Results for the first half of the year fell short of expectations Oriental Garden announced results for the first half of 2019: revenue of 2.19 billion yuan, down 66.1% year on year; net loss of 890 million yuan (net profit of 660 million yuan in the same period last year); of these, revenue for the second quarter was 1.18 billion yuan, down 70.0% year on year, and net loss of 630 million yuan (net profit of 650 million yuan in the same period last year). Due to debt repayment pressure, the company's project execution progress is still slow, and the performance is lower than the previous forecast (net loss of 55—750 million yuan) and our expectations. In 2Q19, the company's revenue decreased by 70.0% year on year, and the decline in revenue in a single quarter continued to expand, mainly because the company's construction progress was still slow under debt repayment pressure. The gross margin of the 1H19 company decreased by 2.9ppt to 28.3% year on year; the period expense ratio increased significantly, with the management/financial expense ratio increased 17.2ppt/19.5ppt to 27.8%/24.2%, respectively; investment losses increased sharply from 6.27 million yuan in the same period last year to 170 million yuan, mainly due to the disposal of equity in the first half of the year; the company's net loss accounted for 40.8% of revenue in the first half of the year (achieving a net profit rate of 10.3% in the same period last year). 1H19 had a net operating cash outflow of $8.0 billion, a sharp decrease from the net inflow of $430 million from 1H18, mainly due to a slowdown in project execution and reduced repayment; net investment cash inflow of $260 million (1H18 was a net outflow of $2.72 billion), mainly due to a reduction in foreign investment expenses. Trend companies are still facing some pressure to repay their debts. As of the end of the first half of the year, the company's interest-bearing debt balance totaled about RMB 10.2 billion, and the net debt ratio was further increased by 5.4ppt to 73.4% compared to the end of 1Q19. Up to now, the company's outstanding payable bonds total $3.32 billion, of which a total of $1.6 billion is still maturing or facing resale in the second half of 2019 (in October 2019, 1 billion yuan of bonds will mature and face resale, respectively). The company is still under some pressure to repay its debts. The injection of state-owned capital is expected to enhance financing strength, but the resumption of operations is yet to be seen. In August 2019, the actual controllers of the company, He Qiaonu and Tang Kai, signed an equity transfer agreement, and the Chaoyang District State Assets Administration Commission became the actual controller of the company. State-owned equity investment is expected to enhance the company's financing capacity, but under debt repayment pressure, the company's revenue and profit situation in the second half of the year remains to be seen. Profit Forecast and Valuation We maintain the 2019/2020 net profit forecast of 0.8 to 900 million yuan unchanged. The current stock price corresponds to a price-earnings ratio of 15.5 times in 2020. It maintained an outperforming industry rating, but due to lower-than-expected performance and a downward shift in the industry valuation center, the target price was lowered 15% to 5.74 yuan, corresponding to 17.0 times the 2020 price-earnings ratio, and there is 10% upside compared to the current stock price. Risk financing and operational improvements fell short of expectations.