China Overseas Land & Investment Earnings: Valuation Cut Given Lower Bookings and Higher Inventory

We lower our fair value estimate on China Overseas Land & Investment, or COLI, to HKD 26.00 from HKD 31.00 following slower revenue booking and inventory absorption assumptions. First-half revenue fell 14.1% year on year, missing Refinitiv consensus, which we mainly ascribe to slower inventory clearance in lower-tier cities. Although we expect a material top-line improvement for the second half off a low base, we cut our 2023 forecast revenue and net profit by a respective 7.8% and 4.2%. In addition, we push back our inventory clearance assumption to 2027 on a prolonged negative homebuying sentiment. While management maintained its guidance for 2023 sales to grow 20%, we think this will only translate to bookings starting in 2025. Despite the valuation revision, COLI remains our top pick as its shares are trading at a 40% discount to our fair value estimate. We believe the market is underappreciating COLI’s robust landbank in wealthy regions and healthy margins, and view potential favorable policy measures as near-term catalysts for the firm.