Reaffirming top-pick; buy on dip for strong results with bullish sales guidance
We reaffirm Future Land as one of our top-picks among mid/small-caps, andexpect it to report strong FY17F results with bullish sales guidance for 2018. Inour view, the company can sustain its strong sales momentum to reachRMB190bn sales （+50% y-y） this year, potentially becoming a top-10 developerin China. Also, its share price has fallen 25% （vs. sector average of 16%） fromthe peak in January, and we think the current valuation （6.1x FY18F P/E and60% discount to NAV） offers a good defensive entry point. We suggestinvestors to buy on dip.
RMB190bn sales achievable to outperform peers
Future Land has achieved RMB19bn sales in 2M18 （90% y-y）， based on CRICdata. We expect the company to reach ~RMB38-40bn in 1Q and RMB90-100bn by interim. Supported by ~RMB400bn saleable resources for 2018, webelieve the company wil continue to outperform peers with RMB190bn fullyearsales, （50% y-y vs. 35% on average for developers we cover）。
Catalysts: strong results, bullish guidance, potentia stake increase by chairman
We see good near-term catalysts via expectations of strong FY17F results（>140% earnings growth with potentia increase in dividend payout） andbullish sales guidance for 2018. Also, the chairman could further increase hisstake （70.41% now） in the company （latest stake increase in November 2017），given the current low valuation （6.1x FY18F P/E and 60% discount to NAV,which is below sector average）。 In our view, these positive catalysts shouldbuoy the share price well.
Proactive refinancing and large scale to secure low borrowing costs
The company has been proactive on refinancing to further lower its averageborrowing cost （~5.5% in 2017 vs 5.7% in 2016）： 1） redeemed USD250m bond（6.25% coupon） in November; 2） Future Land A issued USD300m bond at4.75%; 3） issued HKD2.3bn convertible bond at 2.25%; and 4） had placementto lower the net gearing ratio. We believe the company wil enjoy a relativelylow borrowing cost （the most expensive borrowing now is <6.5%） given itslarge scale （RMB126bn sales in 2017）， which should help to further gainmarket share.
Valuation and risk
Our target price is based on a 40% discount to our end-2018F NAV ofHKD15.35. The stock now trades at 6.1x FY18F P/E and a 60% discount toNAV. Key downside risks are slower sales growth and weaker margins. See pg3.