Earnings per share were higher than market expectations. The company released its 2009 report today: operating income of 4.39 billion yuan, up 29.3% year on year; net profit attributable to parent company was 440 million yuan, up 18.6% year on year; earnings per share of 0.50 yuan, higher than market expectations (the market originally expected to be around 0.40 yuan). The company did not put forward a profit distribution plan in 2009. Overview of fundamentals. The company is a regional small and medium-sized developer with key cities in Jiangsu, Zhejiang, and Shanghai. The projects are mainly distributed in Hangzhou, Dongyang, Nanjing, Chongqing, Xi'an and other places. The company's 2009 performance was higher than expected, mainly due to a sharp increase in investment income, while net profit after excluding non-recurring profit and loss fell 28.0% year on year. Overall, the following four points of performance are worth paying attention to. Sales increased significantly by 143.5%. The company's main sales projects in 2009 were Hangzhou South Bank Garden, Hangzhou Tiandu City, Hangzhou Goya Apartment, Xi'an Binhe Garden, etc.; the contract sales amount was 3.02 billion yuan, an increase of 143.5% over the previous year, mainly due to the high prosperity of the real estate market where the company's project was located during the reporting period. By the end of 2009, the company had received 2.22 billion yuan in advance payments, down 32.9% from the beginning of the year, mainly due to a year-on-year increase in carry-over revenue. Settlement revenue increased 29.4%. The company's main settlement projects in 2009 were Dongyang Jiangnan Bauhinia Garden, Nanjing Dengfu Alley and Beiting Alley projects, Hangzhou Tiandu City-Champs Garden, Xi'an Riverside Garden, Chongqing Guangsha City, Hangzhou Nan'an Garden, etc.; settlement revenue was 4.27 billion yuan, an increase of 29.4% over the previous year, mainly due to a significant increase in settlement area. The composite gross margin declined sharply by 5.2 percentage points. The company's consolidated gross margin in 2009 was 23.5%, down 5.2 percentage points from the previous year. The main reason was the sharp decline in the settlement margin of the main real estate business. The company's gross settlement margin for 2009 was 22.5%, down 5.5 percentage points from the previous year. The main reason is that most of the 2009 settlement revenue came from advance payments in 2008, and the average sales price was low at that time. The increase in net profit stemmed from non-recurring profit and loss. The company's net profit attributable to the parent company increased by 18.6% in 2009, mainly due to a sharp increase in investment income: the sale of two long-term equity investments by Jinxin Trust and Tonghe Holdings during the reporting period brought profit of 230 million yuan, accounting for 36% of current operating profit. After excluding non-recurring profit and loss, the company's net profit attributable to the parent company fell 28.0% year on year in 2009, mainly due to a sharp decline in settlement gross margin. Short-term debt repayment pressure is high. The company's balance ratio at the end of 2009 was 77.25%, and the real balance ratio after excluding advance payments (2.42 billion yuan) was 48.8%, which is at a moderate level in the industry; the rapid ratio was 0.4, and the real fluctuation ratio after excluding advance payments was 0.8, and the short-term debt repayment pressure was high; the company had 490 million yuan in cash at the end of 2009, an increase of 240 million yuan over the beginning of the year, mainly due to cash inflows from real estate sales; among them, operating cash flow was 640 million yuan, and the cash situation was average. There is a high degree of certainty about performance in 2010. By the end of 2009, the company had received 2.22 billion yuan in advance payment. Most of these pre-sale projects will be completed in 2010; the advance payment has covered 74% of our estimated settlement revenue (around 3 billion yuan). Furthermore, benefiting from the sharp rise in the volume and price of real estate sales in 2009, the company's gross margin for settlement in 2010 will increase significantly. Profit forecasts and investment ratings. Without considering the company's 2009 non-public stock offering plan, we expect the company's earnings per share for 2010 to 2011 to be 0.35 yuan and 0.48 yuan respectively. Based on yesterday's closing price of 7.55 yuan, the corresponding dynamic price-earnings ratio is 22 times and 16 times, respectively. Given the company's moderate valuation level and lack of unique stock price drivers, we maintain the company's “neutral” rating. Risk warning: general market systemic risk; industry cyclical risk; project settlement progress may not meet expectations.