COLI 2022 Results Disappoint, but Earnings Will See Swift Recovery; FVE Lowered Slightly

No-moat China Overseas Land & Investment, or COLI, reported weak 2022 numbers with revenue dropping 26% year on year and net profit down 43%. However, we expect around 11% year-on-year growth in 2023-24 given sales recovery, normalizing delivery, and improving homebuyer confidence. We believe earnings have bottomed especially as the one-off write-downs of inventories and jointly developed projects and foreign exchange losses in 2022 are unlikely to be repeated in 2023 and are non-cash flow items. We foresee that COLI will post a meaningful 22.4% EPS growth in 2023 off a low base. We also like the countercyclical landbank acquisition by COLI with 85% of land premium allocated to higher-tier cities in 2022. That said, we are slightly more conservative on our long-run gross margin assumptions due to heightened land cost, which leads to a mild reduction in our fair value estimate to HKD 29 from HKD 30. At our valuation, COLI is trading at around 0.8 times price/book, a reasonable level compared with 0.5-1.2 times in 2019-2021. Also, we think long-term investors will find COLI attractive at the current share price level at its 5%-6% dividend yield.