CR Land Earnings: Recurring Revenue to Outgrow Property Development Booking, Shares Undervalued

No-moat CR Land defied broad industry weakness by printing a respective 8% year-on-year growth in property development and investment revenue for first-half 2024. That said, we expect sluggish home presales starting in 2023 to weigh on its top line through 2025, leading to a mix shift to higher-margin nondevelopment recurring income. Property development’s gross margin worsened to 12.4% in the first half from 17.0% a year ago, partly offset by shopping malls’ gross margin increase. As such, we cut our revenue forecasts by 2%-11% for 2024-28 while lifting midcycle operating margin by 30 basis points to 22.0%, leading to an unchanged HKD 43.0 fair value estimate. CR Land remains one of our top picks in the China real estate sector given its resilient earnings and healthy balance sheet.