2016 underlying net profit was in line with our expectation. Top lineincreased by 15.9% YoY to HK$21,354 mn in 2016. Underlying net profitincreased 18.4% YoY to HK$2,891 mn.
Contracted sales are likely to remain stable with a conservative salestarget in 2017. Sales target and saleable resources in 2017 are RMB19.1 bn(indicating flat growth) and RMB31.0 bn (indicating 61.6% target sale-throughrate), respectively. Saleable resources in tier-1 cities will account for 84.0% oftotal saleable resources.
We expect the Company's margins to be consolidated. The Company'sgross margins are expected to remain at around 37.3% between 2017 and2019 due to its quality land bank and an increased amount of saleableresources in Shenzhen. In addition, funding costs should remain at low levels,which could consolidate its profitability.
We revise down underlying net profit, however, the Company will still havebenign fundamentals. Therefore, we maintain the target price of HK$4.33,which represents a 51% discount to its revised 2017F NAV of HK$8.91 pershare, 10.6x underlying 2017 PER and 0.9x 2017 PBR. We maintain ourinvestment rating as "Buy". Risk factors: lower-than-expected contractedsales and potential losses on disposals of land reserves.