CICC has released a research report maintaining an "Outperform" rating on China Overseas Development (00688), with a target price of HK$20.3, corresponding to 0.49 times 2026 price-to-book ratio and 41% upside potential. The company's first-half 2026 revenue grew 17.3% year-on-year to RMB 97.6 billion, while gross margin declined 1.3 percentage points year-on-year to 16.1%. Attributable core net profit fell 9.7% year-on-year to RMB 7.93 billion, with results aligning with the firm's expectations. The company declared an interim dividend of HK$0.23 per share, representing a payout ratio of 37% and an interim dividend yield of 1.65%.
According to company announcements, first-half 2026 full-caliber sales (including Hongyang) increased 11.8% year-on-year to RMB 134.3 billion, maintaining the industry-leading position with equity sales of RMB 123.6 billion. Excluding Hongyang, sales contribution from Beijing, Shanghai, Guangzhou, Shenzhen and Hong Kong reached 69%, up from 57% in 2025. Year-to-date equity land acquisition spending decreased 39% year-on-year to RMB 33.3 billion, with July and August contributing nearly 80% of the total, indicating a notable acceleration in recent months.
The company's financial position remains robust, with pre-sales liability ratio and net debt ratio held at low levels of 45.3% and 27.2% respectively by end of first-half 2026. Average financing cost edged down slightly to 2.76%. During the first half, settlement revenue grew significantly, gross margin declined marginally, and the three expense ratios continued to compress. The year-on-year decline in earnings was primarily driven by reduced profits from joint ventures and associates, alongside a net fair value loss of RMB 740 million on investment properties.
Management indicated at the results conference that, supported by warming property market sentiment in leading cities and a 25% quarter-on-quarter increase in new supply to RMB 100 billion in the second half—including benchmark projects such as Anlan Shanghai—full-year sales are expected to surpass last year's RMB 251.2 billion. Total sellable resources (including/excluding Hongyang) stand at RMB 460 billion/RMB 400 billion, down 23% from the beginning of the year. On investment, the company plans to capitalize on large-scale project opportunities in Beijing and Shanghai as well as structural opportunities in second-tier cities, combining M&A and other diversified approaches to achieve the full-year investment target of RMB 80-100 billion set at the beginning of the year.
Regarding settlements, given the steady increase in sales scale from 2022 to 2024 and the expectation that more than half of the RMB 184.4 billion in contracted but unsettled sales will be recognized within the year, CICC believes the full-year settlement scale could continue its high-growth trajectory, though settlement margins may remain under relative pressure.
Key risks include settlement progress of on-balance-sheet and off-balance-sheet projects deviating from expectations, and land acquisition progress falling short of projections.
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