金地集团(600383)

Growth in sales not translating to bottom-line growth; maintaining Sell

We maintain Sell, raise FY17-19E earnings by 30-50%, and increase TP by 8%to RMB10.06 after factoring faster sales (lifting FY17/18E sales by 24%/75%),better margins (28-30%), new land acquisitions, and 1H results. We believe itscurrent landbank (33msqm) is not enough to sustain sales growth and expectsales to start dropping from FY18E. In addition, we expect more JV projects(only 57% attributable saleable resources), leading to only 9% earnings CAGRin FY17-19E despite gross sales growth. Its slow growth does not justify thevaluation. Gemdale trades at a 19% NAV discount and 8.3x FY18E PE (higherthan Vanke-A with 7.1x PE and 19% NAV discount, but 30% earnings CAGR).

Unsustainable sales growth and more land acquisitions needed

In 1H17, Gemdale turned more aggressive in the land market, acquiring GFA of4.45msqm of land, equivalent to 68% of its FY16 GFA sold. We estimate thatits current gross landbank of 33mqm can support RMB141bn sales in FY17E(+36% yoy) but more land acquisition is required to sustain its sales in 2018E(estimated RMB135bn sales based on current landbank, -4% yoy).

Single-digit earnings growth due to increasing JV projects

Although we expect Gemdale to have 63%/36% sales growth in 2016/2017E,only 55%/42% is attributable. Hence, we expect earnings CAGR of only 9% inFY17-19E, despite gross margin expansion to 28-30% (vs. 25% in 2016).

High valuation vs. A-share peer

Gemdale is trading at a 19% NAV discount and 8.3x 2018E PE, which is higherthan the peer average of a 40% NAV discount and 7.1x FY18E PE. Gemdale isdelivering 9% earnings CAGR and 7-8% dividend yield for FY17-19E, while itsA-share peer, Vanke-A, is trading at 7.1x 2018E PE, but delivering 30%earnings CAGR and 4-7% dividend yield.

Good results, margin improvement to be sustained

Gemdale reported stronger-than-expected 1H17 results: 1) revenue decreasedby 1% yoy to RMB12.7bn; 2) gross margin improved by 8.7ppt to 28.7%; 3)together with the increased contribution from associates and JV, attributableprofit was up 48% yoy and core net profit was up 51% yoy to RMB1.07bn; 4)gearing increased to 41% (28% at end-2016); and 5) no interim dividend wasdeclared. Management guided that the improved margin (~30%) could bemaintained for FY17/18E.

Valuation and risk (see p.3 for details)

Our revised target price of RMB10.06 is based on a 30% discount to revisedNAV of RMB15.3/share. Currently, the ticker is trading at a 19% NAV discount,8.3x FY18E P/E and 1.3x FY17E P/B. Upside risks: 1) better-than-expected salesand margin expansion; and 2) fast and good-quality land acquisitions.