Core Viewpoint - China Overseas Development (00688) maintains a "recommended" rating with projected EPS of 1.40, 1.38, and 1.52 yuan for 2025-2027, respectively, and a target market value of approximately 218.8 billion HKD, corresponding to a stock price of 20 HKD [1] Group 1: Sales Performance - In the first half of 2025, the company achieved a sales area of 5.12 million square meters, a year-on-year decline of 5.9%, with a sales amount of 120.2 billion yuan, down 19.0% year-on-year, and an average contract sales price of 23,467 yuan per square meter, a decrease of 14.0% [1] - The company continues to focus on first-tier cities, launching the "China Overseas Good House Living OS System" with projects in Beijing and Shanghai [1] - The company recorded a total of 175 billion yuan in unsold but contracted sales, a decrease of 19.8% compared to the end of 2024 [1] Group 2: Land Acquisition and Investment - In the first half of 2025, the company acquired 17 new land parcels with an equity purchase amount of 40.1 billion yuan, achieving an investment intensity of approximately 33.4% [1] - By the end of July 2025, the company had acquired a total of 22 land parcels with an equity purchase amount of 55 billion yuan, with 86% of the acquisitions located in first-tier and strong second-tier cities [1] - The total land reserve area for the company’s series of companies (excluding China Overseas Hongyang) reached 26.93 million square meters, with an equity area of 23.67 million square meters [1] Group 3: Commercial Operations - The company reported commercial operation revenue of 3.54 billion yuan in the first half of the year, remaining flat year-on-year, with revenue from first-tier city projects increasing to 47% [2] - The revenue structure shows that shopping centers and office buildings contributed 33% and 48% respectively, with shopping center occupancy rates at 96.2% and sales and foot traffic increasing by 6.7% and 11.0% year-on-year [2] - The operating profit margin for shopping centers reached 56.8%, while the new signed area for office buildings was 510,000 square meters, with a renewal rate increase of 16 percentage points to 77% [2] Group 4: Debt and Financial Health - The company reduced its interest-bearing debt to 227.5 billion yuan, a decrease of 14.1 billion yuan, with a debt-to-asset ratio of 53.7% [3] - As of the end of the reporting period, the company had cash on hand of 109 billion yuan, accounting for 12.1% of total assets, with positive operating cash flow [3] - The average financing cost for the first half of 2025 was 2.9%, and the combined distribution and administrative expenses accounted for approximately 3.8% of revenue, with administrative expenses down 16.9% year-on-year [3]

Investment Rating - The report maintains a "Recommended" investment rating for China Overseas Development (00688.HK) with a target price of HKD 20 [1][8]. Core Views - The company achieved a revenue of HKD 832 billion in the first half of 2025, a year-on-year decrease of 4.3%, and a net profit attributable to ordinary shareholders of HKD 86 billion, down 16.6% year-on-year [1][7]. - The "Good House" system has established a market benchmark, and the company is actively replenishing its land reserves, with an investment intensity of 33.4% in the first half of 2025 [7][8]. - The company continues to focus on first-tier cities, with a sales area of 5.12 million square meters, a decline of 5.9% year-on-year, and a sales amount of HKD 120.2 billion, down 19.0% year-on-year [7][8]. Financial Performance Summary - The company's gross profit margin for the first half of 2025 was 17.4%, with a core net profit margin of 10.6% [7]. - The total land reserve area as of the end of June 2025 was 26.93 million square meters, with an equity area of 23.67 million square meters [7]. - The company reported a commercial operation income of HKD 3.54 billion, with shopping centers and office buildings contributing 81% of the revenue [7]. Debt and Cash Flow Summary - The company's interest-bearing debt decreased to HKD 227.5 billion, down HKD 14.1 billion, with a debt-to-asset ratio of 53.7% [7]. - The average financing cost for the first half of 2025 was 2.9%, and the operating cash flow remained positive [7][8]. - The report forecasts EPS for 2025-2027 to be HKD 1.40, HKD 1.38, and HKD 1.52 respectively, with a projected market capitalization of approximately HKD 218.8 billion [7][8].

Core Insights - The real estate industry is currently in a destocking cycle, with various segments seeking new models amid a transformation period and increasing market competition [1] - Non-residential asset values are influenced by operational efficiency, with significant differentiation observed across various segments [2] Non-Residential Asset Value Differentiation - Asset value changes are closely related to three factors: maturity of operational models, stability of operational efficiency, and clarity of exit channels [2] - Long-term rental apartments and commercial assets are favored due to mature operational models and stable returns, while office buildings and industrial parks are negatively impacted by economic downturns, leading to high vacancy rates and declining rents [2] Long-Term Rental Apartments Performance - Long-term rental apartments have emerged as one of the most stable segments in the real estate industry, with high occupancy rates [5] - In the past five years, the occupancy rate of concentrated apartments in core cities has remained above 85%, with cities like Guangzhou, Shenzhen, Wuhan, and Nanjing exceeding 93% [5] - REITs (Real Estate Investment Trusts) related to long-term rental apartments have shown strong performance, with underlying asset occupancy rates exceeding 91% [5][8] Policy and Market Trends - The government is promoting high-quality housing supply and integrating rental housing into the "good housing" system, which may impact the personal rental market [12] - Major cities are adopting various strategies to enhance rental housing quality, such as implementing green building standards and offering incentives for compliant projects [12] - The market is witnessing a dual-track development of market-oriented and guaranteed rental housing, particularly in cities like Shanghai and Shenzhen [15] Investment Landscape - The long-term rental apartment market is increasingly recognized for its stability, attracting diverse investors, including funds and insurance capital, which now account for 50% of the market, up from 40% in 2023 [15] - The market is entering a long cycle of asset value differentiation and revaluation, making it suitable for investors seeking stable long-term returns [15]