Rise Sun Real Estate Development:Earnings and sales growth in line;high gearing barrier to new business development

Nanjing projects have the largest share of booked GFA

    RiseSun realised revenue of Rmb11.38bn and net profit attributable to the parent ofRmb1.3bn in H116, up 24%/25% YoY, respectively. EPS were Rmb0.3, in line withexpectations. H116property booked revenue was Rmb10.6bn, booked gross floor area(GFA) was 1.50m sqm and booked ASP was Rmb7,067/sqm, up 22%/11%/9%,respectively. Nanjing/Linyi/Langfang/Bengbu accounted for the largest share of bookedGFA (33%/12%/11%/9%, respectively). Booked gross margin was 31%, +1.3ppt YoY,slightly higher than our expectation of 30%.

    Rapid sales growth driven by residential housing price rise in Langfang

    RiseSun realised sales of Rmb17.0bn and 2.25m sqm, with an ASP of Rmb7,600/sqm inH116, up 63%/34%/22% YoY, respectively. We believe hot sales of the company'sLangfang projects have made a substantial contribution to its total sales – the ASP oftypical residential projects in Langfang reached Rmb9,243/sqm in July (+30% YoY).Although RiseSun has benefited from the successful execution of its Langfang strategy,its land reserves in Liaoning still account for 20%+ of its total land reserves. The ASP oftypical residential projects in Shenyang continued to fall MoM in July. We believe it willtake time for the company to reduce its Liaoning exposure and we maintain our fullyearsales forecast of Rmb35bn.

    High gearing is a barrier to new business development

    To realise a business shift, RiseSun has set up property, health & tourism, financial,internet and innovation divisions. Its health & tourism division plans to develop a spa &wellness centre project in the Czech Republic but there have been no projects for theother newly-established divisions so far. The company's net gearing was 147% inH116, higher than the industry average. Whether it has sufficient funds to support therapid development of its divisions remains unknown.

    Valuation: Maintain PT of Rmb7.30and Neutral rating

    We maintain our 2016-18E EPS of Rmb0.86/1.03/1.19. RiseSun is trading at 8.4x 2016EPE, lower than the weighted average of 10x for the A-share property companies wecover. Our PT is based on 8.5x 2016E PE (+0.5SD of the past five-year average) and2016E EPS of Rmb0.86. We believe the company's sales and earnings growth havebeen priced in and maintain our Neutral rating.