Upgrading to Buy with target price of HKD4.26
　　We upgrade Sino-Ocean to Buy from Hold, with a TP of HKD4.26, afterfactoring in the FY16 results and the latest land acquisitions. We believe itsoutlook is improving, given: 1） current quality landbank （>70% GAV from T1cities） can support a high-teen sales CAGR in 2017-18E; 2） 29% earnings CAGRwith gross margin expanding to 23-25% in FY17-19E; and 3） an attractivedividend yield of 5-8% （based on a 34% payout） in the next three years. Thisreport marks the transfer of coverage from Jason Ching to Stephen Cheung.
　　Quality landbank to boost double-digit sales growth
Sino-Ocean acquired 4.6m sqm residential land last year （mostly throughM&A） to form a total landbank of 21.7mn sqm （>70% GAV from T1 cities,mostly from Beijing）。 We expect its quality landbank to boost its sales by 20%to RMB60.6bn （vs. its RMB60bn target, given there are RMB104bn saleableresources, including RMB72.5bn from new launches） in 2017, and grow afurther 12% to RMB68.1bn, even without further land acquisitions. Also,management expects the land market to be less heated in 2H17, and hasbudgeted RMB23bn for land acquisitions this year （vs. RMB13.5bn in FY16）。
　　29% earnings CAGR in FY17-19E amid gross margin expansion
Due to the low base in FY16, we expect the company’s earnings to achieve a29% CAGR to RMB3.8bn/RMB4.7bn/RMB5.7bn in the next three years, given:
　　1） there are RMB54.7bn unbooked sales （~60% to be delivered in FY17E）； and2） gross margin to expand to 23-25% （vs. 22.1% in FY16） due to higher ASP（+29% y-y） and lower interest cost （5.06% in FY16 vs. 5.86% in FY15）。
　　Weak FY16 results
　　1） Revenue was up 12.1% yoy to RMB34.6bn; the gross margin recovered to22.1% （vs. 20.6% in FY15）； 3） core profits declined 13.0% yoy to RMB2.7bn（18% below consensus）； 4） net gearing improved to 44% （vs. 67% in FY15）；and 5） the company proposed a final dividend of HKD0.12/share （full-yearHKD0.199/share） to offer a full-year yield of 5.3% based on the current price.
　　Valuation and risks
　　Our TP is based on a 35% discount to end-2017E NAV of HKD6.55. The stocknow trades at 6.6x FY17F P/E, a 43% discount to NAV. Risks include weakersales due to policy tightening, slower gross margin recovery （refer to pp3-4）。