Revenue and core earnings grew by 11% to RMB88.6bn and 0.3% to RMB17.9bn in 1H20, respectively. Contracted sales amount only gained 0.1% to RMB193.5bn in 7M20. Land acquisition has accelerated since Jul. COLI owned RMB111.4bn cash on hand and balance sheet with net gearing ratio of 33%. We believe it has strong war chest for future business expansion. Raise TP to HK$30.49. BUY.
- Core interim profit gained 0.3% in 1H20. Revenue gained 11.0% to RMB88.6bn but net profit tumbled by 3.7% to RMB20.5bn in 1H20. Excluding the revaluation gain, core earnings increased by 0.3% to RMB17.9bn in the period. Gross margin declined by 4.3ppt to 30.6%. SG&A expenses were under well control in 3.0% of revenue (decline 0.1ppts from 1H19). 4x increase of deduction from minority interest (from RMB0.4bn in 1H19 to RMB2.3bn in 1H20) dragged down bottom line. Interim dividend maintained at HK$0.45.
- Contracted sales increased 4% in 1H20. Contracted sales amount and area gained by 4.2% to RMB172.0bn and 3.5% to 9.54mn sq m in 1H20, respectively. Given 24mn sq m new start in 2020, we forecast full year sales target to be RMB374bn. So COLI accomplished 52% of our estimated sales target till Jul as contracted sales amounted to RMB21.5bn in Jul 2020. As of Jun 2020, unbooked pre-sales (ex COGO) amounted to RMB155.5bn.
- Prudent land acquisitions. COLI acquired 21 land parcels in 13 cities with attributable GFA of 5.62mn sq m in 1H20. Total attributable land budget is RMB140bn in 2020. Land acquisition pace has accelerated since Jul. From 1 Jul to 21 Aug, COLI further acquired 15 projects with attributable GFA of 3.3mn sq m. As of Jun 2020, total and attributable land bank amounted to 90.06mn sq m and 61.59mn sq m, respectively.
- One of the best balance sheets in property sector. Net gearing ratio was 33.0% and cash on hand totaled RMB111.4bn as of Jun 2020. In addition, cost of debt was only 4.01% in the period. Chinese authorities has recently tightened the financing requirements for property companies. We believe COLI would leverage its balance sheet to capture more land bank in the future.
- Maintain BUY. Other than adding back non-core earnings in 2020, we maintain our earnings forecast unchanged. We forecast net profit to grow by 20.5% to RMB43.9bn in 2020 and 11.2% to RMB46.0bn in 2021. We raise end-20 NAV forecast from HK$40.17 to HK$43.55. As a result, we lift TP from HK$28.12 to HK$30.49, representing a 30% discount to NAV.
