Contracted sales will maintain steady growth due to sufficient saleableresources in wide geographic locations. During Jan.-Apr. 2018, contractedsales amounted to RMB212.26 bn, increasing by 46.6% YoY, achieving38.6% of its 2018 sales target. As at the end of 2017, the Company had 766projects in 228 cities. Total GFA amounted to 312 mn sq.m.
We expect a high gross margin level. The Company's unit land costamounted to RMB1,711 per sq.m., 16.5% of ASP during Jan.-Apr. 2018.
Gross margin is expected to remain at around 36.8% between 2018 and2020.
Evergrande’s operating risks should gradually decrease alongsidebalance sheet enhancement and profitability improvement. This isfavorable, especially when the credit environment is tightening up. We expectstable contracted sales growth, an increase in profitability and scale growthreduction of land reserves. Therefore, the net gearing ratio will graduallydecrease from 183.7% in 2017 to 81.6% in 2020.
2017 underlying net profit was in line with expectations. As we revise upunderlying net profit, we revise up target price from HK$29.60 to HK$30.17,which represents a 32% discount to the Company’s revised 2018E NAV ofHK$44.36 per share, 9.2x underlying 2018 PER and 2.2x 2018 PBR. Wemaintain "Buy". Risks: lower-than-expected house sales and listing failurefor Evergrande’s property development business on the A-share market.