Events: the company released three quarterly reports on the 24th, with operating income of 3.103 billion from January to September 2016, + 524.79% from the same period last year; net profit attributable to shareholders of listed companies-492 million, year-on-year-87.43%; basic EPS-0.46 yuan.

Real estate sales have greatly increased, and the situation of inventory removal is good: the company achieved a contract amount of 2.128 billion in the first three quarters, + 106% in the same period last year (Q3 single quarter-24%), and 299,000 square meters in the signed area, + 183% in Q3 single quarter (Q3 single quarter-18%). Among them, the average residential sales price in the first three quarters was 7108 yuan / square meter, an increase of 2.4% over the 15-year period, and the inventory removal situation was relatively good.

Land investment is cautious and new construction is shrinking: since listing, the company has ploughed Kunming and Dali, gradually entered Banna and Chengdu after 2013, and entered Chongqing in 2015. the implementation of the regional development strategy of "expanding to the southwest and the whole country with Yunnan as the center" has gradually taken shape. In 2015, the company has continued to lay out the front line through holding (Beijing Fangshan project) and acquisition (Oriental first). The third Quarterly report announced that the new construction area in the first three quarters of 2016 was 13100 (year-on-year-95%), and there was no completed area this year.

Up to now, the construction area of the company's ownership certificate project is close to 1260 million square meters, and the reserve is sufficient, which can ensure the long-term and stable sales payback in the future. The company has become more cautious in project investment this year, winning Kunming Guandu old reform and Xishan District projects with 190 million and 370 million respectively in Kunming. The development investment in the first half of 2016 is less than 3 billion, which is still far below the annual investment target of 8 billion.

The carry-over of real estate has increased sharply, and the gross profit margin continues to fall as a drag on the performance: the company's operating income from January to September increased by 5.25 times compared with the same period last year, mainly due to the carry-over of previous properties such as "Art Home" and "Liu Nan Village". At present, it has achieved 52% of the annual revenue target of 6 billion yuan. Restricted by the low market boom in the southwest region, and the current reserve strategy transformation project is still in the early stage, the company's gross profit margin has declined rapidly in recent years, dragging down the performance. The company made more provision for inventory depreciation in the first three quarters, resulting in a total asset impairment loss of 152 million.

Explore a variety of financing methods, such as PPN and weighted medium-term notes, and gradually improve capital capacity: the company's annual report points out that 2016 is the key year for the company's business development, transformation and upgrading, and will take advantage of the capital market to promote direct financing. In June and September, the company completed the issuance of 3 billion corporate bonds (6.2% interest rate in the first phase and 5.77% in the second phase). The company announced on September 28 that it intends to issue medium-term notes and long-term weighted medium-term notes of no more than 40% of the consolidated net assets (2 billion), respectively, and a PPN of no more than 4 billion yuan. Therefore, due to the increase in open market financing and sales rebates in the current period, the company's monetary capital at the end of the period is 4.57 billion (year-on-year + 32%). At the same time, the company's short-term borrowing balance fell 54.3% year-on-year, and financing costs are expected to gradually reduce in the future.

Layout of the Greater Mekong River, continue to integrate into "Belt and Road Initiative": in the layout of the company's product line, the company put forward the strategy of "tourism real estate and urban complex, old-age real estate" last year, and in 2015, the company joined with Hong Kong Investment Company and Runde Funing. It is proposed to expand tourism real estate reserves in the Lancang-Mekong Golden Waterway along the "Belt and Road Initiative" route. In the first half of 2016, the company announced that in cooperation with Yunnan Port and Aviation Investment and Qinling Crown, project companies were set up to integrate some superior resources along the Lancang-Mekong River and to the south of the Qinling Mountains in Shaanxi Province, and deeply tap the national policy guidance areas. strive to make breakthroughs in the field of big culture and big health projects.

Investment suggestion: the company is the only listing platform for the controlling shareholder Yunnan City Investment in A shares, in addition to the project reserve significantly benefiting from its state-owned assets background, Yunnan SASAC and Yunnan City Investment have similar business types and many resources or assets with the possibility of business coordination. Relying on the resource advantages of Yunnan SASAC, listed companies have advantages in terms of land acquisition cost and resource integration ability.

However, in recent years, due to the excessive concentration of resources in the southwest region, the company has been obviously dragged down by the prosperity of the local market. in recent years, the company has gradually strived to focus on the core and realize the urgent demand for reserve transformation. the demand for funds has also increased significantly. Over the past 16 years, the company has explored financing channels and gradually replaced some of the high-cost funds in the early stage. We are optimistic about the improvement of the company's future performance. We expect the company's EPS to be 0.10,0.23 and 0.40 in 2016-2018, maintaining a "buy-A" rating and a six-month target price of 7.54 yuan.

Risk hint: performance continues to be depressed and gross profit margin has not yet recovered through the inflection point, suppressing valuations.