Incident description In the first half of 2019, the company achieved operating income of 226.98 billion yuan, a year-on-year decrease of 24.4%; net profit of the mother's net profit of 14.92 billion yuan, a year-on-year decrease of 51.6%; core net profit margin of 30.35 billion yuan, a year-on-year decrease of 44.8%; core net profit margin of 13.4%, a decrease of 4.9 pct; ROE (dilution) of 10.9 pct. Incident reviews were affected by the high base and decline in delivery area, and the company's profit declined in the first half of the year. The revenue of the company's main real estate development business fell 25.0% year on year in the first half of the year, mainly due to a decrease in contract-bound delivery area in the first half of the year. In the first half of 2019, the company completed 33.36 million square meters, down 12.7% year on year, and delivery area fell 25.8% year on year. The decline in real estate development revenue dragged down profits. The company's revenue fell 24.4% to 226.98 billion yuan; core net profit fell 44.8% to 30.35 billion yuan. Sales have declined somewhat, enthusiasm for land acquisition has increased, and there are plenty of reserves on hand. The company's sales declined slightly in the first half of the year. The contract sales amount was 281.81 billion yuan, a decrease of 7.4%; the contract sales area was 26.20 million square meters, a decrease of 9.8%; however, the average sales price reached a record high of 10,756 yuan/square meter in recent years (the average price for the full year of 2018 was 10,515 yuan/square meter). Motivation to acquire land increased. In the first half of the year, 44.49 million square meters of land were purchased, an increase of 44.2%; land acquisition/sales amount increased by 12.2 pct to 26.8% over the same period last year. The company has abundant land reserves. As of mid-2019, about 53.3% of the area was distributed in Tier 1 and 2 cities, and 46.7% were distributed in Tier 1 and 2 cities, and 46.7% were distributed in Tier 3 cities. Furthermore, considering the 70.12 million square meters of land renovation projects that were not included in the soil storage, the company's total land storage reached 389 million square meters, about 7.4 times the sales area in 2018, with an average sales value of about 4.2 trillion yuan over the past six months. Furthermore, the company's average land acquisition price for on-hand land storage (319 million square meters) was only 1,639 yuan/square meter, which was 15.2% of the average sales price in the first half of the year, providing a guarantee for better long-term profits. Leverage remained stable and liquidity remained good. Leverage was stable but capital costs increased. As of mid-2019, the company's net debt ratio was 152.1%, a slight increase of 0.1% from the end of 2018; the average actual interest rate on loans in the first half of the year was 8.62% (7.92% for the same period last year). As of the end of June 2019, the company's loans maturing within one year totaled 375.8 billion yuan, cash on hand and cash equivalents of 288.02 billion yuan (up 41.0% from the end of 2018). Considering nearly 300 billion dollars in cash on hand and better sales repayment, the company's liquidity is still guaranteed. Investment advice: There is no need to overinterpret the decline in short-term profits; sufficient land reserves guarantee long-term profits. Sales have declined, but absolute volume is still guaranteed; land reserves are plentiful and land acquisition prices are low to guarantee long-term profits; leverage remains stable and liquidity is still abundant; diversification continues to advance, saving new momentum for the development of savings groups. The company's 2019-2021 EPS is expected to be 2.31, 2.52, and 2.80 yuan (latest share capital), which corresponds to the current stock price PE of 6.4, 5.8, and 5.2 times, maintaining the “buy” rating. Risk Warning: 1. There is some uncertainty about the company's project settlement progress; 2. The liquidity environment may be uncertain.