2016 EPS fell 19.9% YoY to Rmb0.53, in line with expectation

Beijing Electronic Zone Inv. & Dev't announced its 2016 results: revenue fell 16.4% YoY to Rmb1.52bn; net profitattributable to shareholders fell 19.9% YoY to Rmb420mn, implying EPS of Rmb0.53, in line with expectation. Thecompany plans to offer Rmb1.87 cash dividend per ten shares for 2016.

Full-year earnings dragged down by falling revenue from settled property sales. In 2016, the company’srevenue fell 16.4% YoY to Rmb1.52bn. Revenue from settled property sales fell 24.8% YoY to Rmb1.06bn. Overallafter-tax gross margin remained largely flat YoY at 42.8%. In 2016, the company’s sales of the Beijing-based industrialpark projects fell 38.9% YoY to ~38,000sqm. Projects in Tianjin and Shuozhou started to make contributions to thecompany’s sales revenue and their sales totaled 14,000sqm and 4,000sqm in 2016, respectively.

Rental properties of industrial park projects performed well. In 2016, the company’s revenue from rentalproperties of industrial park projects rose 6.5% YoY to Rmb170mn, mainly because the company increased its rentalproperties of industrial park projects in Beijing. As of end-2016, its total GFA of rental properties rose by ~31,000sqmfrom the 1H16 level to 172,000sqm.

Net cash at end-2016. At end-2016, the company’s cash in hand rose sharply by 102.0% from the start of 2016 toRmb4.76bn, mainly because the company conducted an Rmb2.4bn private placement last September. Interest-bearingliabilities only totaled Rmb630mn at end-2016. The company still has net cash.

Trends to watch

Optimistic about its transition to services for hi-tech industries and its projects outside Beijing. In 2016,the company actively explored value-added services for high-tech industries. It introduced Honray Capital (aninvestment platform of Legend Holdings) as a strategic investor in its private placement, which may help the company’stransition to services for high-tech industries. Moreover, the company made steady progress in property projects inShuozhou, Tianjin and Qinhuangdao and made preparations for new projects in Xiamen, Kunming and Nanjing. It haswon the bidding for a 103,000-sqm land plot for industrial park projects in Jimei District of Xiamen.

Earnings forecast

Maintain 2017/18e earnings forecasts.

Valuation and recommendation

The stock is trading at 15.8x/12.5x 2017/18e P/E. We are optimistic about the company’s presence in Beijing and itsexpansion outside Beijing. We maintain our BUY rating, but raise our target price by 17.14% to Rmb16.40,implying 20.41% upside room from the current price. Our target price is largely in line with its latest NAV.Risks: Transformation and expansion disappoint.