In June 14, Beautiful Home issued 20 per cent new shares at HK $0.80 per share. The company's net income of HK $155 million will be used for capital expenditure and general working capital. The total investment in the third phase of the plant is about 300 million yuan, and the annual production capacity will increase from 110000 cubic meters now to 230000 cubic meters by the end of 15 years. After the completion of the rights issue, the chairman's interest in Beautiful Home dropped to 34.0%.

Beautiful Home disclosed that the company recorded a substantial increase in revenue in the first half of 14 years. We believe that the company's revenue increased significantly in the first half of 14 years, in addition to the continued demand for its own products, the increase in log trading business is also another factor. We raised the company's net profit forecast but lowered the net profit per share forecast due to the dilution effect brought about by the IPO. We expect the company's net profit per share from 2014 to 2016 to be 0.097 yuan, 0.110 yuan and 0.131 yuan respectively, up 7.0% (compared with 13-year core net profit per share), 13.7% and 18.6% respectively.

After issuing new shares, the share price of Beautiful Home has not changed much. Due to the increase in the total number of shares, we lowered our target price to HK $1.20, but maintained the investment rating as "buy". The new target price is 25% off our DCF, which is also equivalent to 9.7 times 14-year earnings, 8.5 times 15-year earnings and 7.2 times 16-year earnings.