China Resources Land Earnings: Robust Recurring Income Growth to Lift Earnings, Shares Attractive

We retain our fair value estimate for China Resources Land, or CR Land, at HKD 43 per share following its impressive 2023 results, underpinned by respective top-line year-on-year growths of 20% and 26% for its property development and recurring businesses—mainly property investment and management. While the firm’s residential properties saw strong bookings for 2023, we expect the revenue growth to slow in 2024 as home sales remain weak. Nonetheless, we foresee an accelerating inventory turnover through 2028 as homebuyers continue to trust CR Land’s project quality. Additionally, shopping mall rental and property management income should keep expanding amid rollout in top cities, in our view. This would also enhance the company’s profitability, as margins for recurring income have largely exceeded that for property development. While we raise our weighted average cost of capital assumption to 10.0% from 9.6% given higher financial risks, this has a limited impact on our valuation as our midcycle operating margin forecast of about 22% is unchanged. Despite the recent runup, we view CR Land’s shares as cheap and think the market is still overlooking the company's robust earnings and financial strength.