Poly Real Estate:August sales remained strong

Sales remained strong in August

    Poly posted sales value/volume of Rmb14.5bn/1.11m sqm in August 2016, up17%/12% YoY and 20%/19% MoM, respectively. In January-August, the company’ssales value and volume increased 40% and 33% YoY, to Rmb137.3bn and 10.26msqm, 72% and 75% of UBS-S’s full-year forecast, respectively, and in line with ourexpectations.

    Continued to actively acquire land in August

    In August, Poly’s land cost came to Rmb12.9bn (including Rmb6.3bn of attributablecost). January-August land cost/attributable cost was Rmb59.4bn/36.6bn, up590%/472% YoY, respectively, and land cost was c43% of the company’s sales in thesame period. Poly continued to actively acquire land, and is ramping up land purchaseefforts in Guangzhou and Foshan city, in addition to the Yangtze River Delta.

    Could be involved in property asset deal of SOEs under central government

    On 6 September, AVIC International Holdings, the main shareholder of AVIC RealEstate, announced it planned to sell shares in property companies (excluding AVIC RealEstate) as part of the property-related asset transaction from Aviation IndustryCorporation of China to China Poly Group Corporation. As the flagship of Poly Group’sproperty business, we believe Poly Real Estate is likely to participate in the deal.

    However, as the deal involves many companies and c70 property projects, we wouldexpect it to take a relatively long time to complete. Poly Real Estate’s announcementconfirmed the grant date of its second stock incentive plan was 1 September 2016 and129m stock units (valid in six years) were granted to 682 employees, with a strike priceof Rmb8.72/share and the first exercise period beginning on 1 September 2018. Mostof Poly Real Estate’s mid- and higher-level employees are covered by its stock incentiveplans.

    Valuation: Maintain Neutral rating and price target of Rmb10.30

    Our 2016-18E EPS remain Rmb1.43/1.56/1.61. The company is trading at 6.6x 2016EPE, and our price target of Rmb10.30 implies 7.2x 2016E PE (average in the past fiveyears + 0.5 standard deviation). We maintain our Neutral rating.