Haohao Lei

What does the company do?

China Resources Land Limited (“CR Land”, 华润置地) is the property arm of China Resources Group. It primarily operates in core first- and second-tier cities, engaging in residential development (for-sale projects) and investment property (self-held shopping centres, office buildings and hotels). At the same time, the company participates in light-asset management through its controlling subsidiary CR Mixc Lifestyle (1209.HK), covering property management and the output of commercial-operations services. CR Mixc Lifestyle was spun off and separately listed in 2020; its market capitalisation or attributable profit is reflected independently within CR Land’s valuation framework. In addition, in recent years the company has actively advanced public REITs and a large asset-management platform, gradually forming a “3+1” business model.

How does the company operate within the industry — positives and negatives?

Positive factors:

Overall, amid a deep industry downturn CR Land relies on a solid financial position and low-cost funding to acquire high-quality resources in core cities counter-cyclically, and builds a diversified growth profile through recurring income and its asset-management platform, demonstrating strong risk resistance and long-term competitive advantages.

First, despite severe weakness in China’s property sector, CR Land continues to show strong land-banking capability and stable financing channels. As a central state-owned enterprise under China Resources Group, the company enjoys broader access to funding and structurally lower financing costs than many private peers. Over the past five years of sector stress it has maintained steady access to capital and consistently secured some of the lowest funding costs. According to data disclosed by management for 1H25, CR Land’s net debt-to-equity ratio was only 39.2%, and on the interim-report basis its cash-to-short-term-debt ratio was about 1.95×, indicating a sound short-term debt profile. Therefore, relative to the industry average, its stronger finances have allowed the company in recent years to acquire premium sites in tier-one and core tier-two cities at attractive prices amid reduced competition, giving it a clear advantage once the cycle turns. A typical piece of evidence in 1H25: CR Land acquired 18 high-quality land parcels for a total consideration of RMB 44.73bn, ranking among the industry’s top three.

Second, compared with most Chinese developers, a higher proportion of the company’s profit derives from recurring income, enabling it to better withstand cyclical volatility. Within this recurring business, its concentration in tier-one and core tier-two cities, together with the strong operating performance of its Mixc shopping-centre portfolio, underpins resilient rental income, stable footfall and excellent operating margins. According to the 2025 interim report, shopping-centre occupancy was 97.3%, office occupancy 74.5%, and average hotel occupancy 63.7%. On residential development, unlike peers heavily exposed to lower-tier-city bubbles, CR Land’s projects are mainly in tier-one and core tier-two cities, where continued urbanisation sustains strong housing demand. Meanwhile, the company has gradually formed a differentiated edge in light-asset operations by outputting commercial-operation and property-management capabilities through CR Mixc Lifestyle (1209.HK). In 2024, revenue from light-asset management and its ecosystem reached about RMB 18.4bn, with core net profit close to RMB 1.8bn and a core net margin in the 9–10% range. Although still a limited share of the overall group, this adds stability to the profit mix.

Finally, on its “second growth curve”, CR Land is actively developing a large-scale asset-management platform via public C-REITs and pre-REIT structures, which we expect to become an important future earnings driver.

Negative factors:

In general the company’s operations rank relatively highly within the sector, but the main negatives stem from structural industry change. The development business remains sensitive to sector conditions and policy shifts; if China’s housing market fails to recover over the very long term, structural issues will persist. Commercial-property fundamentals are diverging; elevated office vacancies and rising rental pressure could drag on recurring income. Progress in asset-management/REITs also depends on external factors, including market conditions and the pace of regulatory approvals.

What are the key profit drivers?

When analysing CR Land’s profit model, we focus on several core aspects: first, a counter-cyclical land-acquisition strategy in core cities supported by a strong balance sheet; second, industry-leading sales performance and stable cash flow; third, recurring rental income from investment property (IP) centred on shopping centres; and fourth, rapid development of the asset-management platform and capital-markets capabilities. Around these pillars, the key driver of profitability is that financial strength ensures continuous access to prime urban resources, which in turn drives residential sales, recurring rental income and growth in the broader asset-management franchise, thereby forming cycle-resilient, integrated earnings power.

