CICC: Maintains OUTPERFORM rating on ONEWO (02602) but lowers target price to HK$21.2.

CICC research report stated that based on the forecasts of ONEWO (02602) business gross profit margin, impairment, etc., the core net profit forecast for 2026-27 was revised downward by 8%/9% to 22.0/22.7 billion yuan (3%/3% increase), and the net profit forecast for shareholders was revised downward by 35%/35% to 7.6/8.0 billion yuan (10%/5% increase). The outperform industry rating was maintained, with the target price lowered by 23% to 21.2 Hong Kong dollars per share (corresponding to a target 2026 core P/E of 10 times and an upside potential of 21%), mainly reflecting the uncertainty of profit forecast adjustments and dividends. The company is currently trading at 8.3 times the 2026 core P/E. CICC's main points are as follows: Core net profit in 2025 meets market expectations, while net profit attributable to shareholders is below market expectations The company announced its 2025 annual performance: revenue increased by 3% year-on-year to 37.27 billion yuan, core net profit increased by 1% year-on-year to 2.13 billion yuan, meeting market expectations; net profit attributable to shareholders decreased by 39% year-on-year to 690 million yuan, below market expectations, mainly due to further impairment of related party accounts and a decline in gross profit margin of residential properties. The company plans to distribute dividends of 1.73 billion yuan for the whole year, with a dividend payout ratio of 81% of core net profit. Organic growth achieved in the cyclical business In 2025, the company's cyclical business (residential and corporate property management, BPaaS business) revenue increased by 8.5% year-on-year, and gross margin increased by 3.8%; the net additional annualized contract revenue for residential/corporate property management was 2.1 billion yuan, maintaining a good bidding rate. In 2025, the gross profit margin for residential/corporate property management decreased by 0.7/0.4 percentage points year-on-year, mainly due to pressure on collection rates under environmental pressure, new projects still being in the ramp-up phase, and intense competition in the corporate property management market. Cash flow remains broadly stable, continuing to digest risks related to associated transactions Operating net cash flow in 2025 was 1.69 billion yuan, a decrease of 12% year-on-year, but roughly equivalent to core net profit after excluding developers. Associated transaction income in 2025 was 2.24 billion yuan, accounting for a decrease to 6.0% of revenue; the company recovered a total of 2.85 billion yuan from related parties (cash recovery of 1.89 billion yuan), leading to a year-on-year decrease of 380 million yuan in accounts receivable from related parties to 2.06 billion yuan, with the company also making a provision for impairment of 800 million yuan for accounts receivable from related parties. The company's target for 2026 core profit remains stable, focusing on shareholder return progress and trends According to the performance meeting, the company's target for 2026 core net profit remains overall stable, hedging environmental pressures through "stable cash flow, improving efficiency, optimizing structure," etc. On the shareholder return side, the company will maintain a reasonable level of dividends based on cash flow and market conditions, while also announcing a 500 million yuan share buyback quota in December 2025; considering the downward trend in cumulative retained earnings available for dividends, the bank expects future dividends from the company to be based on net profits attributable to shareholders, and suggests investors pay attention to the company's shareholder return progress and trend changes. Risk warning: Residential property gross margin declines more than expected, related transactions drag on performance more than expected.