The core net profit in the first half of 2018 was lower than expected. Core net profit fell 61.1% year-on-year to HK $407 million.

Contract sales are expected to accelerate in the second half of 2019 and maintain a growth rate of about 10.0% in 2018-2020. The available resources in the second half of 2018 are about 30 billion yuan (indicating a removal rate of 49.3%). In addition, the salable value of 20 billion yuan is for non-residential projects in Shenzhen, which can partially circumvent the government's strict policy in the housing market. However, land replenishment in Shenzhen has gradually become difficult. As a result, the growth rate of contract sales is likely to remain at around 10.0% between 2019 and 2020.

We expect the company to have a relatively high gross margin. Because of the quality of land storage and more marketable resources in Guangdong-Hong Kong-Macau Greater Bay Area in the future, the company's gross profit margin will remain around 33.0% from 2018 to 2020. In addition, financing costs should be kept at a low level. Based on the significant increase in Evergrande's share price since June 30, 2018, we also expect losses from the fair value of financial assets to shrink. The company's profitability should be restored.

Because we reduced our core earnings, we lowered our target price from HK $3.61 to HK $2.77, which is a 60% discount to 2018 net assets, 8.0 times 2018 core price-to-earnings ratio and 0.5 times 2018 price-to-book ratio, respectively. We maintain "collection". Risk: lower-than-expected contract sales and policy in Shenzhen may be further tightened.