First, as discussed, given low leverage and low-cost financing, the company is actively acquiring land in tier-one and tier-two cities. According to GF Securities, in 2024 the distribution of land purchases was: 67% in tier-one cities, 27% in tier-two, and 6% in tier-three/four. Shanghai and Shenzhen together accounted for 49%, while other cities with more than RMB 3bn of land investment included Beijing, Guangzhou, Sanya, Hangzhou and Wuhan — highlighting continued focus on mainstream markets. These premium sites are expected to lift earnings when the cycle recovers. At the same time, core locations in tier-one/tier-two cities benefit from rigid demand and irreplaceable locations, forming a strong moat and allowing reasonable returns even under conservative conditions.

Second, on the sales side, CR Land remains among the industry’s top three. In 2024 the company delivered strong de-stocking with an overall sell-through rate of 55% (in line with the 2020–2023 average). In 2025, assuming a maintained 55% sell-through on an optimised resource mix, contract sales are expected to reach RMB 277.4bn, up 6% year on year. Stable sales ensure healthy cash inflows and validate the strategy of focusing on rigid housing demand ****in tier-one and core tier-two cities.

Moreover, its IP portfolio — including shopping centres, offices and hotels — generates stable rental income, enhancing earnings resilience. Mixc shopping centres serve as both commercial hubs and urban landmarks, ensuring sustainable rental streams. Compared with other developers, CR Land also demonstrates advanced shopping-centre operations, including tenant-mix optimisation, further strengthening leadership in high-margin, recurring business.

Finally, the company is expanding its large-scale asset-management business; asset securitisation and the development of its platform should improve capital turnover and generate fee income as a new growth driver.

Buy or sell — what is the core reasoning?

Recommendation:

STRONG BUY

The valuation discount is significant: current multiples of ~7× P/E and ~0.7× P/B imply that reported book equity represents only about 70% of market value — clearly a mispricing driven by broad pessimism towards Chinese property. Meanwhile, CR Land offers a dividend yield of roughly 4–5%, lowering opportunity cost while awaiting mean reversion.

A notable concern is potential impairment of book value, as prior bubbles may have inflated on-book property values. For example, during the global financial crisis, the top three US homebuilders’ book values fell by about 50–60%, much of which came from asset write-downs. On this risk I agree with the view from Marathon Capital: Chinese developers commonly use the pre-sale model, allowing sales roughly six months after land acquisition; even while assets remain on developers’ balance sheets, part of the downside risk is transferred to buyers. By contrast, in the US circa 2008, units were typically sold post-completion, with ~three-year development cycles forcing developers to bear asset-value risk throughout. Currently, about 60% of CR Land’s residential development is pre-sold, effectively shifting part of the value-downside risk to consumers. In addition, as noted, most of CR Land’s projects are concentrated in tier-one and core tier-two cities where demand is more resilient, helping to prevent sharp price declines and providing a safety buffer of around 30% against most risks. Most importantly, CR Land’s high-quality IP generates sustained cash flow and is less affected by potential book-value impairments.

While waiting for price to converge to value, beyond the c.30% margin of safety we can also expect the company’s counter-cyclical investing to yield substantial returns once the cycle turns. At present, due to the severe property crisis, more than half of developers face acute financial stress or default. Former bellwethers such as Evergrande, Country Garden and Vanke have run into serious debt problems. This has created a shortfall in housing starts. New starts fell by nearly 70% from 2020 to 2024. Meanwhile, high-quality developers, including CR Land, are consolidating and strengthening their market position. By land-purchase share, the top ten developers account for about 55%, up from under 40%. These low-cost land acquisitions should translate into future sales advantages. CR Land thus offers not only a “cigarette-butt” opportunity (buying quality assets cheaply) but also a compelling chance to invest in a potential future oligopolist.

Beyond the mature businesses, development of the capital-management arm constitutes a value-accretive “second growth curve”. Two public REIT platforms — China Resources Commercial Management REIT (180601.SZ) and YouChao REIT (508077.SH) — reported stable operations and distributions in 2024, improving capital recycling and anchoring valuation.

How to value the company?

