Bank of America Securities: Changshi Group (01113) does not pay special interest or disappoints the market, but has a defensive layout and an attractive valuation to maintain a “buy” rating

The Zhitong Finance App learned that Bank of America Securities released a research report saying that Changshi Group (01113)'s core profit for the first half of the year rose 5% year on year to HK$6.64 billion, slightly lower than the forecast of 3%, which was mainly affected by weak profit margins for property development in Hong Kong. The interim interest rate per share increased by 5% to HK$0.41, higher than the bank's forecast of a flat rate. Profit attributable to shareholders during the period was HK$8.683 billion, up 38% year on year. It benefited from the sale of the British Joint Venture, which recorded a revenue of approximately HK$9.787 billion, but was partially offset by the depreciation of approximately HK$6 billion by Huixian Industrial Trust (8,7001). The bank maintained a “buy” rating, with a target price of HK$54, a 46% discount compared to the net asset value forecast per share.

According to the report, property development sales revenue reached HK$21.6 billion in the first half of the year, mainly driven by Hong Kong's Blue Coast project accounts, but the profit margin for property development was still as low as 3.5%. Among them, the Hong Kong portion was even lower than 3%, taking into account the HK$1.5 billion provision for Blue Coast's early sales losses in 2025. Management expects that the profit margin of development properties will continue to be pressured in the second half of the year, but it is expected to gradually improve, benefiting from Blue Coast Sales and the Borough Road Project's high-profit unit account. The Kai Tak Flower Sea project is still aiming to launch in the second half of the year. Total contract sales for the first half of the year were approximately HK$8 billion.

Rental revenue increased 0.8% year-on-year, and retail property rents fell 5%, offset by a 5% increase in office rents and a 6% increase in social infrastructure revenue. The occupancy rate of the Changjiang Group Center Phase II has exceeded 60%. Revenue from the English pub business increased 4% year on year, and profit increased 14%. Management welcomed the British government's proposal to cut the commercial tax rate, but they were also concerned about cost pressures such as wage inflation.

Bank of America Securities believes that Changshi's decision not to pay a special mid-term dividend or disappoints the market. The management cited macroeconomic uncertainties, yet the group has about HK$22 billion in net cash, a sound balance sheet, and the ability to cope with the uncertain environment and seize potential opportunities.