Steady fundamentals for the property sector will remain. In 2018, weconservatively estimate that the YoY growth range of commodity housingsales amount and GFA should be between -5% and 0%, and -10% and -5%,respectively. We also expect stable ASP, decreasing saleable areas andsteady investment.
Ronshine China Holdings Limited （"Ronshine China"） is a fast growingproperty developer. Contracted sales is expected to extend fast growth andreach over RMB120.0 bn in 2018. Abundant land bank in high-tier cities andstrong M&A capacity will support the Company's scale expansion. Riding onproper unit land costs, gross margin will rebound to over 22.5% during2018-2020. The shares placement and senior notes issuance hint a steadyfinancing channel. Despite the Company's high leverage ratio, we expectlimited solvency risks because of strong contracted sales growth and steadyfinancing channels.
We estimate the Company’s total revenue in 2018-2020 to be RMB58,741mn, RMB81,154 mn and RMB98,033 mn, respectively. Underlying net profitin 2018-2020 is expected to reach RMB3,476 mn, RMB4,976 mn andRMB6,086 mn, representing a CAGR of 67.0% in 2017-2020.
We set the Company's target price at HK$16.55, which implies a 45%discount to its 2018F NAV of HK$30.09 per share, 6.2x underlying 2018 PERand 1.5x 2018 PBR. Initiate with "Buy" rating for Ronshine China. Riskfactors: 1） property sales missing expectations and 2） solvency risks.