Contract sales were better than expected — in 2012, Lu Gen achieved a total of HK$11.8 billion in contract sales, an increase of 69% year-on-year. Not only did it exceed its annual sales target by 20%, but it was also 7% higher than our previous forecast. As the Group will continue to focus on the market of demanding buyers, we believe that even if the central or local government tightens the regulation policy on the real estate market, Lu Jin will be able to achieve its 2013 sales target of HK$11 billion.

Delays in profit depositing have little impact on actual business — since some of Lu Jin's real estate projects may have been completed late, causing profit recording time to be delayed, we should have lowered our 2012 core profit forecast by 17%, but I believe the impact on the Group's actual business was minimal, as it only affected profit accounting time. We expect the Group's core profit to increase 40% year over year in 2013, and the profit outlook is still very positive. We believe that Lu Gen's contract sales statement will be the key to its future stock price trend.

Buying land boosts net asset value by 11% — We estimate that the two new purchases will increase the group's net asset value by 11%. Given its sound financial position, we believe the Group has enough space to further expand its land reserves.

Increase target prices; net asset depreciation will narrow — we believe that Lu Gen's strong sales performance and land reserve expansion will help narrow its net asset value discount from the current 71% to 65% over the next 12 months (close to the industry average). We should also raise our target price by 29% to HK$8.45 and maintain our buying recommendations.