China Overseas Land & Investment Earnings: Resilient Margins Despite Soft Booking, Shares Cheap

No-moat China Overseas Land & Investment, or COLI, reported a 2.5% year-on-year revenue dip for first-half 2024. Operating profit also decreased by 6% but slightly beat our estimate given better-than-expected gross margins of properties booked. Additionally, the company’s profitability was bolstered by rising mix of higher-margin nondevelopment revenue to 6% from 4% a year ago. Management anticipated near-term challenges to linger but reiterated the goal of gaining residential market shares in wealthy cities. As we expect a contracted sales (mostly presale) decline for 2024, we cut our 2025-28 revenue forecasts by 2%-4% but raise our midcycle operating margin forecast by 20 basis points to 19.7%. We maintain our fair value estimate at HKD 21.0 per share, and COLI remains our preferred pick for China real estate given its more resilient earnings amid sector downturn.