The profit scale is leading the industry, and the dividend payout ratio increased year-on-year. In the first half of 2024, the company achieved main business revenue of 86.94 billion yuan, a year-on-year decrease of 2.5%. Among them, real estate development revenue was 82.039 billion yuan, down 3.24% year on year; commercial property operating income was 3.538 billion yuan, up 19.78% year on year; and other business revenue was 1.359 billion yuan, down 4.08% year on year. In the first half of 2024, the company's net profit to mother was 10.31 billion yuan, and the core net profit to mother was 10.64 billion yuan. The Board of Directors announced an interim dividend of HK30 cents per share, increasing the interim dividend ratio by 4 percentage points to 28.3%.

The results of the deep cultivation strategy have been shown, and sales performance is outstanding in the industry. In the first half of 2024, contract property sales of the Group's affiliated companies were 148.38 billion yuan, a year-on-year decrease of 17.65%. The sales floor area was 5.44 million square meters, a year-on-year decrease of 32.34%. In the first half of 2024, the company achieved contract sales of 107.5 billion yuan in first-tier and second-tier cities, accounting for 83% of the group's affiliated companies (excluding Zhonghai Hongyang). Beijing, Shanghai, and Shenzhen ranked first in the local market share.

First-tier cities are focusing on investment, and the quality of land storage continues to improve. In the first half of 2024, the company added 6 new plots of land, with a total construction area of 1.17 million square meters, a total land price of 12.89 billion yuan, and an additional total goods value of 27.99 billion yuan. Since 2022, the company's share of investment in first-tier and second-tier cities has remained above 85%, and the share of investment in first-tier cities has increased dramatically. In the first half of 2024, first-tier cities accounted for 67% of the company's total land purchase amount.

By the end of the first half of 2024, the total land reserves of the group's affiliated companies reached 49.05 million square meters, of which the group's affiliated companies (excluding Zhonghai Hongyang) had land reserves of 33.22 million square meters.

Commercial operations grew appreciably, and lean development bucked the trend. In the first half of 2024, the company achieved commercial property revenue of 3.54 billion yuan, up 19.8% year on year, of which office revenue was 1.76 billion yuan, shopping center revenue was 1.11 billion yuan, long-term rental apartment revenue was 0.12 billion yuan, and hotel and other commercial property revenue was 0.55 billion yuan.

Maintain the increase in the green file rating, and the cost of financing is steadily declining. As of the end of the first half of 2024, the company's net current asset value was 376.08 billion yuan, the current ratio was 2.4 times, the net loan ratio was 38.7%, and the cash on hand was 100.24 billion yuan. In the first half of 2024, the company's weighted average financing cost was 3.5%, and financing costs were among the lowest in the industry. In the first half of 2024, S&P Global raised the Group's credit rating from BBB+/ stable to A/ stable. As of the end of the first half of 2024, the company's total loans were 255.57 billion yuan, of which the loans maturing within one year were 39.67 billion yuan, accounting for 15.5% of the total loans.

Investment advice: “Better than the big market”. We forecast the company's 2024-2025 EPS to be around 2.55 yuan and 2.85 yuan. We are optimistic about the company's ability to develop sustainably. We believe that the company can gain a sustainable advantage in this round of supply-side reform competition, and give the company a 7-fold PE valuation in 2024, corresponding to a reasonable price of 17.85 yuan, or a target price of HK$19.40 per share, giving the company a “superior to the market” rating.

Risk warning: Facing downside risks in the industry.