Privatization may fail; TP raised to HKD5.17/share
We maintain our Buy rating on Future Land and raise the TP to HKD5.17, inview of: 1） stronger-than-expected sales; we therefore raise our sales forecastsby 10-40% for 2017-18F; 2） more land acquisition over the past quarter; it nowhas >RMB600bn saleable resources in total; 3） privatization may fail, given thelatest share price is much higher than the proposed privatization price ofHKD3.30, and the transaction volume seems significant enough that minorityshareholders have accumulated a sufficient stake to vote down theprivatization plan.
　　Current share price implies potential failure of privatization
The company proposed a privatization plan on 18 July, at HKD3.30/share, andit is now pending the approval of the court and shareholders. However, webelieve minority shareholders will likely vote down the plan, given the currentshare price implies 23% downside if it succeeds. Also, according to Bloombergdata, we estimate >10% of the existing minority shareholders have acquiredtheir stake since the share price spiked over the proposed privatization price on8 September （the proposal needs >75% of independent shareholders’approval, and <10% against the proposal）。
　　>RMB600bn saleable resources to support >40% sales CAGR
We estimate Future Land’s current landbank （49.6mn sqm by 1H17） canprovide total saleable resources of >RMB600bn （63% from T1/T2 cities,equivalent to 6.4x of its 2017F sales, vs. 4-5x of sector average）， which shouldenable its sales to grow 47% to RMB95.8bn this year （13% higher than itsconservative target of RMB85bn） and grow another 42% to RMB136bn in2018F （10-40% higher than our previous estimates）， even without further landacquisitions.
　　Aggressive landbanking to continue
　　Future Land remains aggressive on landbanking by spending RMB48bn toacquire 15.7mn sqm land in 1H17, equivalent to 2.7x its 2016 GFA sold and32% of its total landbank. We believe the company will remain proactive onland acquisitions in 2H17, given its fast asset churn, resulting in its year-endnet gearing staying high at ~90% （vs. 89% in FY16）。
　　Valuation and risks
　　Our TP is based on a 45% discount to our end-2017F NAV of HKD9.41. Thestock trades at 6.0x FY18F P/E and a 55% discount to NAV. Key downsiderisks: 1） higher gearing due to aggressive landbanking; 2） slower sales growthand margin recovery; and 3） potential success of the privatization.