1Q14 EPS down 6.4% YoY to Rmb0.44

In 1Q14, revenue +18.0% YoY to Rmb7.25bn, and net profit -6.4% YoY to Rmb760mn or Rmb0.44/sh.

1Q14 sales proceeds +7.2% YoY. 1Q14 contracted sales volume +0.2% YoY to 0.69mn sqm and contracted sales proceeds +7.2% YoY to Rmb9.6bn, representing 18.5% of our full-year sales target. 1Q14 cash inflow was Rmb8.71bn. Excluding the cash flows from water & electricity supplies and property leasing, we expect the cash collection rate on property sales to be ~85%, flat with the 1Q13 level.

Gross margin expanded sequentially. Gross margin was 26.8% in 1Q14, 6.3ppt lower than in 1Q13 but better than 4Q13's 19.7%. The expense ratio increased 1.5ppt YoY to 6.2% mainly because interest expense and FX loss caused a 246.7% YoY surge in financial expense.

Net gearing ratio was pushed higher by land payment but still low. As of end-1Q14, the net gearing ratio was 27.7%, 11.2ppt higher than the end-2013 level, but still low compared to peers. Cash and bank fell 19.2% YTD to Rmb19.6bn.

Investment income +5,081.8% YoY to Rmb120mn mainly due to the changes of the equity act of affiliated company.

Trends to watch

Maintain 2014e sales at Rmb52bn. We expect CMPD's sellable resources in 2014 to exceed Rmb90bn. Assuming a sales ratio of 55~60%, full-year contract sales could reach Rmb52bn.

Liquidation of property projects to fuel growth. The company plans to sell Shekou Science Mansion and Garden City, in line with its guideline of accelerating the liquidation of existing projects from 2013. We believe these projects have a book value of Rmb1.5bn and may bring Rmb3bn cash back and enhance profits.

Earnings revisions

We maintain 2014/15e EPS at Rmb2.98/3.53.

Valuations and recommendation

CMPD-A currently trades at 6.0x 2014e P/E and 5.1x 2015e P/E, implying a 44% NAV discount. In view of management's strong execution and prominent growth profile, we maintain our BUY rating with a TP of Rmb27.16 for CMPD-A.