In my valuation I adopt a sum-of-the-parts (SOTP) approach with RMB as the functional currency, ultimately translated to HKD per share. IP is revalued using NOI × capitalisation rate: in 2024, IP plus hotel revenue was RMB 23.3bn, with a segment gross margin of 70%, implying NOI of about RMB 16.3bn. Of this, shopping-centre revenue was RMB 19.4bn, with a 76% margin and 97.1% occupancy (1H25: 94 shopping centres, 97.3% occupancy, rental income RMB 10.4bn, retail sales RMB 110.1bn, rent-to-sales ratio ~12%), fully reflecting the stability and growth resilience of mall rents and footfall. For capitalisation rates we adopt 5.5%/7.0% for shopping centres/offices & hotels as the base, with ±50–100 bps scenarios; on this basis, the IP component equates to about HKD 38.1–49.3 per share (base c. HKD 44.9), clearly above the current weighted funding cost of 3.11% (1H25: 2.79%), indicating a healthy spread and margin of safety. Notably, this base assumption (5.5% cap rate) is more conservative than the 4.5–5.0% range commonly used for peers such as Hang Lung Properties, Swire Properties and Sun Hung Kai Properties; therefore the result is not overstated and, if anything, understates the scarcity and cash-flow growth potential of the mall assets. Using a 4.5–5.0% cap-rate band would put the standalone IP valuation at roughly HKD 49–54 per share.

For the development business, instead of a static “inventory minus contract liabilities” shortcut, I separately discount “pre-sold but unrecognised” and “unsold land-bank” cash flows: with 2025 saleable resources of about RMB 500.9bn, a 2024 development settlement gross margin of 16.8% and a post-tax net margin of 9%, a 10% discount rate and a 1.5-year settlement period as the base case, the NPV is about HKD 43.1bn (c. HKD 6.0 per share), with sensitivities of ±5–10% on prices and ±10 percentage points on sell-through. Joint ventures/associates are valued on a look-through basis and net of corresponding liabilities and restricted cash, to avoid under-valuing attributable IP under consolidation. For light-asset operations, CR Mixc Lifestyle and similar interests are included by attributable stake, with any overlap with IP management fees eliminated to avoid double-counting. In the equity bridge, after aggregating segment EVs we deduct net debt (about RMB 128.5bn at end-2024; net gearing 31.9%), deferred tax and minority interests to arrive at equity attributable to the parent, then divide by 7.131bn shares to obtain HKD per-share values; the resulting scenario range is HKD 30–32 (bear) / HKD 40–42 (base) / HKD 45–50 (bull), with shopping-centre capitalisation rates (±100 bps), residential sell-through (±10 percentage points) and selling prices (±5–10%) as the key sensitivities. The bear case assumes cap rates rise to 6.5–8.0%, sell-through declines by about 10 percentage points and prices fall 5–10%; the base case keeps cap rates at 5.5%/7.0%, sell-through around 55% and stable prices; the bull case assumes shopping-centre cap rates compress to about 5.0–6.5% (offices & hotels ~6.5%), sell-through rises by 10 percentage points and prices increase 5–10%, thereby raising the valuation mid-point. As the current price (HKD 29.6) implies an enterprise value roughly equal to a conservative valuation of IP alone, one may judge that the market is effectively “buying IP and getting the development and light-asset businesses for free”, with those segments’ value not properly reflected.

On this basis I lean towards the bull case. First, the contribution of recurring income to core profit continues to rise (41% in 2024, c.60% in 1H25), showing that IP’s cycle-hedging role is strengthening rather than weakening. Second, shopping-centre operations are solid: 2024 occupancy 97.1%, rental income RMB 19.4bn, c.76% margin; 1H25 occupancy 97.3%, rental income RMB 10.4bn, same-store retail sales +9%, rent-to-sales ~12% — supporting lower cap-rate assumptions. Third, the funding spread is widening: the weighted funding cost was 3.11% in 2024 and fell to 2.79% in 1H25, while net gearing remains low, providing the conditions and cushion for cap-rate compression. Fourth, the land bank is skewed to tier-one/strong tier-two (90% of 2024 sales), and in 1H25 the company acquired 18 prime urban plots for RMB 44.7bn, with an investment intensity of about 41%, providing high-quality optionality for future development profits and IP incubation. With these “delivered/high-certainty” factors, the market’s near-liquidation-style pricing (P/B ≈ 0.7× versus a sustainable ROE of 8–9%) is clearly mismatched; consequently, capitalisation-rate assumptions should be nearer the lower bound (e.g., shopping centres ~5.0–5.5%), with sell-through and price assumptions at the upper end of normal ranges, so that the bull case better reflects the company’s true cash-flow anchor and asset quality.

