Main points of investment:

High income growth and a sharp drop in gross profit margin dragged down net profit performance, which was slightly lower than expected. According to the interim financial report issued by the company, 16H1 achieved a total operating income of 3.068 billion yuan, of which the operating income of real estate sales was 2.81 billion yuan, an increase of 41.83% over the same period last year. During the reporting period, the gross profit margin was 22.91%. During the same period of 15 years, the gross profit margin was 32.19%, a decrease of 9.28%, the gross profit margin was slightly lower than expected, and the net profit belonging to the shareholders of the parent company was 130 million yuan during the reporting period. A decrease of 44.66% over the same period last year. In 16 years, most of the settlement income of H1 came from third-and fourth-tier cities, the level of market gross profit margin declined generally, and the company increased its sales strategy of removing inventory and withdrawing funds. Double factors at the market level and the company level led to a sharp decline in the 16-year H1 settlement gross profit margin, resulting in a significant decline in profits in the reporting period. In addition, due to the company's massive debt acquisition of land in the first half of the year, the company's financial expenses increased significantly, and the proportion of income tax in profits during the reporting period also increased greatly compared with the same period of 15 years. These two factors also have a great impact on the current profitability of the company.

Benefiting from the heat of the market, the company's sales momentum of goods value in the first half of 16 years is strong, with sufficient resources on hand, of which the proportion of first-tier cities reached a new high of 15.04% in terms of salable area. During the reporting period, the company achieved a sales area of 633 million square meters, with sales of 6.23 billion yuan, an increase of 26.1% and 32.4% over the same period last year, and the average sales price rose slightly from 9374 yuan per square meter in the same period of 15 years to 9844 yuan per square meter. In the second half of last year, the company strengthened the layout of first-and second-tier cities and took the land decisively. At present, it has a reserve construction area of 4.3 million square meters, with first-tier cities accounting for 15.04%. Second-tier and some popular cities have a considerable proportion. Generally speaking, the company's current project reserve structure is more optimized than in the past, and reasonable regional distribution ensures the sustainability of the company's future sales.

The company takes the road of financial real estate and waits for a breakthrough in cooperation with the group. The main business of the group is the disposal of non-performing assets, the scale of housing-related assets is large, and the company is the only listed real estate enterprise of the group. The follow-up processing of housing-related assets requires the professional ability of the company, so it occupies a key part of the strategic layout of the group. At present, the company is also actively promoting the financial real estate model of cooperation with the group, giving full play to the advantages of the group in many aspects, such as capital, land and projects. in the future, the company's income structure will also change from the current project development to a diversified structure of project development, investment income and professional services, which will effectively reduce the company's operational risk.

Investment rating and valuation: downgrade profit forecast, target price: 6.2 yuan, maintain overweight rating. Taking into account the strength of the company's destocking to promote recovery and the future industry situation, we downgrade the company's profit forecast for the next three years. It is estimated that the EPS for 16-18 years is: 0.59 PE 0.67 shock 0.73 (the original value is 0.62). With reference to the company's history and comparable company valuation, it is still given 10.5 times PE, corresponding to the target price of 6.2 yuan, maintaining the overweight rating.