Core net profit for the first half of 2019 was lower than we expected because of higher financial costs and land value-added tax. Total revenue rose 54.0 per cent year-on-year to HK $4.41 billion. Core net profit fell 17.6 per cent year-on-year to HK $359 million.

Total revenue will grow rapidly at a high gross profit margin. Contract sales will maintain a relatively rapid growth. In the first half of 2019, contract sales reached HK $6.803 billion, up 24.8 per cent from a year earlier. Sales target for 2019 reached HK $16 billion, indicating year-on-year growth of 33.0%. In addition, recurrent income is likely to continue to rise. The weighted average unit land cost of the company is 421.2 yuan per square meter, 4.5% of the average sales price in the first half of 2019.

Financial pressures are likely to increase but are still manageable. With the peak of debt repayment in 2019-2020, companies will still face rising debt pressure. However, due to the increasing recurrent income, the coverage ratio of recurrent income to gross interest will be higher than 76.5% between 2019 and 2021. We also believe that the net asset-liability ratio will be lower than 70.5% in 2019-2021.

As a result of our reduced core net profit, we lowered our target price from HK $2.60 to HK $1.68, which is equivalent to a 70% discount to 2019 net assets of HK $5.60, 7.8 times 2019 core price-to-earnings ratio and 0.5 times 2019 price-to-book ratio, respectively. We maintain the "buy". Risks: 1) lower-than-expected property sales; 2) uncertainty in commercial real estate operations; 3) financing pressure may be further strengthened.