Raise the target price; expect the market to revalue the group — we believe the market has revalued Lugen since the Group's year-to-date sales were beyond expectations, and it is likely that land reserves will expand in the future, all of which will enhance the Group's net asset value. As a result, we expect the stock price to net asset discount to be reduced from the current 76% to 70% within the next 12 months. We should also increase our target price by 21% to HK$6.55. We recommend buying roadblocks, as there is room for an increase of 22.7%.

Property contract sales will exceed the target — in the first 8 months of 2012, Lu Jin recorded a total contract sales amount of 6 billion yuan, an increase of 82% over the same period last year, accounting for 75% of the annual sales target of 8 billion yuan. Due to the Group's effective sales strategy, we expect its sales volume to reach 9 billion yuan by the end of this year, an increase of 67% year-on-year, and exceed the Group's annual sales target.

The increase in sales volume will offset the impact of the decline in gross margin — we believe that the increase in delivery area will offset the negative impact of falling gross margin due to price cuts, and we expect the Group's core profit to rise 27% and 15% year-on-year in 2012 and 2013, respectively.

Plan to buy land to improve net asset value — we expect that Luking's net debt ratio will drop to 52% and 32% by the end of 2012 and end of 2013, respectively, leaving room for group land purchases and improving net asset value. Future land acquisitions will mainly come from central China or existing cities