Gross margin pressure affects operating performance. In the first half of 2024, the company achieved a turnover of RMB 79.13 billion, +8.4% year on year; net profit to mother of 10.25 billion yuan, -25.4% year on year; and a comprehensive gross profit margin of 22.3%, down 3.4 percentage points from the same period in '23, mainly due to the impact of the gross margin of the development and sales business.

As of the end of June 2024, the company's bank balance and cash were RMB 118.33 billion, +3.5% from the end of 23; the net interest-bearing debt ratio was 33.6%, +1.0pt at the end of 23; and the weighted average debt financing cost was 3.24%, compared to -32 bps at the end of 23, a record low. The Board of Directors resolved to declare an interim dividend of RMB0.20 per share for 2024, +1.0% year over year.

The development and sales business contracts have been among the top four in the industry. By the end of June 2024, the company achieved a contract value of RMB 124.7 billion, maintaining the fourth largest market share in the industry and the top five in the market share of the 20 cities.

The operational real estate business strengthens its leading position in the industry. The company's shopping center rental revenue in the first half of 2024 reached RMB 9.48 billion, +9.7%; its 82 shopping malls achieved retail sales of RMB 91.62 billion, +21.9% compared to the same period, and 69 shopping malls ranked in the top three in the region; 6 shopping malls opened with high quality as scheduled, with a comprehensive occupancy rate of 97.8%; and acquired two new shopping center plots in Beijing and Dalian, continuing to practice deep commercial cultivation in core cities.

The asset-light management business is actively transforming into an urban operator. In the first half of 2024, China Resources Vientiane Life, a subsidiary of the company, achieved operating income of RMB 7.96 billion, +17.1% year-on-year, and core net profit of RMB 1.77 billion, or +24.2% year-on-year. The commercial management channel maintains the highest overall strength in the industry. There are 108 shopping malls in operation managed by 1H24, including 13 luxury shopping centers. The scale and quality of the market-based expansion of the property management channel continues to improve. 1H24 has a management area of 0.398 billion square meters and a contract area of 0.446 billion square meters. During the period, China Resources Vientiane Life's urban space expansion project accounted for 89.7% of the area. The membership system progressed steadily. The total number of Vientiane Star members exceeded 52.2 million, +13% compared to the end of '23.

Ecosystem element business quality and brand influence are steadily improving. In the first half of 2024, the company's urban construction business achieved a turnover of RMB 0.39 billion, with 358 projects under management at the end of the period, ranking second in the industry with an additional government contract area of RMB 0.38 billion; the rental housing business achieved a turnover of RMB 0.38 billion, with a total of 62 projects under management, ranking eighth in the management scale industry. China Resources Youchao REIT's performance increased steadily. According to the total data disclosed in the first and second quarter reports, the fund's turnover was RMB 39.31 million, +1.5% year over year; the fund's EBITDA was RMB 24.6 million, +4.3% year over year, and is actively promoting expansion.

Investment advice. Maintain an “better than the market” rating. We gave the company a 2024 EPS valuation of RMB 3.72, 10-11 times PE. The corresponding market value range was HK$289.9-318.9 billion, and the corresponding reasonable value range was HK$40.65-44.71 per share. (Not specified in this article; all prices are in RMB, 1 HKD = 0.92 RMB). Risk warning: 1) The growth rate of the total number of new homes in the real estate industry is at risk of shrinking; 2) Market recovery falls short of expectations.