2024H1 core net profit decreased 4.7% year on year: in the first half of 2024, the company achieved operating income of 79.1 billion yuan, an increase of 8.4% year on year. Among them, development business revenue was 59.1 billion yuan, up 8.3% year on year; recurring business revenue was 20 billion yuan, up 9.0% year on year, and revenue share increased 0.2 ppt to 25.3%. The overall gross margin was 25.2%, down 1 ppt year on year, mainly due to the decline in gross margin of the development business by 4.6 ppt to 12.4%. Net profit to mother decreased 25% year over year to 10.2 billion yuan, and core net profit was RMB 10.7 billion, down 4.7% year on year. The company declared an interim dividend of 0.2 yuan per share, an increase of 1% year over year.

The sales volume of the development business remained resilient, and the soil storage structure was excellent: during the period, the company achieved sales of 124.7 billion yuan, a year-on-year decrease of 26.7%, the equity ratio decreased by 69%, the contract area decreased 25.7% year-on-year to 5.2 million square meters, and the average price fell 1.4% year-on-year to 23,930 yuan/square meter. Although overall sales declined due to market influence, the structure improved. At the beginning of the year, inventory contracts accounted for 50.6%, and the share of first-tier cities (including Hong Kong) increased by 8 ppt to 38%, ranking among the top four in the industry in contract sales. During the period, the company acquired 11 new projects, the equity land price was 18.3 billion yuan, and an additional 2.02 million square meters of land storage area was added. By the end of June 2024, the company had developed land reserves of 47.71 million square meters, and 67% of the value of the goods were projects obtained in 2021 and later, still accounting for more than 70% of the area of first- and second-tier cities; 9.28 million square meters of land for investment properties, of which shopping centers accounted for 73% and first-tier cities accounted for 20%. High quality and sufficient soil storage can guarantee the company's development for more than 3 years. At the end of the period, the company's sold and unsigned sales were 321.4 billion yuan, of which 166.1 billion yuan is scheduled to be settled in the second half of 2024. The company's settlement area from 2024-2025 is about 32.5 million square meters, of which 82% are located in Tier 1 and 2 high-energy cities. Abundant high-quality resources guarantee the high quality and steady growth of the company's performance.

Recurring business revenue and profit contribution increased to 51.4%, gradually becoming the second curve of the company's performance growth: the company's recurring business, including operating real estate, asset-light management, and ecosystem factor businesses. The revenue for the period was 11.5 billion yuan, 5.9 billion yuan and 2.6 billion yuan respectively, up 7.0%, 17.6%, and 0.8%, respectively. Recurring business revenue contribution increased 0.2 ppt to 25.3%, and core profit contribution increased 8.6 ppt to 51.4% year over year, accounting for more than half. In terms of shopping centers, the company opened 6 new buildings in the first half of the year. Overall retail sales increased 21.9% year over year to 91.6 billion yuan, and the same store increased 7.5%, which is far superior to the market average. Rental income was 17.9 billion yuan, an increase of 30% over the previous year. The overall occupancy rate increased by 0.8 ppt to 97.3%, and the rent-sale ratio remained at a reasonable level of 12.5%. The company plans to open 10 new shopping malls in the second half of 2024. By the end of 2027, the number of shopping malls in operation will increase from 76 to 110 by the end of 2023, effectively guaranteeing the performance contribution of the company's shopping centers. Office rental revenue during the period was 0.95 billion yuan, down 4.9% year on year. Despite downward pressure on the industry, the company's overall occupancy rate remained high at 74.8%. Vientiane Living Income and Core Profit both maintained high growth rates during the period, reaching 17.1% and 22.2% respectively. The cumulative annualized dividend rates of the company's Huaxia Huaxia Huarun Commercial REIT and Youchao Public Investment REIT reached 5.04% and 4.06% respectively during the period.

The debt structure continues to be optimized, and the risk exposure industry is low: the company's weighted average financing cost fell 32 basis points to 3.24% during the period compared to the end of 23, remaining at the lowest level in the industry. Non-RMB net debt exposure declined further by 2.4 ppt to 2.0%. As of the end of June, the ratio of short-term cash debt was 1.54 times, the ratio of short-term financing reserves was 1.38 times, the total interest-bearing debt ratio was 38.9%, and the net interest-bearing debt ratio was 33.6%. The three red lines remained green. The company's finances remain stable and the debt structure continues to be optimized, and financing costs and exchange rate risks have reached record lows.

Target price of HK$34, maintaining a buying rating: The company has lean operating capabilities and a healthy financial structure, and is ranked fourth in the industry in contract sales. By the end of the period, the company's asset management scale increased by 5.1% to 449.1 billion yuan at the end of 23, which will help the company release value and transform its business under the new development model of the industry. We expect the company's core net profit from 2024 to 2026 to reach 25.9 billion yuan/27.5 billion/ 28.6 billion yuan, giving development and recurring businesses 5 times and 18 times price-earnings ratios in 2024, respectively, and a target price of HK$34, maintaining the purchase rating.