Main points of investment:

The performance is sound, and the exchange loss greatly affects the deduction of non-net profit. In 2015, the operating income was 2.409 billion yuan (+ 13.4%), the net profit was 128 million yuan (+ 12.4%), and the non-net profit was 67 million yuan, down 34.5% from the same period last year. The non-recurrent gains and losses are mainly the investment income of 10 million yuan from the disposal of subsidiaries and 40 million yuan from the sale of Huiquan beer shares. The proportion of the three rates increased by 7.6 percentage points to 21.6%, mainly because the net exchange loss of RMB depreciation was 136 million yuan, and the financial expenses of 358 million yuan increased by 142% compared with the same period last year, which largely affected the growth of the company's net profit over the past 15 years. In terms of business, real estate and international project contracting accounted for 58% and 38% of the main business income in 2015, respectively, and 71% and 25% of gross profit, respectively. The real estate business is the main stable source of income and profit, with revenue of 1.39 billion yuan up 70% over the same period last year, gross profit of 540 million yuan up 69%, and advance income of 870 million yuan up 35% year-on-year. The gross profit margin of the real estate industry was 38.9% basically the same as that of the previous year, and the gross profit margin of project contracting increased by 20.4% 5pc.

The company takes the general contract of construction as the basis, the real estate development as the focus, and the export-oriented economy. International project contracting has certain advantages, ranking among the top 250 international contractors in the world for 22 consecutive years. The gross profit margin of international project contracting business reached 20.44% in 2015, which is at the advanced level of the industry. There are 25 projects under construction in 2015, with a cumulative contract value of 4.497 billion yuan. With Kenya as the center, the international project contracting business has been actively expanded to Uganda, Tanzania, Papua New Guinea and other neighboring countries. Among the 25 projects under construction: Kenya (12), Congo (Brazzaville), Equatorial Guinea (2), Ethiopia, Philippines, Tanzania (2), Uganda (1) and Hong Kong (3). Most of these projects are distributed in East Africa, West Africa and Asia-Pacific markets, ushering in the "Belt and Road Initiative" strategic opportunity, but at the same time, they are also affected by the slowdown in international economic growth and the drop in oil prices over the past 15 years. The slowdown in infrastructure investment growth in Africa, Southeast Asia and other countries, geopolitical risks and exchange losses can not be ignored.

The real estate business has benefited from the recovery of the market, and the development value of Tongzhou Wuyi Garden is extremely prominent. Real estate projects are located in Fujian, Beijing, Nanjing, Chongqing, Yangzhou and other cities, as well as Hong Kong and Kenya. The existing project planning area exceeds 3 million square meters, uncompleted construction area is nearly 2 million square meters, and Hong Kong and Kenya projects total nearly 200,000 square meters. In 2015, there was a major breakthrough in sales in Nanjing, Hong Kong and other places. The area of pre-sold and sold commercial housing increased by 181% compared with the same period last year, including 88,000 square meters of sales in Wuyi Mingshi Garden in Nanjing and 288,000 square meters in Chongqing projects. Except for the domestic projects in Beijing, which are mainly located in Fujian, Nanjing and Yangzhou, most of them are in the areas where sales have picked up significantly in the past 15 years, and sales are expected to increase by a large margin in the past 16 years. The biggest attraction is the Tongzhou project, which is very rare in location and scale. Living in the core area of Tongzhou District New City, close to the Beijing Administrative Deputy Center, four parks, namely, Narcissus Garden, Peony Garden, Bauhinia Garden and Rose Garden, have been developed and completed with a total area of about 600000 square meters. the value of the remaining Wuyi Garden project in the southern area is about 30 billion yuan. Indemnificatory apartment has started construction and completed about 50 per cent of the basement by the end of 2015. The total land area of the project is 38.1 million square meters, the construction land area is 285 thousand square meters, and the total construction area is 109 million square meters, including 727000 square meters above ground, including 516 million square meters of housing (including 451 million square meters of commercial housing). Indemnificatory apartment 650,000 square meters, commercial 71000 square meters, commercial office 80,000 square meters, The Business Inn 16,000 square meters, supporting public construction 18,000 square meters, civil air defense and garage ground entrances and exits, etc., 510,000 square meters of care for the elderly, 21,000 square meters of child care. With the completion of the planning adjustment project can finally be officially started, its successive entry into the market will bring considerable profits for the company.

Raise funds through a rights issue to alleviate the risk of high debt. The company has a net asset of 1.23 billion yuan. By the end of 2015, the real estate debt ratio is 86%, the net debt ratio is as high as 325%, the book short-term loan is 3.22 billion yuan, the long-term loan is 2.14 billion yuan, the debt burden is heavy, and the monetary fund is 1.87 billion yuan with a short-term debt gap of 1.86 billion yuan. In February 2016, 1.099 billion yuan was raised through a rights issue, and 110 million shares were actually issued at an issue price of 9.96 yuan per share, of which 37 million shares were subscribed by major shareholders. Assuming that according to the purpose of the rights issue prospectus, all the net funds raised will be used to repay the debt, the asset-liability ratio can be reduced to 1.07 billion, and the net debt ratio will be about 247%. In the short term, the company's borrowing rate is as high as 12%, and it is estimated that the benchmark one-year loan rate will rise by 30% to raise funds to repay the loan. The company can save nearly 70 million yuan in financial expenses every year. It also issued corporate bonds of 490 million yuan in 15 years, with a seven-year interest rate of 5.58%. Raising funds reduces the risk of debt, increases financial liquidity, and is inferior to promoting the development of the company's international project contracting business and speeding up the progress of the southern district of Wuyi Garden in Beijing, forming a positive circular effect.

The company's traditional business has a certain influence in the international market and maintains steady development; the real estate business has significantly benefited from the recovery of the market, and sales and settlement have ushered in a better window. The Tongzhou project is about to enter the market and is expected to become an important support for its performance in the next few years. At present, the market capitalization of the company is only 8 billion yuan. We estimate its real estate business RNAV20.8 yuan per share. We predict that the latest diluted EPS yuan 0.29 yuan per share in 16-18 years, corresponding to PE56/43/32 times, has a 6-month target price of 20.8 yuan, "recommended" rating.

Risk tips: Tongzhou project schedule is not as expected, debt high financial risk, international contracting business geopolitical risk, exchange loss risk.