China Fortune Land Development:Industrial park and property businesses post strong sales growth

Q1-Q316 results in line with our expectations

    Q1-Q316 revenue/net profit attributable to the parent rose 2%/22% YoY toRmb25.5bn/4.6bn, in line with our expectations. Meanwhile, gross margin/net marginattributable to the parent stood at 46%/18%, up 9ppts/3ppts YoY. The notable grossmargin expansion was mainly attributable to surging booked revenue in the highermarginindustrial park segment. We believe the company can maintain its gross margingoing forward, given that property prices are growing at a similar pace to land prices inareas surrounding Beijing, where its industrial parks are.

    Industrial park/property segments posted strong sales growth

    The industrial park segment booked revenue of Rmb12.5bn (+90% YoY) in Q1-Q316,property sales of Rmb76.3bn (+102% YoY) and sold GFA of 7.31m sqm (+58% YoY).

    With CFLD investing in Gu'an/Dachang industrial parks, the industrial park segmentshowed strong booked revenue growth. Meanwhile, helped by Beijing-Tianjin-Hebeiintegration and implementation of the plan to make Tongzhou a sub-administrativecentre for Beijing, housing prices rose strongly in cities near the Chinese capital (overallASP >Rmb10k/sqm), where 90% of the company’s saleable projects are located. Basedon a sell-through of close to 100%, we expect the company’s property segment to postfull-year sales of Rmb90-100bn.

    International business expanded into Egypt and Vietnam

    On 10 October, the company and Egypt's housing ministry signed a frameworkagreement to explore joint development of the country's ~60 sq ft new administrativecapital (35km from Cairo) project phase II, with plans to build a city integratingindustrial and environmental functions. On 20 September, the company and TinnghiaCorporation, a Vietnamese SOE, inked a memorandum of understanding to explorejoint development of ~1,765 ha of land in East Saigon New City and Ong Keo IndustrialZone managed by Tinnghia on behalf of the Vietnamese government. The company'sinternational business has therefore made progress in another two countries as part of"One Belt One Road" in addition to India and Indonesia.

    Valuation: Maintain Buy rating and Rmb38.85 price target

    We maintain our 2016-18E EPS of Rmb2.35/2.72/3.04. The stock is trading at 12x2016E PE. We maintain Buy given our positive views on property markets near Beijingand the company's internationalization strategy. We derive our PT by applying 12x/25x2016E PE to the company's residential/industrial park development segments.