RiseSun Real Estate Development:Raising our full-year sales forecast;land acquisition strategy has shifted

Raising full-year sales forecast to Rmb40bn from Rmb35bn.

    Given that new starts grew 51% to Rmb67.4bn in 2015, we estimate ~5.6m sqm ofsaleable area will be added in 2016, with projects in the Langfang area representing22%. We expect ASP to rise to Rmb7,800/sqm, implying a value of Rmb43.7bn for thenew saleable area. Based on a 91% sell-through rate (3-year average), we are liftingour 2016E sales to Rmb40bn from Rmb35bn, which would be a 29% YoY increase.

    Entered two provincial capitals-Shijiazhuang and Zhengzhou.

    Land purchases totalled Rmb8.2bn in 7M16, up 264% YoY, of which Rmb5.4bn wasinvested in Shijiazhuang and Zhengzhou, two major provincial capitals. Acquiring largeparcels of land in central locations drove accommodation value (AV) up toRmb3,456/sqm from Rmb1,386 in 2015. Meanwhile, RiseSun acquired just Rmb330mof land in Langfang during 7M16, a mere 4% of total land purchases. This marks asignificant change in its land acquisition strategy, which is now emphasizing centrallylocatedparcels in provincial capitals, compared to the previous focus on "cheap" land.

    Investing in P&C insurer and acquiring seaplane tour operator.

    The company plans to invest Rmb200m in setting up South China Insurance, giving it a13.5% stake. In addition, it plans to purchase a 100% stake in Meiya Air, a seaplanesightseeing firm, for Rmb625m. Meiya Air operates two seaplanes and has a class-Aaviation license and land-usage rights for 373mu (~24.9ha) of land zoned for aviationuse, adjacent to the airport in Wanning, Hainan. We do not expect either investment tocontribute earnings for the time being.

    Valuation: Maintain Neutral rating; lifting PT to Rmb8.00.

    After raising our 2016 sales forecast, we leave our 2016/17E EPS unchanged atRmb0.86/1.03 and lift our 2018E EPS 2% to Rmb1.22 from Rmb1.19. The stock istrading at 9.2x 2016E PE. Due to higher-than-expected sales and growth potentialcreated by entering Shijiazhuang and Zhengzhou, we apply a 2016E PE of 9.3x (1 SDabove the 5-year average) to derive our Rmb8.00 price target. We maintain our Neutralrating.