Institutional investors placed South China City (1668), removing some of the uncertainties limiting the rise in stock prices and maintaining the purchase recommendation South China City (1668, $4.23) is a leading real estate developer and operator of a large-scale integrated logistics and commodity trading center in China. The company's stock price surged 6.8% yesterday after being consolidated at 3.87 yuan to 4.17 yuan in the past month. The trading volume also soared to 122 million shares. On July 9, 2014, Pacific Alliance exercised its right to exchange 975 million yuan worth of convertible bonds worth $1.56 million each for 625 million South China City shares. After the market closed yesterday, Pacific Alliance placed 250 million shares at $402 to $4.10 per share, with an allocation amount of about 1 billion yuan. The Bank does not believe that the basic factors of South China City have changed. The Bank believes that the motive for allocating shares is to lock in profits. As a brief review, the company announced earlier that net profit as of March 31, 2014 reached 3.49 billion yuan, which is higher than market expectations. Core net profit increased 51% year-on-year to $2.68 billion. The final interest rate rose 40% to $0.14 per share, reflecting a dividend ratio of about 33%. Gross margin fell from 56% in FY2013 to 49% in FY2014, far higher than the industry average of 32%. The net debt-to-equity ratio fell from 32% in FY2013 to 24% in FY2014, far lower than the industry average of 72%. Contract sales for the 2014 fiscal year rose 72% to 14.1 billion yuan, which is higher than the 33% average growth rate of the top 10 domestic housing stocks in 2013. The Bank believes that the company's operating performance is better than that of first-tier real estate agents. South China City's contract sales target for FY2015 ranged from RMB 18 billion to RMB 20 billion, up 28% to 42% year-on-year. In the first quarter of FY2015, the company's contract sales increased 20% year-on-year to $2.65 billion, equivalent to 13% to 15% of the annual target. Based on the rapid development of China's logistics industry, the Bank believes that the company can achieve its sales targets. More importantly, the company's cooperation with Tencent (700) in the e-commerce business will greatly enhance the value of the company's properties. The Bank believes that the allocation of shares has removed factors that limit the rise in stock prices in the short term, so the Bank maintains South China City's buying rating. According to Bloomberg's estimates, South China City's core profit for the 2015 fiscal year increased 41% year-on-year to 3.77 billion yuan (profit of 0.52 yuan per share), which means that the current price of the stock is equivalent to 8.1 times the expected price-earnings ratio. The Bank maintained its buying rating and maintained its target price at $4.70, which is equivalent to 9.0 times the price-earnings ratio. The average target price for analysts is about 5.42 yuan.