FIRST SHANGHAI: CHINA OVERSEAS (00688) rated as "buy" with a target price of 19.35 Hong Kong dollars.

FIRST SHANGHAI issued a research report stating that CHINA OVERSEAS (00688) has been highly focused on high-energy cities and core areas for investment in recent years, with a reputation for "good products" and continuously increasing market share. At the same time, the company's financing capability and cost control ability lead the industry, providing solid support for the improvement of the company's profitability and long-term development. The bank expects the company's core net profit attributable to equity holders to be 16.1 billion yuan, 17.1 billion yuan, and 18 billion yuan respectively for the years 2025 to 2027, with a price-earnings ratio of 12 times for 2025 and a target price of 19.35 Hong Kong dollars, with a buy rating. The main points of FIRST SHANGHAI are as follows: Ranked second in sales in 2025H1, strong sales in key cities In the first half of 2025, the company's contract sales were approximately 120.15 billion yuan, a 19.0% decrease year-on-year, ranking second in the industry. The contracted sales area was about 5.12 million square meters, a 5.9% decrease year-on-year, with an average selling price of 23,500 yuan per square meter, a 1% increase, and an overall market share of 2.72%, maintaining a leading position in the market. The company continues to focus on mainstream cities and locations, with contract sales in Beijing, Shanghai, Guangzhou, Shenzhen, and Hong Kong accounting for 53.7% of the total sales of the group (excluding China Overseas Property), with sales in Beijing exceeding 30 billion yuan, mainly due to the company's focus on "good houses" and setting market benchmarks, leading to strong sales of projects in a down market. Adequate and high-quality land reserves In the first half of 2025, the company acquired a total of 40.37 billion yuan of land, with a total land area of 2.58 million square meters, leading the industry in land acquisition scale. As of the end of July, 86% of the new land investments were in first-tier and strong second-tier cities, with high-quality land reserves. As of the end of June 2025, the company's total land reserves were approximately 40.47 million square meters (of which China Overseas Property's land reserves were 13.54 million square meters). The total unsold amounts of the group's subsidiaries remained at a high level of 208.8 billion yuan (of which China Overseas Property accounted for 33.8 billion yuan), providing solid support for stable and rising performance. Although the profit margin has decreased, it still leads the industry, and the debt ratio continues to decline In the first half of 2025, the company's revenue decreased by 4.3% year-on-year to 83.22 billion yuan, with an overall gross profit margin of 17.4%, a 4.7 percentage point decrease year-on-year; the proportion of distribution and administrative expenses to income was 3.8%, leading the industry. The core net profit attributable to equity holders decreased by 17.5% year-on-year to 8.78 billion yuan, with a core net profit margin decrease of 1.6 percentage points to 10.6%, but still in the top tier of the industry in terms of value creation. The interim dividend was 25 Hong Kong cents per share, with a payout ratio of 31.3% based on core net profit. The company's asset-liability ratio was approximately 53.7%, a decrease of 2.1 percentage points from the end of 2024, and the average cost of financing further decreased to 2.9%. The company had cash on hand of approximately 108.96 billion yuan, accounting for 12.1% of total assets, with the proportion of RMB loans increasing to 84.8%, the debt structure continuing to optimize, and sufficient development momentum. Business operational efficiency improved, with the first REIT being accepted During the period, the company's business operating income was 3.54 billion yuan, basically flat year-on-year, with the proportion of revenue from first-tier cities increasing to 47%. The rental rate of mature shopping centers was 96.2%, with a 6.7% year-on-year increase in overall sales and a 3.9% increase in same-store sales, and an operating profit margin of 56.8%. For mature office projects, the rental rate was 78.3%, with a renewal rate increase of 16 percentage points to 77%, and an operating profit margin of 59.7%. The company's first commercial REIT was accepted by the China Securities Regulatory Commission and the Shenzhen Stock Exchange, marking a key progress in building full-cycle asset management capabilities.