China International Capital Corporation (CICC): Maintains the "Outperform" rating for CHINA RES LAND (01109) with a target price of HKD 46.7.

China International Capital Corporation (CICC) released a research report stating that there has been a systemic adjustment in the real estate sector recently. They believe that CHINA RES LAND (01109) has resilient operations in its long-term first growth curve, with stable growth in its second and third curve businesses. They recommend paying attention to potential allocation opportunities after market sentiment stabilizes. The firm maintains its profit forecasts for 2026 and 2027, corresponding to RMB 21.8 billion and RMB 22.7 billion, with year-on-year changes of -3% and +4%, respectively. The current stock price corresponds to a P/B ratio of 0.58 times and 0.54 times for the years 2026 and 2027. They uphold an "outperform" rating for the sector, considering the company has ample saleable resources and a stable leverage ratio, thus retaining a target price of HKD 46.7 per share, corresponding to a P/B ratio of 0.94 times and 0.88 times for 2026 and 2027, respectively, indicating an upside potential of 61%. CICC's main points are as follows: 1H26 performance meets expectations The company announced its mid-year performance for 2026: revenue decreased by 29% year-on-year to RMB 67.9 billion, with development sales, rental income from operating properties, and light asset management fees down by 39%, up by 17%, and flat, respectively. Due to adjustments in the settlement structure, the gross margin for 1H26 increased by 1.4 percentage points to 25.4% compared to the same period last year, with development sales and rental income margins decreasing by 5.6 percentage points and increasing by 0.4 percentage points to 10.0% and 73.3%, respectively. Finally, core net profit recorded a year-on-year increase of 2% to RMB 10.16 billion, with an interim dividend per share remaining unchanged at RMB 0.20, in line with expectations. Financial stability, low financing costs As of the end of 1H26, interest-bearing liabilities decreased by 3.7% from the beginning of the year to RMB 271.2 billion, with short-term loans accounting for 19%. The net debt ratio slightly increased to 41.0%. The weighted average financing cost at the end of the period was 2.63%, down approximately 9 basis points from the beginning of the year. During the period, new financing amounted to RMB 11.5 billion, with coupon rates ranging from 1.55% to 2.00%. First growth curve demonstrates strong resilience, with quality and quantity in land reserves In 1H26, the company achieved contracted sales of RMB 116.5 billion, a year-on-year increase of 6% (covering key real estate enterprises at -8%). Meanwhile, the land acquisition expenditure for 1H26 was RMB 34.1 billion (with an equity ratio of 95%), with investment intensity and replenishment strength at 35% and 97%, respectively (covering key real estate enterprises at 29% and 63%). As of the end of 1H26, the value of unsold properties was about RMB 500 billion, indicating sufficient reserves. Although current housing policies may disrupt fourth-quarter sales plans, the firm believes that the company is still expected to maintain its leading position in sales among the top three in the industry. Second growth curve shows stable growth, continuously widening the moat The company's self-owned shopping centers reported retail sales of RMB 128.19 billion in 1H26, a year-on-year increase of 16.4%, and rental income rose by 19.4% to RMB 12.44 billion, significantly outperforming the social retail sector. During the period, the second phase of Xiamen MixC opened, maintaining the number of operating shopping centers at 98. In the asset management sector, the asset management scale reached RMB 524.3 billion at the end of the period (an increase of RMB 22.1 billion from the beginning), with continued expansion in the asset management footprint. Risk warning: The housing market's degree of prosperity may decline more than expected, and rental growth for hold properties may fall short of expectations.