Date: October 18, 2024
Broker: CGS International

Company Overview

China Overseas Land & Investment Ltd (COLI) is a state-owned enterprise (SOE) developer, known for its robust market presence in the real estate sector. The company has a solid SOE background and is well-regarded for its financial stability and strategic market share.

Recent Developments

Positive Market Feedback Post-“517” Announcement

COLI reported that following the announcement of “517,” there was a noticeable increase in foot traffic at their show flats. However, despite this uptick, actual sales figures have not yet aligned with the increased interest.

Sales Performance and Management Outlook

• 5M24 Sales: COLI experienced a 31% quarter-on-quarter decline in sales during the first five months of 2024.
• Full-Year Guidance: Despite the decline, the management remains optimistic and has reiterated their guidance for stable year-on-year sales growth. They attribute this outlook to having sufficient sellable resources for the remainder of the year.

Financial Expectations

• Stable Growth: Management anticipates a steady booking gross profit margin (GPM) year-on-year, which suggests confidence in maintaining profitability.
• Core Net Profit & Dividend Payout: There is an expectation of core net profit growth year-on-year, with a commitment to maintaining a dividend payout ratio of 30% based on core net profit for FY24.

Investment Thesis

Reiterate “Add” Recommendation

The analysis reiterates an “Add” rating for COLI due to:

1. Strong SOE Background: COLI’s state-owned status provides a solid backing and stability, which is advantageous in the current market.
2. Solid Balance Sheet: The company’s financial health remains robust, supporting its growth and operational stability.
3. Market Share Expansion: COLI is expected to continue gaining market share, particularly as other developers struggle with distressed sales. This positions COLI favorably in the real estate sector.

Conclusion

China Overseas Land & Investment Ltd shows resilience and optimism, with management maintaining a positive outlook for the year despite a recent dip in sales. The company’s strong backing, financial health, and strategic market positioning are key factors supporting the continued “Add” recommendation.