1H17's performance was +23.4% year-on-year, in line with expectations. Huayuan Real Estate announced 1H17 results: operating income of 3.83 billion yuan, a year-on-year decrease of 3.4%; net profit attributable to the parent company was 300 million yuan, up 23.4% year on year, corresponding to earnings of 0.13 yuan per share, in line with market expectations. Settlement revenue declined slightly, and gross margin increased significantly: real estate-related revenue was 3.8 billion yuan during the period, a slight decrease of 5% over the previous year. The main settlement projects include Tianjin Boston 43 #地和西安海蓝城五期。 Gross margin after tax during the period rose 4.8 percentage points year on year to 17.4%, and also increased 4.2 percentage points from last year's full year level, mainly due to undersettlement of guaranteed housing projects this year. Good sales performance: Achieved sales of 4.3 billion yuan during the period, an increase of 20% over the previous year. The performance was good. Among them, the Xi'an regional project is expected to contribute 2.5 to 3 billion yuan in sales. Investment income led to an increase in performance: during the period, the disposal of 20% equity income of Huayuan Yingdu was recorded at 97.47 million yuan, which significantly increased the company's performance. The annual sales trend is expected to remain the same year on year: the company's main sales in the second half of the year include Xi'an Hailancheng Phase 6, Changsha Huacenter Phase II, Tianjin Hangu Project, and Guangzhou Dayi Mountain Resort. We expect the company's annual sales to be around 10 billion yuan, which is basically the same as last year, and has achieved 43% of the target in the first half of the year. The gross margin will continue to rise throughout the year: the company will settle the Beijing Xihongshi project in the second half of the year, which will continue to increase the gross margin for the whole year. The gross margin after tax is expected to be around 20% for the whole year. Earnings Forecast We maintain our earnings per share forecast for the full year of 2017/2018 unchanged. Valuation and recommendations Currently, the company's stock price corresponds to the 17/18 price-earnings ratio of 9.3 times/8.4 times, a 4% discount on NAV. We maintain a neutral rating and target price of RMB 5.17, with 19.4% upside compared to the current stock price. The target price is 15% premium over NAV. Risk property market regulation has been upgraded again.