1Q~3Q11 EPS at Rmb0.40

Operating revenue over 1Q~3Q11 totaled Rmb1.5bn, up 152.4%YoY; Net profit over 1Q~3Q11 reached Rmb372mn, or Rmb0.40/sh,up 61.3% YoY; net profit in 3Q11 was Rmb48.52mn, flat YoY.

1Q~3Q11 revenue surged 152.4% to Rmb1.5bn, thanks to settlement of Biyun Xintiandi Phase III. 3Q11 revenue rose19.3% to Rmb210mn, mainly on rents, roughly equal to the Rmb200mn of rental income per quarter in previous years.

Good cost control. The ratio of SG&A and financial expenses to revenue was down 9.9ppt to 8.6%. Sales and administrativeexpenses were flat YoY; financial costs increased Rmb16mn onmore borrowing and higher interest rates.

Limited cash on hand. Cash on hand was only Rmb310mn, down 12.5% from the beginning of the year; cash inflows were only Rmb660mn in the first three quarters. Tight cash flowslimited the company’s ability to expand.

Gross margin lower than expected. 1Q~3Q11 gross margin fell significantly by 16.5ppt YoY to 37.7%, showing no improvement from 1H11 levels and missing expectations.

Trends to watch

2011 earnings mainly rely on settlement of Biyun Xintiandi PhaseIII. Looking ahead, development of the Lingang project will be the main earnings growth driver. However, given tight liquidity conditions, the company may find it difficult to simply rely on rentalincome (about Rmb800~900mn a year) to fund its expansion. Webelieve the company will likely leverage up going forward.

Valuation and recommendation

Given the lower-than-expected gross margin, we cut our 2011 EPS forecast to Rmb0.51, and we leave our 2012 forecast unchanged atRmb0.57. Jinqiao-B is trading at 9.4x/8.4x 2011/2012e P/E and at a 71% discount to 2012 NAV. We are positive about the company’ s resource value and believe it will benefit from steady increases incommercial property rents in the mid-/long-term. Maintain BUY.