1H results

Core business revenue totaled Rmb1.28bn, +209.5%; investment income totaled Rmb16.97mn; net profits were Rmb324mn, implying an EPS of Rmb0.35. The company expects net profits for 1~3Q to increase >50% YoY.

Positives:

Property operating revenue surged 211.6% to Rmb1.26bn. This mainly includes two businesses: Biyun Xintiandi phase-3 settlement totaled Rmb880mn, while property leasing settlement totaled Rmb380mn, flat YoY.

Effective cost control. The ratio of sales, administrative and finance costs to revenue was down 10.1ppt to 6.2%.

Specifically, sales and administrative costs were flat YoY, while finance costs increased by Rmb11.7mn.

Negatives:

Limited cash in hand, only Rmb240mn, down 31.2% from the beginning of the year; cash inflow was only Rmb480mn in 1H. The tight cash flow will limit further expansion.

Trends to watch

Earnings for 1H11 mainly relied on the settlement of BiyunXintiandi phase-3 and the investment income from Orient Securities. Company funding is tight, and the Rmb800~900mn rental revenue per year alone is not enough to support expansion. We expect more leveraging to allow further development.

Valuation and recommendation

Given the higher-than-expected land VAT, we slightly revise down 2011e EPS to Rmb0.59, and maintain 2012e at Rmb0.57. The stock is trading at 8.9x 2011e P/E and 9.3x 2012e P/E, a 65% discount to 2012e net asset value. We are positive about the company’s resource value, and expect it will benefit from more commercial rentals in the mid/long term. Maintain BUY for both A- and B-shares.