Core point of view: An established local developer in Shanghai from the national team. Since its listing in 1993, the company has been a local state-owned enterprise in Shanghai. In 2017, the company clearly developed a development strategy to work intensively in the Shanghai region while improving the company's operating level in terms of health, core competencies, and market mechanism. The development and sale of products is excellent, and the operating profit is stable. In the first half of 2018, the company had a cumulative contract amount of 2,599 billion yuan and a contract area of 122,400 square meters. Some of the projects sold in 2017, such as Shang Hui Haoting, are in an excellent location. As of the end of the second quarter of 2018, the company owned high-quality operational properties with a construction area of 391,500 square meters, such as China Enterprise Building and China Star City. Relying on the background of large local state-owned enterprises, it has the advantage of acquiring land. The supply of land in the Shanghai land market is getting tighter and tighter. In the first 8 months of 2018, in the Shanghai land market, land snakes acquired more land than large housing enterprises. The parent company, Shanghai Real Estate, has always had a strong ability to acquire land. At the same time, the company has an advantage in connecting with its land. The restructuring and acquisition of Zhongxing Group made resource integration more capable of development. In May 2018, the company completed the acquisition of China Star Group, which belongs to the same parent company. The real estate development projects injected through China Star have a very high location advantage, while the investment properties injected are large, the rental rate is high, and the rent inflow is stable. After the company integrates resources, it may further enhance its overall operation and profitability. Introduce strategic investors to protect business diversification. Through major asset restructuring, China Resources Land will become the company's second largest shareholder. In July 2018, two China Resources Land executives joined the company and may use China Resources Land's business experience to optimize the company's development, sales, and commercial real estate projects. Meanwhile, Ping An Real Estate's shareholding may help broaden the company's financing channels and promote the real estate finance model. The company's profitability is improving, and its ability to repay debts is steady. The reduction in the company's expense ratio and inventory price decline over the past two years has led to a gradual increase in profitability. The reduction in financing costs, the balance ratio after deducting advance accounts, and abundant cash flow prove the company's steady ability to repay debts. The performance was even better after being on a par with China Star Group. Investment advice. Based on the company's development project reserves and consideration of sales conditions in the Shanghai real estate market, we expect the company's earnings per share for 2018-2020 to be 0.53 yuan, 0.61 yuan, and 0.65 yuan, respectively. Based on the closing price of 6.01 yuan on October 29, the corresponding dynamic price-earnings ratios were 11.3 times, 9.85 times, and 9.2 times, respectively, and the net market ratio was 4.14 times. According to the company's current reserve program, the RNAV we calculated was 7.78 yuan. The current price of A shares is 23% discounted compared to RNAV. Referring to comparable company valuation levels, the company's dynamic price-earnings ratio in 2018 was 11.2 times, lower than the average by 12.22 times, which is attractive. For the first time, we covered the “recommended” rating. Investment summary: Drivers, key assumptions and main forecasts: (1) Residential and commercial sales prices: New home sales are affected by the slowdown in economic growth and real estate market regulation, but considering that the company's sales projects are mainly located in Shanghai, we assume that the prices of the company's sales projects in 2018-2020 will change by 5%, 5%, and 5%, respectively. (2) Rental income from rental properties: We assume that rental income for the first 10 years will grow at an annual rate of 2%, and rent will not change for the next 30 years. (3) Financing costs: The company relies on real estate groups, and financing costs have declined in recent years. Assuming that financing costs remain unchanged at 5.83%. We have a different view from the market: the market believes that real estate companies are currently difficult to operate, and the prospects are worrying. Our different views are: Profit difficulties for real estate development companies are mainly due to difficulties in acquiring land, and at the same time, price limits for new homes. We believe that the company has the advantage of a state-owned enterprise background to overcome land acquisition difficulties, can connect with the parent company's land resources, and reserve land at a lower cost than the market. At the same time, as a first-tier city with a continuous influx of population and a developed economy, the demand for housing and commerce in Shanghai will show an upward trend year by year. The company is deeply involved in the Shanghai region, and the promotion and sale of projects is easier, and the risk is low. Valuation and investment recommendations: Based on the company's development project reserves and considerations of the Shanghai real estate market sales market, we expect the company's earnings per share for 2018-2020 to be 0.53 yuan, 0.61 yuan, and 0.65 yuan, respectively. Based on the closing price of 6.01 yuan on October 29, the corresponding dynamic price-earnings ratios were 11.3 times, 9.85 times, and 9.2 times, respectively, and the net market ratio was 4.14 times. Referring to comparable company valuation levels, the company's dynamic price-earnings ratio in 2018 was 11.3 times, lower than the average of 12.22 times, which is attractive. According to the company's current reserve program, the RNAV we calculated was 7.78 yuan. The current price of A shares is 23% discounted compared to RNAV. Macroeconomic control of the real estate market has not abated, and entry qualifications for the Shanghai land market have become stricter. With the advantages of the parent company, Shanghai Real Estate Group, as a large state-owned comprehensive development enterprise in Shanghai, the company has a very high land acquisition advantage as the only residential and commercial development and sales platform under the parent company. The injection of high-quality assets into China Star Group has improved the company's performance over a long period of time. Meanwhile, the entry of China Resources executives will further optimize the company's operating efficiency in all aspects of real estate development and sales. There is a positive trend in the company's performance, and there is plenty of room for future growth, so we continue to give it a “recommended” rating. The catalyst for stock price performance: (1) The majority shareholder Real Estate Group increased its holdings. (2) The asset injection of China Star Group has led to an increase in performance. (3) The entry of China Resources executives to optimize the company's operating efficiency. Main risk factors: (1) If real estate prices fall sharply, sales performance will be reduced, which in turn will affect the company's profit level. (2) If the financing environment deteriorates further, the company's costs will increase and profits may be affected.