Where do I differ from market consensus?

The prevailing view is that China’s property sector remains in crisis, with high impairment risk and pressure on sales and liquidity, leading investors to shun developers; meanwhile, excitement around large language models and biopharma has shifted attention to “sexier” sectors. In this sentiment-driven context, even high-quality names like CR Land have been dragged down. My view is different: at the cycle trough CR Land offers long-term excess-return potential. As a centrally-owned developer it has unrivalled advantages in funding access, cost control and core-city land reserves, while a high share of recurring income materially reduces cyclicality. Over-punishment of the sector has pushed valuation well below fair value, providing a substantial margin of safety. More importantly, its shopping-centre and asset-management platforms open a “second growth curve” with stable and growing cash flows that are not yet fully priced. Thus, contrary to pessimistic consensus, CR Land is not an ordinary high-risk developer but a structural opportunity at the bottom of the cycle, combining recovery upside with defensive and growth attributes.

Risk factors to the recommendation

On risk, macro and industry uncertainties come first. If sales volumes and prices in core cities fall more than expected and for an extended period, settlement and cash conversion in development will slow markedly, pressuring liquidity and profitability; therefore book value and cash flow must be closely monitored during holding. Second, commercial-property fundamentals remain challenged: high office vacancies and ongoing rental pressure could weigh on recurring-income growth, weakening the support from the IP portfolio. Third, financing and policy conditions are key risks: if credit tightens, funding costs rise or capital-market initiatives (such as REITs) progress more slowly than expected, the company’s advantages in capital recycling and re-rating may not fully materialise.

In addition, potential adjustments at the business-model level merit attention. As noted, China’s property market has long relied on pre-sales — selling before completion to secure cash flow — which has markedly improved sector-wide cash turnover over decades. However, amid weak demand, some cities and regulators are exploring shortening pre-sale periods and requiring higher construction completion before sales, which would negatively affect developers’ cash conversion. At the same time, measurement standards for residential sales area may change. China has long used gross floor area (which includes shared/common areas) as the pricing and transaction basis, creating a gap with buyers’ actual usable area. In recent years some localities have piloted pricing based on net internal area, with stronger disclosure of common-area ratios — widely seen as a transition towards international “usable area” norms. If rolled out nationally, transparency would improve but nominal prices per square metre could rise; more importantly, misalignment between sales-area and cost metrics could compress margins, challenging pricing models for developers.

One more thing

Any analysis must consider corporate culture. As Built to Last stresses, truly outstanding firms are “vision companies”: they possess a distinctive culture and purpose embedded in society. Here I briefly discuss the culture and vision of CR Land and its parent, China Resources Group.

Today, CR’s culture is strongly influenced by former chairman Ning Gaoning. Contrary to the stereotype of bureaucratic rigidity in state enterprises, Ning saw himself as an entrepreneur. The group he built — and his deep involvement in CR Land — still carry his managerial imprint. His insistence on “long-termism” is one key reason CR Land has remained resilient even at the bottom of the property cycle. In his memoir, Ning recalls the origin of CR Land’s investment-property business over two decades ago. Using Shenzhen Mixc as an example, he notes that the company chose to forgo several hundred million yuan of short-term residential profit in favour of holding and operating commercial property for the long term. Behind this decision was confidence in long-term urban development and rising consumer demand, and a deep understanding of commercial real estate as “assets that appreciate even while you sleep”. This was not mere rhetoric but an idea put into practice. The ability to align thought with action enabled CR Land to build an IP portfolio that grows with its cities and to establish the foundations of long-term corporate value.

In addition, from conversations with friends and acquaintances, I have found that when people talk about Shenzhen they almost always mention having been to CR Land’s Mixc; similarly, friends in Qingdao say visiting Mixc is essential when in the city (which matches my own experience, when meeting local friends in Shenzhen and Qingdao, the venue is often Mixc). Although such anecdotal research is not statistically representative, I believe it may be indicative. These projects have been deeply embedded in their cities and have grown alongside them, making the business model a high-quality target for long-term capital. I believe that as urbanisation continues in China’s tier-one and core tier-two cities, CR Land’s business will grow in tandem.