CICC has released a research report stating that considering the pressure Greentown China (03900) faces in settlement gross margins and impairment provisions, the firm has lowered its 2025/2026 profit forecasts by 58%/25% to RMB 500 million/1.2 billion respectively, representing year-over-year changes of -68%/+132%. The firm maintains its outperform industry rating and, considering changes in market risk appetite, maintains a target price of HK$13.0 (corresponding to 0.8x/0.8x 2025/26 P/B ratios with 20% upside potential). The current stock price trades at 0.7x/0.7x 2025/26 P/B ratios.
CICC's main viewpoints are as follows:
**H1 2025 Results Meet Market Expectations**
Greentown China announced its H1 2025 results: revenue declined 23% year-over-year to RMB 53.4 billion; reported gross margin increased 0.3 percentage points year-over-year to 13.4%; net profit attributable to shareholders dropped 90% year-over-year to RMB 210 million, in line with previous profit warnings. This was mainly due to decreased settlement scale, non-financial asset impairment losses increasing by RMB 300 million year-over-year to RMB 1.72 billion, and higher minority shareholders' profit and loss proportions. The company did not declare an interim dividend, consistent with its previous dividend policy.
**Investment Strategy: Deep Cultivation in Core Cities with Focus on Conversion and Turnover**
In H1 2025, the company acquired 35 land parcels with equity land acquisition amount of RMB 36.2 billion (corresponding to 67% equity land acquisition intensity and 77% equity ratio), adding new saleable value of RMB 90.7 billion, ranking third on CRIC's land acquisition list (up one position from the same period last year). Regarding the quality of newly purchased land parcels in the first half, the company focused on core cities (Tier 1 and 2 cities account for 88% of saleable value, with Hangzhou accounting for 47%) while moderately replenishing inventory in Tier 3 and 4 cities in Zhejiang where brand advantages are significant. The company also emphasized conversion efficiency and sales velocity, expecting all newly expanded projects in the first half to achieve first launches within the year, with an estimated annual sales conversion rate of approximately 55%. The firm estimates the project-level profit margin for the company's new land acquisitions in H1 2025 to be around 9-10%.
**Stable Financial Position with Smooth Financing Channels and Declining Costs**
Benefiting from good sales collection rates (H1 2025 collection rate of 96%) and improved project operational efficiency (H1 2025 new project operating cash flow positive cycle shortened by 0.8 months to 11.5 months compared to 2024), the company's three red line indicators remained generally stable, with net debt ratio/adjusted debt ratio/cash-to-short-term debt ratio at 63.9%/67.1%/2.9x respectively. In terms of refinancing, the company completed RMB 7.7 billion in domestic bond financing in the first half (medium to long-term credit bond issuance costs declined from 4.37% in March to 3.27% in August), driving the average financing cost at end-H1 2025 to decline 0.5 percentage points from end-2024 to 3.4%. In the first half, the company completed overseas debt replacement of approximately USD 802 million (including USD 452 million in bond repurchases) and successfully issued USD 500 million in 3-year bonds.
**Full-Year Sales Expected to Continue Strong Performance**
The company's total contracted sales from January to July declined 11% year-over-year to RMB 85.7 billion, with CRIC equity sales ranking advancing one position to fifth place. The company announced second-half total supply of RMB 176.3 billion (excluding contributions from new land acquisitions from July onwards), with Tier 1 and 2 cities accounting for 83% of saleable value. The company expects full-year sales scale to be roughly comparable to last year's level.
**Risk Factors:** Industry recovery slower than expected; settlement scale and profit margins lower than expected.