Huachuang Securities: Maintain a "buy" rating for CHINA OVERSEAS (00688), establishing a market benchmark with good house system.

Huachuang Securities released a research report stating that they maintained a "buy" rating on CHINA OVERSEAS (00688) and forecasted that the company's EPS for 2025-2027 would be 1.40, 1.38, and 1.52 yuan respectively. Referring to the average market PE ratio of comparable high-quality leading companies, the company was given a 13 times PE for 2025, with an estimated market value of approximately HK$218.8 billion, corresponding to a stock price of HK$20. As a leading state-owned enterprise, the company has low financing costs and sufficient inventory turnover. In the first half of 2025, the company achieved operating income of 83.2 billion yuan, a year-on-year decrease of 4.3%; attributable net profit to ordinary shareholders was 8.6 billion yuan, a year-on-year decrease of 16.6%. The gross profit margin in the first half of the year was 17.4%, with a sold but unsettled amount of 175 billion yuan, a decrease of 19.8% from the end of 2024. Huachuang Securities' main points are as follows: The Good House System is being implemented, with active replenishment of land reserves, and investment intensity reached 33.4% in the first half of the year. 1) In the first half of 2025, the company achieved a sales area of 5.12 million square meters, a year-on-year decrease of 5.9%; sales amount was 120.2 billion yuan, a year-on-year decrease of 19.0%, with a contract sales average price of 23,467 yuan/square meter, a year-on-year decrease of 14.0%. The company continued its strategy of focusing on first-tier cities, promoting the implementation of the "China Overseas Good House Living OS System", and gradually launching sales of the first batch of China Overseas Good Houses such as Beijing Wanji Jiuxu and Shanghai Yundi Jiu Zhang. During the period, the group's affiliated companies (excluding China Overseas Hongyang) achieved a contract sales amount of 55.64 billion yuan in the five cities of Beijing, Shanghai, Guangzhou, Shenzhen, and Hong Kong, with Beijing achieving a contract sales amount of 30.45 billion yuan. 2) The company actively replenished its land reserves, with 17 new land acquisitions in the first half of 2025, equity land acquisition amounting to 40.1 billion yuan, and an investment intensity of about 33.4%; as of the end of July, the group had acquired a total of 22 new lands, with an equity land acquisition amount of 55 billion yuan, of which first-tier and strong second-tier cities accounted for 86% of the total. As of the first half of 2025, the total construction area of land reserves of the group's affiliated companies (excluding China Overseas Hongyang) was 26.93 million square meters, with an equity area of 23.67 million square meters. Commercial operating income in the first half of the year was 3.54 billion yuan, with shopping malls and office buildings contributing 81%. 1) The company's commercial operating income in the first half of the year was 3.54 billion yuan, the same as last year, but the revenue from first-tier city projects increased to 47%, further improving asset quality; 2) Structurally, the proportion of revenue from shopping malls and office buildings was 33% and 48% respectively, with the rental rate of shopping malls in the first half of the year at 96.2%, sales and customer traffic growing by 6.7% and 11.0% year-on-year respectively, and an operating profit margin of 56.8%. During the period, the new lease area of office buildings was 510,000 square meters, with a renewal rate increasing by 16 percentage points to 77%. Continued optimization of debt structure, ongoing cost advantages In the first half of 2025, the company's interest-bearing liabilities further decreased to 227.5 billion yuan, a reduction of 14.1 billion yuan in the period, with an asset-liability ratio of 53.7%, and cash on hand at the end of the period was 109 billion yuan, accounting for 12.1% of total assets, with operating cash flow continuing to be positive; The average financing cost of the company in the first half of 2025 was 2.9%, and the total distribution and administrative expenses accounted for approximately 3.8% of revenue, with administrative expenses decreasing by 16.9% year-on-year. Risk warning: Industry continues to reduce balance sheets unilaterally, market downturn exceeds expectations.