Goldman Sachs maintains Buy on China Overseas, with leading 1H26 sales but margins still under pressure

Overview

This is a 1H26 earnings preview report by Goldman Sachs on China Overseas Land & Investment (0688.HK). The core conclusion is that the company’s sales performance is stronger than expected and it has leading asset quality and liquidity advantages among SOE developers, but industry-wide pricing pressure still weighs on development gross margin and core earnings. Goldman Sachs maintains its Buy rating and HK$14.7 target price.

Core views

Goldman Sachs’ positive view is driven by sales and asset quality: 1H26 contracted sales rose 12% yoy to Rmb134bn, supported by high-end and luxury projects in prime Tier-1 city locations; over 80% of the company’s land bank is located in Tier-1 and Tier-2 cities, with low aged inventory, making near-term impairment risk relatively manageable. The main negative factor is margin pressure: Goldman Sachs cuts average 2026E-28E development gross margin by 1 percentage point and expects 2026E core EPS to decline 6%, but to recover from 2027E as margins stabilize.

Analysis framework

The report uses an earnings preview, forecast revisions, peer comparison, and NAV valuation framework, with a focus on contracted sales, land investment intensity, project gross margin, inventory impairment, core earnings, dividend yield, and relative NAV discount.

Methodology notes

• Valuation methodsNAV-based target price

  NAV discount valuation

  The HK$14.7 target price is based on end-2026 NAV per share with a 10% discount; the report notes that the company is currently trading at about a 17% discount to end-2026 NAV.

• Fundamental forecastingEarnings preview and estimate revision

  Earnings preview and forecast adjustment

  Based on 1H26 sales performance, land bank quality, pricing pressure, and gross margin assumptions, Goldman Sachs adjusts its 2026E-28E revenue, gross margin, and core earnings forecasts.

• Factor frameworkGS Factor Profile

  Comparison across Growth, Financial Returns, Multiple, and Integrated factors

  Goldman Sachs discloses that its factor framework compares individual stocks with the market and industry peers across growth, financial returns, valuation multiples, and integrated metrics.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Overseas Land & Investment (0688.HK)

  Core covered name

  Strengths

  Contracted sales lead peers, land bank quality is high, over 80% is located in Tier-1 and Tier-2 cities, aged inventory is relatively low, liquidity and asset quality are solid, and dividend yield is relatively attractive.

  Weaknesses

  Development gross margin remains under pressure, 2026E core EPS is expected to decline, and 1H26 land investment pace was slow.

  Comparison

  1H26 contracted sales growth outperformed the average of strong SOE developers covered by Goldman Sachs; valuation is at a 17% discount to 2026E NAV, narrower than the 34% average discount in SOE coverage, but dividend yield is higher than the coverage average.

  Risks

  Sales and gross margin come in below expectations; land bank scale is below expectations and drags on long-term growth.

Key data

• 1H26 contracted salesRmb134bn, +12% yoyDriven by sales of high-end and luxury projects in prime Tier-1 city locations.
• 2026E contracted sales forecastRmb265bnGoldman Sachs raises the forecast by 11%, implying broadly flat 2H26E and about 6% yoy growth for full-year 2026E.
• 2026E-28E development revenue forecastAverage raised by 2%Mainly reflects stronger-than-expected sales performance.
• 2026E-28E development gross marginAverage cut by 1 percentage point2026E development gross margin is expected at 14%, close to the midpoint of management’s 13%-15% guidance range at the start of the year.
• Core earnings forecastAverage cut by 5%2026E core EPS is expected to decline 6%, then recover from 2027E as margins stabilize.
• 1H26 land investment intensityHigh-single-digit percentage of contracted salesBelow about 50% in FY25, Goldman Sachs’ full-year 2026E assumption of 40%, and the average twenty-plus percent level for tracked SOE developers in 1H26.
• 1H26 gross margin on new projectsAbout 29%Goldman Sachs estimates this is 5 percentage points higher than the average of tracked developers.
• Valuation17% discount to 2026E NAV, 0.4x 2026E P/B, average 2026E-28E dividend yield of 4%The SOE coverage average is a 34% NAV discount, 0.5x P/B, and 2% average dividend yield.
• Target priceHK$14.7The 12-month target price is maintained, based on a 10% discount to end-2026 NAV per share.

Impact & implications

The report implies that China Overseas is more likely to generate relative outperformance while the industry has yet to fully stabilize: a strong balance sheet and high-quality land bank help it capture low-cost investment opportunities and gain share as liquidity pressure persists for private developers. However, margin recovery still depends on whether home price pressure outside higher-tier cities can ease and whether the pace of land investment can recover.

Risks

• Sales performance falls short of expectations.
• Development gross margin comes in below expectations.
• Land investment scale is below expectations, which may affect the long-term growth outlook.
• Inventory impairment or profitability impact is greater than management or market expectations.
• Home price pressure persists in cities below Tier-1 and Tier-2.

What to watch

• Management guidance in 1H26 results on inventory impairment and its impact on profitability.
• Whether 2H26E contracted sales momentum can continue, especially sell-through of high-attention luxury projects in Shanghai and other cities.
• Whether land acquisition pace re-accelerates in 2H26E.
• Progress on new or follow-on C-REITs issuance, bulk sale of office buildings, and other asset disposals, as well as potential disposal gains.
• Potential policy catalysts such as the employment outlook, consumer confidence, and property supply-side support policies.