China Overseas Land & Investment's first-half results were in line, with sales outperforming peers and a clearer margin recovery path

Overview

The report reviews China Overseas Land & Investment's 1H26 results, focusing on contracted sales, development property margins, commercial property operations, land investment, and the balance sheet. Goldman Sachs believes the results were broadly in line with expectations, the company's sales performance outpaced peers, visibility into margin recovery has improved, and strong cash flow and high-quality land reserves should help it gain market share amid industry divergence. It therefore reiterates its Buy rating and raises the target price.

Core views

China Overseas Land & Investment's 1H26 core profit was RMB7.93bn, down 10% year-on-year. This measure excludes foreign-exchange effects and after-tax revaluation losses on investment properties, and the result was broadly in line with expectations. Recognized development property revenue achieved high-teens year-on-year growth, while the recognized gross margin remained resilient year-on-year and outperformed most covered peers. Lower selling and administrative expenses also provided support. Offsetting factors were weaker-than-expected investment property margins and higher land appreciation tax expenses. The company declared an interim dividend of HK$0.23 per share, broadly flat year-on-year and implying a yield of approximately 2% based on the August 26, 2026 closing price. The balance sheet and cash flow continued to improve. In 1H26, interest-bearing debt decreased by RMB10bn, while the total leverage ratio and net gearing ratio declined by 2 and 7 percentage points, respectively, from end-2025. Financing costs remained at an industry-low level of 2.76%. Net operating cash inflow increased from RMB1.1bn in 1H25 to RMB28.5bn, driven by solid cash collections, a 21% year-on-year reduction in accounts receivable balances, and slower land acquisitions in the first half. Selling and administrative expenses fell 14% year-on-year, equivalent to 2.1% of contracted sales, down 0.6 percentage points year-on-year and better than Goldman Sachs expected, mainly due to centralized procurement and cost management. Management maintained its guidance for 2H26 and full-year sales, expecting full-year 2026 contracted sales to range from stable year-on-year to positive growth. The RMB80bn-RMB100bn land acquisition budget also remained unchanged. Cumulative land premiums paid during the year represented approximately 33%-42% of the budget, and the company plans to execute the remainder through solid cash flow and diversified channels. Management expects the company's margin recovery to outpace peers. Regarding the industry, management believes the market is bottoming, with tier-1 and strong tier-2 cities potentially the first to inflect upward. Drivers include continued policy easing in cities such as Beijing and Shanghai, supply contraction, government destocking measures, and demand-side support such as lower down payments and tax relief. Prices in leading cities have shown early signs of recovery, although weaker cities remain under pressure. Sales volumes and inventories also vary across cities and submarkets, with tier-1 cities showing more pronounced inventory improvement due to lower supply. Leading developers may gain additional share in a K-shaped recovery. On sales, Goldman Sachs raises its 2026E-2028E contracted sales forecasts by an average of 13%, expecting 10% year-on-year growth in 2026E and broadly flat year-on-year sales in 2027E-2028E, outperforming peers. The company's 7M26 sales rose 13% year-on-year to RMB149bn, compared with flat sales for the stronger covered SOE developers and a 16% year-on-year decline for both the average covered company and the top 100 developers. This sales amount was equivalent to 56% of Goldman Sachs' previous 2026E forecast. Saleable resources in 2H26 are approximately RMB400bn, around one-quarter of which comes from newly launched projects, with 85% located in tier-1 or strong tier-2 cities. Key projects in Shanghai, Beijing, and Hangzhou include Shanghai's Anlan project, with saleable resources of approximately RMB52bn. Goldman Sachs' forecast requires a 2H26 sell-through rate of only 35%, below 1H26's 40%. The report also cites approximately 22mn square meters of relevant land reserves in 1H26, 86% of which are located in tier-1 or strong tier-2 cities. The Hong Kong market is another source of sales support. Management estimates that, at the end of 1H26, the company's seven projects for sale and six pipeline projects in Hong Kong had total and attributable saleable resources of HK$126.5bn and HK$49.3bn, respectively, equivalent to approximately RMB108bn and RMB42bn. Since the Hong Kong market began recovering, management has observed strong momentum in both selling prices and sell-through. The recovery path for development property margins has become clearer. Management estimates that the blended gross margin on unbooked sales at the end of 1H26 was 19.2%, the average project gross margin of newly launched projects since 2025 was 20.1%, and the average gross margin on land newly acquired in 1H26 was 18.9%. Accordingly, Goldman Sachs forecasts development property gross margins of 14.2%, 15.7%, and 17.9% in 2026E, 2027E, and 2028E, respectively, compared with 15.8% in 1H26 and an average increase of 0.4 percentage points versus its previous forecasts. However, competition in the land market is intensifying, and the company's ability to continue replenishing land reserves at reasonable costs remains critical to sustaining long-term margin recovery. Investment property operations were broadly stable, but margins were under pressure. In 1H26, investment property revenue rose 1% year-on-year to RMB3.6bn, accounting for 4% of total revenue and remaining broadly stable versus FY25. Office leasing accounted for approximately 48% of investment property revenue and continued to face pressure amid macroeconomic headwinds. Shopping malls performed relatively steadily, with overall retail sales and foot traffic rising 11% and 8% year-on-year, respectively, in 1H26, and same-store figures increasing 5% and 9%, respectively. However, lower occupancy rates for offices and shopping malls caused the investment property margin to decline by 9 percentage points year-on-year and fall below Goldman Sachs' expectations. Goldman Sachs expects the company to continue focusing on commercial assets in the core areas of top-tier cities, which contributed 77% of 1H26 commercial revenue, while using its approved REIT platform to build full-lifecycle commercial asset management capabilities. Goldman Sachs raises its 2026E-2028E underlying profit forecasts by an average of 7%. The adjustments include an average 20% increase in revenue forecasts to reflect faster development property deliveries, a larger volume of unbooked sales, and higher contracted sales forecasts. Unbooked sales rose 5% year-on-year to RMB184bn in 1H26, of which 50%-60% is expected to be recognized in 2H26. Goldman Sachs forecasts blended gross margins of 15.4%, 17.0%, and 19.3% for 2026E-2028E, respectively, compared with 15.5% in FY25. Improvement in development property margins is partially offset by a 2.4-percentage-point reduction in the investment property gross margin and changes in the revenue mix. In addition, Goldman Sachs lowers its forecast for selling and administrative expenses as a percentage of contracted sales by an average of 0.2 percentage points over the same period, while factoring in higher land appreciation tax expenses. Land acquisition was one of the main negatives in the results. In 1H26, land investment intensity declined to a high-single-digit percentage of contracted sales, significantly below more than 50% in FY25 and the covered peer average of approximately the mid-20% range during the same period. Elsewhere, the report discloses that total land reserves were 29.4mn square meters at the end of 1H26, down 11% from end-2025. Management attributed the slowdown to an approximately 40% reduction in land supply in core cities and intensifying competition. The company accelerated land acquisitions sequentially after entering 3Q, with cumulative land premiums paid reaching RMB33bn as of mid-August, equivalent to approximately 13% of 7M26 contracted sales. From an investment perspective, Goldman Sachs believes China Overseas Land & Investment's share price reflects the highest expected impairment losses among SOE peers, but its superior asset quality and liquidity relative to peers do not support such pessimistic pricing. Against a backdrop of industry liquidity pressure, particularly affecting private developers, the company's strong balance sheet enables it to acquire low-cost projects and capture market share from private developers. High-quality land reserves and healthy liquidity should also support more resilient sales and margin performance. In terms of valuation, the company trades at a 23% discount to expected end-2026 NAV, 0.4x 2026E P/B, and a 3.6% dividend yield, compared with averages of a 24% NAV discount, 0.6x P/B, and a 2.2% dividend yield for the stronger covered SOE developers. Goldman Sachs raises its 12-month target price based on end-2026 NAV from HK$14.7 to HK$16.8, continues to apply a 10% NAV discount, and maintains its Buy rating.

