2016 earnings to fall 20.8% YoY

BEZ preannounced its 2016 results: full-year revenue isexpected to fall 12.9% YoY to Rmb1.52bn and net profitattributable to shareholders to drop 20.8% YoY to Rmb410mn,lower than expected.

Trends to watch

Low settlement in 2H16 to drag full-year results. BEZ isexpected to record Rmb1.52bn revenue in 2016 (-12.9% YoY);2H16 revenue is expected to fall 27.2% YoY to Rmb1.15bn,dragged by less project completions and low settlement. 2016OPM is expected at 36.2% (-3.5ppt from 2015) due to provisionsfor accounts receivable impairment and rising administrativeexpense. Impacted by declining revenue and margin, BEZ’s 2016net profit attributable to shareholders is expected to drop 20.8%YoY to Rmb410mn.

Accelerating projects outside Beijing. The firm signedcooperation letter of intent with the Xiamen Jimei localgovernment in September and acquired a 103,000sqm landparcel in the industrial park (covering a GFA of ~0.56mn sqmincl. 0.40mn/0.16mn sqm above/underground GFA) in December2016. The land acquisition only cost Rmb194mn, and theaverage cost of aboveground GFA was only Rmb485/sqm. Thefirm plans to build an innovation platform for the three industriesof mobile internet, innovation & creation businesses andsoftware & information. The Jimei project represents BEZ’sfurther exploration outside Beijing after its project in TianjinQingxi industrial park. We expect BEZ’s business outside Beijingto accelerate in 2016/17e and its projects outside Beijing areworth exploring.

Valuation and recommendation

Considering the recent settlement, we cut our 2016/17eearnings forecast 30%/8% to Rmb0.51/0.86 per shareand introduce 2018e EPS at Rmb1.09. The stock is tradingat 15.1/11.9x 2017/18e P/E, implying a 31% NAV discount.Maintain BUY and TP at Rmb14.0.

Risks

Macroeconomic downturn.