Contract sales need time to regain momentum. From January to November 2017, contract sales reached 10.79 billion yuan, down 43.0% from the same period last year, and 56.5% of the 2017 sales target has been achieved so far. In order to match the delayed purchase demand under the tightening policy environment and protect the profit margin of the Shenzhen project, the company will need more time to launch its available resources in Shenzhen.

We expect the company to have relatively high profit margins. As a Shenzhen state-owned enterprise, the company will obtain quality land resources in Shenzhen at a relatively low cost. Because of the quality of land storage and more marketable resources in Shenzhen, the company's gross profit margin will remain at around 38.3% from 2017 to 2019. In addition, financing costs should be kept at a low level, which can strengthen its profitability.

The core net profit in the first half of 2017 is in line with expectations. Core net profit rose 7.2 per cent from a year earlier to HK $1048 million. The land disposal brought in an after-tax profit of HK $3.33 billion. But we still cut our core net profit.

The expected lower growth in contract sales should apply to a higher discount of net assets per share. As a result, we lowered our target price from HK $4.33 to HK $3.61, equivalent to a 56% discount to 2017 net assets of HK $8.21, 11.9 times 2017 core price-to-earnings ratio and 0.8 times 2017 market-to-net ratio, respectively. We lowered it to "collection". Risk: lower-than-expected contract sales and potential losses on the disposal of land reserves.