China Overseas Land:Below expectations on top-line miss but solid growth outlook intact

COLI reported FY2016 results with underlying profit (net profit excludingrevaluation gains and FX impact) of HK$32.64bn (incl. net loss ofRmb472mn from acquired CITIC assets), up 9% yoy, 6% below GHe on toplinemiss. Highlights: 1) GPM of 28% is below our estimate but strippingout CITIC business, GPM is 29%. Note the CITIC portfolio’s GPM improvedto 21.5% in 2016 from 17.7% in 2015. Management guided to further marginimprovement to 30%+ and commented that the current profit margin forthe CITIC assets is comparable to or higher than COLI’s. 2) Managementguided largely flat yoy contract sales growth for 2017 but its (i) acceleratedland acquisition pace YTD, (ii) more than doubled new starts target for 2017(GFA19mn sqm vs. 7.6mn sqm in 2016; GFA sold in 2016-2017 is about14mn sqm), and (iii) HK$100bn new land acquisition target vs. HK$44bn in2016 all suggest management’s strong intention to grow scale. 3) End-16net gearing of 7% is at record low since 2004, allowing the company to takefull advantage of a market slowdown to gain share.

We revise 2017E-19E underlying EPS by -7%/+0%/+7% by pushing forwardour revenue booking estimates. As a result, we increase our end-17E NAV/NAV-based TP by 6% to HK$32.8/HK$36.46, respectively. The stock tradesat a 33% discount to end-17E NAV and 1.0X 16E P/B (excl. cumulativerevaluation gain). We view valuation as attractive. Maintain CL-Buy. Risksinclude weaker-than-expected margins; macro hard landing.