CICC: Maintains C&D INTL GROUP (01908) Outperform rating, lowers target price to 19.1 HKD.

CICC released a research report stating that considering the pressure of impairment, it has lowered C&D INTL GROUP's (01908) profit forecast for 2025/2026 by 33%/30% to 3.16 billion yuan/3.56 billion yuan, and introduced a forecast of 4.12 billion yuan for 2027. The current stock price trades at 1.0/0.9 times the 2026/2027 price-to-book ratio. It maintains an outperform rating compared to the industry, considering performance adjustments and operational resilience, and lowers the target price by 11% to 19.1 Hong Kong dollars per share, corresponding to 1.3/1.2 times the 2026/2027 price-to-book ratio, with a 32% upside potential from the current stock price. Key points from CICC are as follows: Forecasting a more than 20% year-on-year decline in profit in 2025 Taking into account the settlement pace, the bank estimates that the company's operating income in 2025 will remain roughly the same year-on-year or slightly decrease; the settlement gross margin is expected to stabilize in 2025 due to the adequate inventory structure and historical impairment provisions. Finally, due to the pressure on the real estate market in the second half of 2025, the bank estimates that the core net profit of the company may decrease due to incremental impairment provisions on inventory, with a projected year-on-year decline of 26% to 3.16 billion yuan. Sales resilience, sufficient inventory replenishment, and superior quality, expected to continue stable performance in 2026 The bank estimates that the company's total sales in 2025 will decrease by 9% to 122.8 billion yuan (compared to the top 30, which decreased by 14% year-on-year), maintaining the company's ranking as the 7th largest. The company's "lighthouse strategy" is steadily implemented, with projects in Beijing, Xiamen, Shanghai, and other cities opening for sale and achieving sales rankings in the top cities; in addition, the market shares of sales in Beijing, Shanghai, and Hangzhou have increased to 3.4%/2.7%/10.6%, respectively. At the same time, the company actively seizes opportunities to expand high-quality reserves, and the bank estimates that the company has accumulated land intensity of 63% from January to November in 2025 (compared to an average of 40% for key real estate companies). The bank estimates that the company's available for sale value at the end of 2025 is approximately 270 billion yuan, with 85% and 94% allocated to second and first-tier cities in 2022 and beyond, respectively. With ample and high-quality reserves, it will provide strong support for sales in 2026. Gross margin may stabilize before peers; impairment pressure is concentrated on clearing, expected to go into the "fifteenth-five" period lightly In the first half of 2025, the company confirmed asset impairment of over 10 billion yuan, accounting for 4.1% of the net inventory balance at the end of the first half of 2025. With historical provisions objectively adequate and low-margin resources already reduced to a low level, the bank believes that the company's gross margin in 2025 may stabilize before peers and start a recovery trend. However, considering that the fundamentals are still in a trough period and the company consistently adheres to a cautious impairment recognition principle, the bank has increased its judgment on the full-year impairment volume for the company and lowered its profit forecast. Looking ahead, similar to its parent company Xiamen C&D Inc., the bank believes that the phased release of impairments will effectively enhance future performance resilience and recommends paying attention to future related dividend policy arrangements. Risk warning: Industry recovery may not meet expectations, and real estate policy implementation may fall short of expectations.