Earnings in line with UBS-S estimate.
   
In Q1-Q316, the company achieved revenue of Rmb8.5bn (up 13% YoY) and net profitattributable to the parent of Rmb800m (down 20% YoY), in line with UBS-S estimate.
   
Gross margin was 38%, up 8ppts YoY. Net margin attributable to the parent was9.5%, down 4ppts YoY. The company's revenue and gross margin rose but net profitattributable to the parent declined substantially, mainly due to a significant YoY declinein profit from fair value changes (a profit from fair value change of Rmb1.175bn wasbooked during the same period last year, as the company's Financial Street Centreexpansion project was completed and booked into investment property).
   
Leased properties have potential to raise rent.
   
Beijing's premium office buildings' rent was Rmb422/sqm/month at end-June 2016,and office buildings in the Financial Street area was the most expensive in Beijing, atRmb637/sqm/month. Beijing's overall premium office buildings' vacancy rate is 7.9%.
   
As there are no vacancy data for the Financial Street area recently, we estimate it to bebelow 0.6%, nearly fully occupied. The company's office buildings are basically locatedin Beijing and Tianjin, and we estimate its average rent at cRmb130/sqm/month in2016. With more lease agreements to be updated in the future, we believe thecompany still has significant potential to raise rent.
   
Land bank could meet sales demand for the next 5-6 years.
   
The company still has 9.35m sqm in land bank, which is distributed in six citiesincluding Beijing, Shanghai and Guangzhou. Though it didn't acquire land in 2016,based on its historical sales data of 1-1.5m sqm per annum, we believe its land reserveis enough to maintain sales demand for 5 to 6 years.
   
Valuation: maintain Neutral rating and price target of Rmb10.77.
   
We maintain our 2016-18E EPS at Rmb1.07/0.77/1.08. The company is trading at 10x2016E PE. Our price target of Rmb10.77 is based on 2016E EPS and 10x PE (average PEfor the past five years +1 standard deviation). Though profit contribution from thecompany's operating property increased but its property development business is stillvolatile, we maintain our Neutral rating.