Jinke Property:Property sales growth below national level;diversified businesses yet to show results

Earnings in line with expectations

    H116 revenue was Rmb13.1bn (+100% YoY), net profit attributable to the parent wasRmb580m (+43% YoY), and EPS came to Rmb0.14, in line with our and consensusexpectations. Booked gross margin was 23%, down 2.8ppts from H115.

    Property sales growth below national level

    In H116, property sales value came to Rmb12.5bn (+29% YoY) and sales GFA totalled2.06m sqm (+41% YoY). ASP was Rmb6,068/sqm, down 13.6% from 2015. The dropin ASP was unusual among peers. Further, the 29% YoY sales growth trailed the 42%YoY sales growth of nationwide commodity housing in H116. The main reasons are:1) the company's low ASP for projects in Chongqing's suburbs and some tier-4 cities;and 2) the residential ASP in Chongqing city rose only 1.7% YoY in H116, resulting inoverall higher volume and lower price for the company's property project sales.

    Wind power revenue below expectations

    In H116, the wind power business delivered revenue of Rmb64m, up merely 3% YoY.

    We believe it is unlikely to meet our earlier full-year estimate of Rmb250m, with thecompany's diversification strategy facing obstacles. Apart from the wind powerbusiness, in H116, the company invested Rmb1bn each to set up two subsidiaries: onein education services and the other in community services. The company has yet tomake specific announcements on the businesses. In our view, the company does nothave sufficient technical experience and know-how in the diversified businesses, whichare unlikely to deliver stable earnings in the near term, as the investments are scattered.

    Valuation: Maintain Sell rating and Rmb3.33 PT

    We maintain our 2016-18E EPS at Rmb0.36/0.39/0.42. The stock is trading at 12x2016E PE. We derive our Rmb3.33 PT by applying 9x 2016E PE (5-year average less 1SD). We maintain our Sell rating, given: 1) the poor progress of the property business inthe cities; and 2) the diversified businesses are unlikely to deliver stable earnings in thenear term due to the scattered nature of the investments.