HSI Downside Pressure Points and Late November Cycle Inflection

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Equity Bottom-Up

China Overseas Land & Investment / Equity Bottom-Up

China Overseas Land & Investment (688 HK)

China Overseas Land and Investments, or COLI, has released the details of its CITIC deal. The target portfolio now consists of 32 million square meters in gross floor area, versus 24 million square meters stated in the prior announcement.While the acquisition is a positive for the company, the details of the target portfolio reveal several challenges. The gross profit margin for the target portfolio averaged 18% over the past three years, versus COLI’s 32%. Unless the company can quickly improve the delivery of the acquired projects, the acquisition may negatively affect the company’s margin in the near term. Further, roughly one-third of the target portfolio by gross floor area is located in third-tier cities, where still-high inventory levels may lead to slow sales, affecting the company’s overall asset turn.Analyst: Phillip Zhong

China Overseas Land and Investments, or COLI, has released the details of its CITIC deal. The target portfolio now consists of 32 million square meters in gross floor area, versus 24 million square meters stated in the prior announcement.While the acquisition is a positive for the company, the details of the target portfolio reveal several challenges. The gross profit margin for the target portfolio averaged 18% over the past three years, versus COLI’s 32%. Unless the company can quickly improve the delivery of the acquired projects, the acquisition may negatively affect the company’s margin in the near term. Further, roughly one-third of the target portfolio by gross floor area is located in third-tier cities, where still-high inventory levels may lead to slow sales, affecting the company’s overall asset turn.Analyst: Phillip Zhong

Target Portfolio Larger Than Expected, but May Be of Lower Quality