Net profit for FY17 was 8.2 billion yuan, +10% year-on-year. Below expectations, Huayuan Real Estate announced FY17 results: operating income of 9.0 billion yuan, up 30.2% year on year; net profit of 8.2 billion yuan, up 10% year on year, corresponding to earnings per share of 0.35 yuan, lower than the unanimous market forecast of 26%, and lower than CICC's expectations of 18%. The surge in minority shareholders' equity has dragged down the growth rate of net profit attributable to the mother. Benefiting from a significant increase in gross settlement margin (21.0% in 2017 vs. 13.2% in 2016), the company's operating profit and after-tax profit increased by 50.4% and 49.0% year-on-year respectively during the period to $1.60 billion and $1.15 billion. However, minority shareholders' equity was affected by the low share of equity of settlement project companies, which surged from 32 million yuan in 2016 to 333 million yuan, which affected the net profit of the parent company only increased 10%. The sales side experienced a sharp decline due to regulation in hot cities. The company signed a sales area of 667,000 square meters during the period, with a sales amount of 7.72 billion yuan, a year-on-year decrease of 5.8% and 28.4%, respectively. Mainly because the company's main sales regions, Beijing, Xi'an, Changsha, and Tianjin, were all key regulatory regions, and policies such as purchase restrictions and price limits had a great impact on marketing. The net debt ratio has risen markedly, and financing costs are still advantageous. The company's net debt ratio at the end of the period reached 116.7%, up 24 percentage points from the beginning of the period; while cash on hand increased 33% to 7.21 billion yuan, the average financing cost decreased by 0.24 percentage points to 5.61%, which is still at a low level in the industry. Development trend The sales target for 2018 is 12 billion yuan, and the land acquisition budget is about 10 billion yuan. The company plans to achieve a contract sales amount of about 12 billion yuan in 2018, corresponding to a year-on-year growth rate of 55%. We expect this figure to exceed 30 billion yuan within 5 years. In 2018, the company plans to invest 19.1 billion yuan in real estate development directly, of which about 10 billion yuan is spent on land reserves. The profit forecast takes into account that the sales growth rate falls short of expectations. We lowered the company's earnings per share forecast for 2018 by 22% to $0.40, and introduced the 2019 earnings per share forecast of $0.47. Valuation and recommendations Currently, the company's stock price corresponds to 8.4/7.3 times the 2018/19e price-earnings ratio. We maintained a neutral rating and lowered our target price by 26% to RMB 3.23 (due to lower profits and increased uncertainty about the company's future sales). The new target price corresponds to 8.0/6.9 times the 2018/19e target price-earnings ratio and 5% downside. The regulation policy for high-risk cities has been further strengthened, and settlement progress has fallen short of expectations.