Analysis framework

The report first compares 1H26 profit with expectations and peer performance and breaks down the contributions from development properties, investment properties, expenses, taxes, and cash flow. It then assesses 2H26 operating trends by combining management's sales and land acquisition guidance with urban divergence and changes in industry supply and demand. Goldman Sachs subsequently estimates contracted sales based on saleable resources, project locations, and sell-through rates, and projects the margin path using margins on unbooked sales, new projects, and newly acquired land, revising its revenue and profit forecasts accordingly. Finally, the report compares the company with SOE peers using NAV discounts, P/B, and dividend yields to derive its target price and rating conclusion.

Methodology notes

• Valuation MethodNAV Method

  Target price based on end-2026 NAV

  Goldman Sachs estimates per-share value based on the company's net asset value and applies a 10% discount to set the 12-month target price at HK$16.8. The report also assesses the current valuation using the share price's 23% discount to end-2026 NAV.

• Valuation MethodPB valuation

  Peer comparison based on price-to-book ratio

  The report compares China Overseas Land & Investment's 2026E P/B of 0.4x with the 0.6x average for the stronger covered SOE developers to illustrate its relative valuation position.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Estimation based on saleable resources and sell-through rates

  Goldman Sachs projects sales using approximately RMB400bn of saleable resources in 2H26 and an assumed sell-through rate of 35%, while forecasting future revenue and profit based on the volume of unbooked sales, delivery schedules, and project gross margins.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Analysis of the property market bottoming and urban divergence

  The report analyzes market stabilization mechanisms through policy support, supply contraction, government destocking, and demand stimulus, while distinguishing the trends in prices, sales volumes, and inventories between tier-1 and strong tier-2 cities and weaker cities.

