Comments on Hefei Urban Construction (002208) Medium Report

Event: The company released the 2016 midterm report. In the first half of the year, the company realized an operating revenue of 1.164 billion yuan, a year-on-year increase of 360.77%, and a net profit of 70.1037 million yuan, a year-on-year increase of 467.83%.

    Comments: The company's business is mainly distributed in Hefei. In the first half of 2016, the real estate market in Hefei was eye-catching, and the housing price and sales growth rate led the national market. The year-on-year turnround of the company's performance was mainly due to the carry forward income of projects such as Amber Wuhuan City and Yage. At the same time, the company did not carry forward development projects in the same period last year, leading to a substantial year-on-year growth in medium-term performance. By the end of the first half of the year, the Company's advances from customers had increased to 2.86 billion yuan, up 25.54% year on year, which played a supporting role in the improvement of the Company's annual performance.

    The company is the only listed platform under its major shareholder Xingtai Holding, and also the local financial holding platform for state-owned enterprises in Hefei. Xingtai Holding's business covers banking, trust, insurance, funds and other financial fields. It is also one of the indirect shareholders of Ant Financial, which will provide all-round financial support to the company. The scale of the company's equity is moderate, which facilitates the injection of high-quality resources. The company has unique advantages in resource integration, and the expected integration after the transfer of the company's equity is completed is improved.

    Profit forecast: The company has sufficient project reserves at present, and three projects including Amber Five Ring City and Amber City will be settled successively, which will form a strong support for the performance. It is estimated that the company's EPS in 2016-2018 will be 0.55 yuan, 0.66 yuan and 0.81 yuan respectively, which will be rated as "overweight".

    Risk tips: 1) The risk that the sales of the real estate market do not meet the expectations; 2) Risk of changes in real estate related policies.