CICC: Maintains Outperform Industry Rating for CHINA OVERSEAS (00688), Raises Target Price to HK$17.2

Stock News
08/28

CICC released a research report stating that it maintains unchanged profit forecasts for CHINA OVERSEAS (00688), with core profit of RMB 15 billion in 2025 (down 4.3% year-on-year) and RMB 16 billion in 2026 (up 6.5% year-on-year). The firm maintains its outperform industry rating and, considering the overall market valuation recovery, raised the target price by 10% to HK$17.2 per share (corresponding to 0.45x 2025 price-to-book ratio), representing 25% upside potential from the current stock price. The company currently trades at 0.36x 2025 price-to-book ratio.

CICC's main viewpoints are as follows:

1H25 Performance Meets Market Expectations The company announced its first half 2025 results: net profit attributable to shareholders was RMB 8.6 billion, with core net profit (excluding post-tax investment property revaluation gains and foreign exchange net gains/losses adjustments) of RMB 8.78 billion, down 17.5% year-on-year, meeting market expectations. Core net profit margin remained at 10.6%, maintaining double-digit levels. Interim dividend per share was HK$0.25, corresponding to a payout ratio of 29% (based on core net profit), basically consistent with historical levels.

Sales and Investment Intensity Continue to Lead the Industry in the First Half The company achieved contract sales of approximately RMB 120 billion in the first half (down about 19% year-on-year), with tier-one mainland cities and Hong Kong accounting for about 46%. In the first half, the company's equity land acquisition reached RMB 40.11 billion, with July alone investing RMB 14.9 billion. The cumulative investment scale ranks first in the industry, with tier-one city land acquisition accounting for about 64%. The company's competitive advantages in acquiring comprehensive large-scale projects through urban renewal and public market channels are quite prominent.

Financial Position Maintains Consistent Stability In the first half, the company's sales and other operating cash receipts were approximately RMB 96.9 billion, with capital expenditure of about RMB 83.7 billion, maintaining positive operating cash flow. Cash on hand at period-end was approximately RMB 108.7 billion (cash-to-short-term debt ratio of 4.9x), down about RMB 15.2 billion from end-2024, while interest-bearing debt scale decreased by about RMB 14.1 billion in the first half, basically matching. As of end-1H25, the company's asset-liability ratio was 53.7% (55.8% at end-2024), with short-term debt ratio further reduced to 7.6% (11.8% at end-2024). Average financing cost in the first half was 2.9%, in the lowest range in the industry.

Commercial Property Operations Show New Highlights The company's commercial property revenue in the first half was RMB 3.54 billion, including shopping center revenue of RMB 1.17 billion. Shopping center business operating efficiency steadily improved, with mature projects operating for three years or more achieving an occupancy rate of 96.2%, while sales and customer traffic increased 6.7% and 11% year-on-year respectively in the first half. Additionally, the company's first consumer infrastructure public REITs issuance is progressing orderly, which may provide new space for the company's asset value realization in the future.

Company Provides Stable Guidance for 2025 Development, Focus on Potential Positive Signals from Investment in Second Half The company's investment expansion intensity has marginally increased since July. The firm expects there may still be opportunities to land large-scale urban renewal projects in key tier-one cities, while Q4 is traditionally the company's peak land acquisition season. For the full year, the firm believes equity investment may exceed the initial guidance of RMB 100 billion, which could provide a solid foundation for continued good performance in future sales and profits.

Risk Warnings: Land investment intensity in the remainder of the year may fall short of expectations, and contract sales performance in the second half may be weaker than expected.

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