We initiate coverage of Future Land with a Buy rating and a target price ofHKD3.28. From a regional player in Jiangsu Province, the company has growninto a national developer with 35mn sqm landbank. As of end-2016, it hadexposure in 37 cities. With decent land replenishment over the past threeyears, it derived ——50% of its sales from Shanghai, Nanjing and Suzhou in2015/16, versus 17%/5% from Changzhou in 2015/16. After sales doubled in2016, we expect it to grow another 34% YoY in 2017. With the significantdecline in borrowing cost, we expect net profit to double to CNY2.5bn in 2017Fand further to CNY3.3bn in 2018F.
　　Sales doubled in 2016 and may grow 34% in 2017FFuture Land's sales doubled to RMB65.1bn in 2016 （ranked #15 nationwideaccording to CRIC） with ASP rising to RMB13.6k/sqm from RMB11.1k/sqm in2015. The improving ASP should be reflected in its margins, which we expectto expand gradually to 24.8-26.4% between 2017F and 2019F, from 23.4% in2016. We estimate sales to grow 33% to RMB86.8bn in 2017F, expecting it toleverage its abundant saleable resources and improving market positioning.
　　Among its RMB414bn saleable resources, we estimate 14% from Shanghai,13% from Suzhou, 9% from Nanjing and 9% from Changzhou.
　　Significant decline in borrowing cost should enable it bear fruit in 2017/18FThe issuance of domestic bonds has enabled the company to reduceborrowing cost significantly from 7.2% to 5.7% by end-2016. In addition, thecompany may redeem USD350mn of high-yield bonds （with 10.25% coupon）in 2017 to further lower its financing cost to below 5.5%. We believe thedecline in borrowing cost will translate into earnings in 2017/18F （RMB1.9bnfinancing cost in FY16）。 In addition, the potential decrease in USDdenominatedhigh-yield bonds will lower its FX exposure （RMB282mn of FXlosses in 2016）。
　　Valuation and investment risks
　　Our target price of HKD3.28 is based on a 50% discount to our estimated end-2017F NAV of HKD6.56/share, comprising HKD0.90/share investmentproperties, HKD8.70/share development properties and HKD3.04/share netdebt. Downside risks for Future Land include: 1） higher gearing among peersmakes it relatively vulnerable to credit tightening; and 2） Slower-than-expectedsales growth.