JPMorgan released a research report stating that CHINA OVERSEAS (00688) recorded a core net profit of RMB 8.8 billion in the first half, down 17% year-on-year, which was 4% higher than the bank's estimate. This was mainly affected by a 4% year-on-year decline in revenue and a 25% year-on-year drop in EBIT. Dividend per share fell 17% year-on-year to HK$0.25, with the payout ratio remaining unchanged. The gross margin was 17.4%, down 4.7 percentage points year-on-year. The rating is Overweight with a target price of HK$16.5.

The bank noted that CHINA OVERSEAS maintains a healthy balance sheet, with the net debt ratio declining slightly from 29% to 28%. The cash coverage ratio for short-term debt was 4.9 times (compared to 4.3 times at the end of 2024), showing solid performance and ranking among the strongest levels in the industry. However, the gross margin of 17.4% declined 4.7 percentage points year-on-year, but improved 3.6 percentage points on a half-year basis. The year-on-year gross margin contraction was in line with expectations due to the high base in the same period last year (22.1% in the first half of 2024). However, JPMorgan expects the gross margin to still face moderate pressure in the second half of 2025 (forecast to be in the mid-teens percentage). Meanwhile, the core net profit margin declined 2.8 percentage points year-on-year to 10.2%, but improved 4.1 percentage points on a half-year basis.

Additionally, JPMorgan pointed out that CHINA OVERSEAS's investment property valuations appear high. The latest book value of investment properties is RMB 210 billion, compared to annualized investment property income of RMB 7 billion, implying a capitalization rate of 3.3%, which remains low. Currently, market consensus forecasts for fiscal 2025 net profit only show a low single-digit percentage year-on-year decline. Market earnings forecasts may be subject to further downward revisions.