In-Depth Analysis of China Resources Land – December 2024

Report by UOB Kay Hian – December 3, 2024

China Resources Land Limited, a prominent player in the real estate sector, is under the spotlight with a detailed analysis by UOB Kay Hian. This comprehensive report delves into the company’s current standing, future prospects, and strategic initiatives. The analysis, dated December 3, 2024, offers valuable insights for investors and stakeholders in the real estate market.

Company Overview

China Resources Land Limited, through its subsidiaries, is deeply involved in property development and investment. The company is listed under the real estate sector with a Bloomberg ticker of 1109 HK. With a market capitalization of HK\$165,794.3 million, it stands as a formidable entity in the real estate domain. The company’s stock performance has been subject to fluctuations, reaching a 52-week high of HK\$33.7 and a low of HK\$18.56.

Strategic Insights from the Reverse Roadshow in Shenzhen

In a strategic move, China Resources Land hosted a reverse roadshow in Shenzhen, showcasing their Dream City Project in Guangming and CR Mixc mall in Nanshan. Notably, in October 2024, the company registered positive growth in property sales and same-store retail sales. Despite a slight slowdown in November, the fourth quarter of 2024 saw improvements compared to the third quarter.

The management remains optimistic about the development margin in 2025, demonstrating a cautious approach towards consumption growth. However, they have factored in rising macroeconomic risks, adjusting their earnings forecast for 2025 and 2026 by 4.5% and 10.4% respectively, leading to a revised target price of HK\$32.40. The recommendation to maintain a ‘BUY’ rating underscores confidence in the company’s strategic direction.

Residential Projects and Market Impact

The Dream City project in Guangming, located about 40 minutes from Futian CBD, is a mega project offering 15,000 units. The first batch of 1,091 units launched in December 2023 achieved an 86% sell-through rate. Strong sales in October 2024 led to a price increase from 80% to 85% of the registration price, though November saw a mild softening in sales performance. The majority of buyers are Shenzhen locals, reflecting a strong local demand.

Outlook on Property Sales Margin for 2025

Management projects a positive outlook for the margin of property sales in 2025, anticipating the stabilization of property prices in tier 1 and 2 cities. New projects in core cities acquired in 2024 are expected to yield a gross profit margin of over 15%, suggesting improved margins for property sales in the coming year.

Shopping Mall Operations and Consumer Sentiment

CR Mixc malls experienced a recovery in same-store sales growth (SSSG), reaching 7.2% year-over-year in October 2024. This recovery marks an improvement from the negative to 0% SSSG seen in the third quarter. The overall performance of CR Mixc malls in the first ten months of 2024 outpaced the national retail sales increase of 3.5%. Despite a softening in November, the management maintains a prudent outlook on China’s medium-term consumption growth.

Financial Projections and Key Metrics

These financial projections highlight a cautious yet optimistic growth trajectory for China Resources Land, with a focus on maintaining profitability and managing risks.

Earnings Forecast and Valuation

Considering the increasing geopolitical risks and macroeconomic uncertainties, the earnings forecast for 2025 and 2026 has been revised downwards by 4.1% and 10.1% respectively. However, the 2024 earnings estimates remain unchanged. The report maintains a ‘BUY’ recommendation with a lower target price of Rmb32.55, indicating a potential 4.0% dividend yield for 2025. The SOTP valuation model suggests a robust valuation for the company’s property development and recurring income.

Share Price Catalysts

Potential catalysts for the share price include stronger-than-expected fiscal and monetary policies that may be announced in December 2024 and March 2025. These could provide a boost to the company’s market valuation and investor sentiment.

Conclusion

China Resources Land Limited presents a compelling investment opportunity in the real estate sector, backed by strategic initiatives and a cautiously optimistic financial outlook. The company’s focus on core city developments and prudent management of economic risks positions it well for sustained growth. Investors are encouraged to consider the insights and forecasts provided by UOB Kay Hian in this comprehensive analysis.