan, a year-on-year ratio of -40.3%, and a repayment ratio of 97%; of these, the subsidiary C&D Real Estate sold 66 billion yuan, -29.9% year-on-year. The company accounts for nearly 80% of full-caliber sales in Tier 1 and 2 cities, and the number of cities with full-caliber sales exceeding 2 billion yuan has reached 9. 24H1 C&D's real estate sales ranked 7th in the country, an increase of 2 places over the previous year, and overtook corners in the face of adversity. In terms of investment, 24H1's land acquisition amount was 38.8 billion yuan, compared to -46%, and the land acquisition/sales amount ratio was 52%; the value of full-caliber land acquisition was 68.6 billion yuan, with Tier 1 and 2 cities accounting for 98% of the land acquisition amount, focusing on obtaining multiple high-quality projects in Shanghai, Xiamen, Hangzhou, Wuhan and other places. By the end of 24H1, the company's land storage scale was 20.86 million square meters, corresponding to a value of 333.1 billion yuan, -7% and -6%, respectively. The value of the company's equity land reserves (unsold) in Tier 1 and 2 cities accounted for about 77%, an increase of 3.3 pct over the end of '23.

Supply chain: 24H1 revenue -25% year-on-year, year-on-year performance -15%. The company announced that the 24H1 supply chain division's revenue was 263.6 billion yuan, -24.8% YoY, net profit 1.41 billion yuan, -11.0% YoY; net profit to mother was 1.42 billion yuan, or -15.1% YoY.

The gross profit margin of the supply chain segment was 2.3% and the net profit margin was 0.5%, +0.6pct and +0.1pct, respectively, year-on-year. In terms of international business, the company's import and export and international business reached 18.66 billion US dollars in the first half of the year, accounting for about 40% of the supply chain operation business. The company's supply chain business continues to deepen its specialized and international business strategy, focusing on core categories and customer needs. Combined with the current high level of bulk transactions, the profitability of the company's supply chain is stabilizing.

Investment analysis opinion: Performance has declined, sales rankings have grown steadily, and the “buy” rating has been maintained. As a state-owned enterprise in Xiamen, C&D Co., Ltd. is mainly engaged in supply chain operations and real estate, with positive operating performance and considerable dividends. Considering that the real estate division MediaTek Group and the furniture store Macalline are still under loss pressure, we lowered our 24-26 net profit forecast to 3.83, 4.07, and 4.25 billion yuan (original values of 5.03, 5.99, 7.03 billion yuan). The corresponding 24/25PE is only 5.6X/5.3X. The current valuation is still significantly lower than the value of comparable companies, maintaining a “buy” rating.

Risk warning: Sales in the real estate industry fell beyond expectations. The company received a warning letter from the Xiamen Securities Regulatory Bureau, and the company's relevant personnel received regulatory discussions and decisions on measures.