An overview of investment

From January to October 2013, the contract sales fee of construction land reached 10.72 billion yuan, an increase of 24.5 percent over the same period last year, and 85 percent of the 12.6 billion yuan of contract sales for the whole year. During the period, the total sales area of construction land reached 1.63 million square meters, an increase of 25% over the same period last year. The average sales volume in the first 10 months of 2013 was 6602 yuan per square meter, while that of 6550 yuan per square meter increased by 0.8% last year, mainly due to product co-operation.

In October, the company realized contract sales of 1.33 billion yuan of gold, an increase of 65.4 percent over the same period last year, and recorded a positive sales area of 19.7 square meters, an increase of 74.8 percent over the same period last year. In October, the construction real estate industry launched a total of seven projects dealing with different development stages, which are located in Pudong, Luohe, Pingyashan, Changchang, Kaifeng, Luoyang, and Zhoukou, in the third-tier cities of Henan Province. Benefiting from the quarterly season, recent sales of construction property are characterized by diversified sources of sales and an increase in the proportion of third-tier cities.

Considering that the sources of sales of construction land are diverse and the volume of new sales is abundant, we believe that the company's monthly sales will be guaranteed to be more than 1 billion, so the certainty of 12.6 billion of sales for the whole year will be strong. Construction property is currently in what it calls a "critical period", that is, apart from continuing to stabilize the market, construction will also develop in two directions: first, entering about 30-40 county-level cities; second, deep ploughing in the county market and the market share of returning to the state.

Through the progress of land equipment for the construction of property in 2013, we can also see the above phenomenon. Luozhou and the third and fourth-tier cities are the focus of construction land. Luzhou and Sanlian cities are regions with strong sales certainty, and the extension of prefectural cities to rural cities is a practical development strategy, which is in line with the market conditions of Henan Province. The company's expansion in the city is expected to be slow. Urban capacity and industry input are important indicators for the consideration of construction land. We expect that the market gold content of the city will be verified in 2014 in the sales plan of construction land.

In addition, the sales target for construction land will be 20 billion in 2014, and the target for 2013 will rise by 58%, an increase rarely seen in the history of construction land. Therefore, 2014 will be the beginning of upgrading the construction land industry from a small developer to a medium-sized real estate enterprise, and it will also be the best time to demonstrate the success of its strategy. In the first half of 2013, the revenue and profits of construction land increased by 0.8% and 7.5% to 3.05 billion and 357 million yuan respectively. During the period, the sales income of construction land was the same as that in the same period, from 3.015 billion yuan in the first half of 2012 to 3.017 billion yuan in the same period in 2013, and the rental income and hotel operating income were 0.11 million yuan and 0.22 billion yuan respectively.

Due to the increase in average sales, the gross profit margin reached 36.3% in the first half of the year, up 0.5 percentage points in the same period in 2012. In addition, due to the early repayment of advance note data and the increase in interest expenditure, the financing cost increased by 280% year-on-year to 440 million people. The profit rate reached 13.1% in the first half of the year, and increased by 1.6% in the same period in 2012, mainly due to the lack of land income. In the first half of the year, the construction property industry actively readjusted its operational structure with the help of a favorable financing environment. By the end of June, the company's total business had reached 8.17 billion, an increase of 24 percent at the end of last year. The company's premiums increased by 32% to 5.22 billion, expenses slightly increased to 2.95 billion, and the ratio of liability rights and interests reached 49.6%, an increase of 4.9 percentage points at the end of last year.

With regard to the sales Bureau next year, the construction land industry will speed up the pace of capital expenditure and financing, so we estimate that the expenditure by the end of the year is expected to exceed 3.8 billion, and the obligation rights and interests ratio will exceed 70%.

According to our measurements, the NAV per share of the construction site is HK $6.20. Taking into account the NAV valuation and the company's future growth rate and valuation level, the 12-month mark is given HK $3, which is equivalent to 3.8 times 2014 forward price-to-earnings ratio. We "increase" the level of construction sites.