Investment points:

Revenue continues to grow at a high level, the impact of gross margin settlement project structures has declined, and financial expenses and income tax expenses have dragged down performance. The company released its financial report for the third quarter. 163Q achieved total operating income of 4.43 billion yuan, total operating revenue increased 51.8% year on year, and gross profit of 170 million yuan, an increase of 2.6% year on year. In line with expectations, the low increase in gross profit was mainly affected by a sharp increase in financial expenses and income tax expenses that cannot be capitalized. The gross margin during the reporting period was 24.6%, and the gross margin for the same period in '15 was 30.0%, a decrease of nearly 5 percentage points. The decline in gross margin was mainly due to the fact that most of the settlement revenue during the reporting period came from third- and fourth-tier cities. The gross margin level in the market and company levels generally declined. Both market-level and company-level factors led to a decline in settlement gross margin during the reporting period. However, compared to the gross margin level of 22.9% in the semi-annual report, the company's basic situation is already showing signs of recovery. We expect that in the future, with highly profitable projects entering settlement In the future, the company's profitability will increase.

Benefiting from market popularity, value sales during the reporting period were strong, and on-hand resources were sufficient. Among them, in terms of saleable area, first-tier cities accounted for 15.04% of innovation. During the reporting period, the company achieved a sales area of 1.103 million square meters, with sales volume of 11.52 billion yuan, a year-on-year increase of 42.2% and 58.7%. The average sales price increased slightly from 9360 yuan/square meter in the same period of 15 years to 10,448 yuan/square meter. The company has strengthened the layout of Tier 1 and 2 cities since the second half of last year, and has been decisive in acquiring land. Currently, it has reserved 4.3 million square meters of construction area, and first-tier cities account for 15.04%. The proportion of second-tier cities has reached 41%, and the total proportion of first-tier and second-tier cities is progressing in an orderly manner. Overall, the company's current project reserve structure is clearly optimized compared to the past, and reasonable regional distribution ensures the sustainability of the company's future sales.

The company follows the path of financial real estate and is waiting for a breakthrough in cooperation with the Group. The group's main business is the disposal of non-performing assets. The scale of housing-related assets is huge. The company is the only listed real estate enterprise in the group. The subsequent processing of housing-related assets requires the company's professional ability, so it occupies a key part of the Group's strategic layout. Currently, the company is also actively promoting a financial real estate model of collaboration with the Group, giving full play to the Group's advantages in various aspects such as capital, land, and projects. In the future, the company's revenue structure will also change from current project development to a diversified structure that combines project development, investment income, and professional services, which will effectively reduce the company's business risks.

Investment Ratings and Valuations: Maintain profit forecasts and maintain holdings growth ratings. The company has strengthened the layout of Tier 1 and 2 cities since the second half of '15, and the land reserve structure is more reasonable. We are optimistic about the layout of Tier 1 and 2 cities and the implementation of synergies between the company and the group, and maintain the company's profit forecast for the next three years. Expected operating income for 16-18:104.1/119.4/13.58 billion yuan, net profit for 16-18:8.9/10.2/1.11 billion yuan, corresponding year-on-year growth rate: 3.9%/14.4%/8.2%. The estimated EPS for 16-18 is: 0.59/0.67/ 0.73 yuan, the current stock price is 7.22 yuan, corresponding to the next three years PE: 12.24X/10.78X/9.89X, maintaining the rating for increasing holdings.