Morgan Stanley: cuts China Overseas (00688) target price to HKD 12.8, rating lowered to "in line with the market"

Morgan Stanley has released a research report stating that it has downgraded its rating on CHINA OVERSEAS (00688) from "buy" to "market perform," with a target price decrease of 7% from 13.8 Hong Kong dollars to 12.8 Hong Kong dollars. They believe that its valuation at a forward P/E ratio of 8 times (higher than its peers) is reasonable (H-share peers at 6 to 8 times). The report states that among major developers in mainland China, CHINA OVERSEAS has the best land reserves and balance sheet. However, factors such as significant reduction in land reserves may continue to drag on mid-term profit and dividends. Morgan Stanley says it has lowered CHINA OVERSEAS' gross profit margin forecasts by around 1 percentage point for the years 2024 to 2026 to reflect continued decline in housing prices. Additionally, the group's impairment losses are higher than expected, resulting in the bank lowering its earnings forecasts for the years 2024 to 2026 by 18%, 18%, and 16% respectively.