The results of the 2020 three-quarter report fell short of expectations, and Rongsheng Development announced 1-3Q20 results: operating income was 437 yuan, up 12% year on year, and net profit was 4.4 billion yuan, down 10% year on year, lower than our expectations (up 5% year on year). As gross settlement margin declined and investment income turned negative, performance fell short of expectations. Due to the low gross margin of the company's settlement program in the third quarter, the gross margin before tax during the period fell 2.5 percentage points to 28.8% (of which 1H20 and 3Q20 were 31.3% and 25.1% respectively), resulting in gross profit increasing by only 4% year-on-year. The company recorded investment income of -0.3 billion yuan during the period (mainly due to investment losses of 190 million yuan in joint ventures), compared to 180 million yuan in the same period last year, resulting in a 10% year-on-year decrease in net profit from the parent company. The net debt ratio has risen marginally, and financing costs are still too high. The company's interest-bearing debt at the end of the third quarter increased 10% year-on-year, and the net debt ratio rose 5 percentage points to 99% from the end of 1H20; the balance ratio after excluding advance payments was 75% (73% at the beginning of the year, 75% at the end of 1H20). Cash in hand fell 11% from the interim report due to debt repayment. Short-term cash debt at the end of the period was 0.9 times, the same as at the beginning of the year and the end of 1H20. The company issued two 3-year medium-term notes in the third quarter to raise $2.12 billion. The coupon interest rates were 7.22% and 7.18% respectively, which is at a high level in the industry. The development trend is that sales accelerated in the third quarter, and the annual sales target (5% year-on-year increase) is expected to be achieved. The company achieved a contract amount/sales area of 73.7 billion yuan/6.71 million square meters in the first three quarters, with year-on-year increases of 9% and 6%, respectively (of which the third quarter increased 20% and 12%, respectively), and the average sales price increased 3% year-on-year to 10,976 yuan/square meter. We expect the company to achieve the sales target of 121 billion yuan throughout the year, supported by a saleable value of 200 billion yuan, corresponding to a year-on-year growth rate of 5%, implying a flat year-on-year growth rate in the fourth quarter. Land acquisition intensity is rising, and the share of second-tier cities has increased, focusing on land supplementation efforts, energy levels, and regional structure. The company's land acquisition area in the first three quarters fell 31% year on year to 5.85 million square meters (according to monthly land acquisition announcements), the land acquisition amount fell 4% year on year to 24.7 billion yuan, corresponding to land acquisition intensity 34% (26% in 2019), and the average land acquisition price increased 41% year over year to 4,224 yuan/square meter, accounting for 38% of the current average sales price (29% in 2019). Second-tier cities accounted for 37% of land acquisition, a small increase from 2019 (34%); Beijing-Tianjin-Hebei/Yangtze River Delta accounted for 43%/28% respectively (41%/34% in 2019). The central and western regions expanded their reserves during the company period, and the Chengdu and Chongqing region accounted for 16% of the amount of land acquired. We estimate that the current unsold land storage area is about 20 million square meters, which can support the company's sales within 2 years. We believe that the company's current land storage scale, energy level structure, and profit margin level still need to be improved. Investors are advised to pay attention to the company's land supplement intensity and structure in the context of the tightening of financing policies. Profit forecast and valuation. Considering that the company's settlement profit margin was lower than expected, we lowered the company's 2020/2021 profit forecast 6%/10% to 2.30/2.49 yuan/share. The current stock price is trading at 3.4/3.2 times the 2020/2021 price-earnings ratio and 55% NAV discount. Maintaining an outperforming industry rating, the target price was lowered 7% to 9.59 yuan/share (mainly because the company's gross settlement margin and financial indicators improved less than expected), corresponding to the 45% target NAV discount and 22% upward space. The main risk distribution is that urban regulation policies have been tightened beyond expectations; financing policies have been tightened beyond expectations.