• Event-Driven Strategy and Behavioral FinanceExpectation Gap/Expectation Management

  Comparison of results with Goldman Sachs' expectations and management guidance

  The report assesses 1H26 profit, investment property margins, expenses, and taxes against expectations item by item, and adjusts forecasts based on management's guidance for sales, land acquisitions, and margins.

Asset mapping & comparison

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

• China Overseas Land & Investment (00688.HK)

  The report believes the company benefits from high-quality land reserves in tier-1 and strong tier-2 cities, solid liquidity, and sales performance ahead of peers, and is well positioned to gain market share during the industry's K-shaped recovery.

  Strengths

  Sales outperforming peers, stronger asset quality and liquidity, low financing costs, improving operating cash flow, and a clearer recovery path for development property margins.

  Weaknesses

  1H26 core profit declined year-on-year, investment property margins weakened, land appreciation tax expenses exceeded expectations, and land acquisition intensity was relatively low in the first half.

  Comparison

  7M26 sales rose 13% year-on-year, outperforming the flat performance of stronger SOE peers and the 16% average year-on-year decline among covered companies. Its 2026E P/B of 0.4x is below the stronger SOE peer average of 0.6x, while its dividend yield of 3.6% is above the peer average of 2.2%.

  Risks

  Sales or margins may fall short of expectations, and land acquisitions may be below expectations and affect long-term growth.

Key data

• 1H26 Core ProfitRMB7.93bnDown 10% year-on-year, excluding foreign-exchange effects and after-tax revaluation losses on investment properties, and broadly in line with expectations
• 7M26 Contracted SalesRMB149bnUp 13% year-on-year, equivalent to 56% of Goldman Sachs' previous 2026E forecast
• 1H26 Development Property Revenue Growth+18% year-on-yearRecognized gross margin was flat year-on-year, showing greater resilience than SOE peers
• Change in 1H26 Interest-Bearing DebtDecreased by RMB10bnTotal leverage and net gearing ratios declined by 2 and 7 percentage points, respectively, from end-2025
• Financing Cost2.76%The report states that it is at a low level within the industry
• 1H26 Net Operating Cash FlowRMB28.5bn inflowCompared with a RMB1.1bn inflow in 1H25
• 1H26 Selling and Administrative ExpensesDown 14% year-on-yearEquivalent to 2.1% of contracted sales, down 0.6 percentage points year-on-year
• 2H26 Saleable ResourcesRMB400bnApproximately one-quarter consists of newly launched projects, with 85% located in tier-1 or strong tier-2 cities
• Assumed 2H26 Sell-Through Rate35%Below 1H26's 40%
• Unbooked Sales at End-1H26RMB184bnUp 5% year-on-year, with 50%-60% expected to be recognized in 2H26
• Blended Gross Margin on Unbooked Sales19.2%Management's estimate for unbooked sales at the end of 1H26
• Development Property Gross Margin Forecast14.2%/15.7%/17.9%Corresponding to 2026E/2027E/2028E, respectively, and averaging 0.4 percentage points above previous forecasts
• Underlying Profit Forecast AdjustmentRaised by an average of 7%Applicable to 2026E-2028E
• Target PriceHK$16.8Raised from HK$14.7, based on end-2026 NAV with a 10% discount
• Valuation Comparison23% NAV discount / 0.4x 2026E P/B / 3.6% 2026E dividend yieldThe stronger covered SOE developers average a 24% NAV discount / 0.6x P/B / 2.2% dividend yield

Impact & implications

Goldman Sachs believes China Overseas Land & Investment's advantages in sales, cash flow, financing costs, and land reserve quality make it better positioned to navigate divergence across cities and companies in the property industry and gain market share while private developers face liquidity constraints. Improving margins on unbooked sales and new projects increase visibility into future margin recovery, but its sustainability still depends on whether the company can maintain reasonable land acquisition scale and costs in a highly competitive land market.

Risks

• Sales performance or margins may fall short of expectations.
• Land acquisitions may be below expectations, potentially weakening the company's long-term growth prospects.

What to watch

• Whether full-year 2026 contracted sales can achieve a range from stable year-on-year to positive growth.
• Whether the launch schedule and sell-through rate of approximately RMB400bn in 2H26 saleable resources can meet the forecast assumption of 35%.
• The execution pace of the RMB80bn-RMB100bn full-year land acquisition budget and the impact of land competition on project gross margins.
• Whether the higher margins on unbooked sales and new projects can translate as planned into a recovery in development property margins in 2027E-2028E.
• Whether improvements in prices, sales volumes, and inventories in tier-1 and strong tier-2 cities can continue, and whether pressure in weaker cities will ease.
• Changes in office and shopping mall occupancy rates and investment property margin performance.