1Q17 EPS +160.7% YoY to Rmb0.02, in line with expectations

Beijing Electronic Zone Inv. & Dev't announced its 1Q17 results: revenue rose 48.7% YoY to Rmb124mn andnet profit attributable to shareholders rose 160.7% YoY to Rmb19.63mn, implying EPS of Rmb0.02.

Faster settlement pace in 1Q; gross margin grew. In 1Q17, the company’s revenue rose 48.7% YoY toRmb124mn, mainly thanks to the faster pace of settlements for property projects. After-tax gross margin rose 8.4pptYoY to 43.3%, largely flat YoY. Its property sales reached Rmb9.78mn or 3,209sqm and the ASP only stood atRmb3048/sqm.

The company received ~Rmb6mn of government subsidies in 1Q. In 1Q17, the company received Rmb5.86mnof funding support for it businesses and Rmb125,000 of funding support for a public service platform for companiesfrom the government, which boosted its earnings growth in 1Q.

Net cash at end-1Q17. The company’s cash fell 20.4% from the start of the year to Rmb3.79bn at end-1Q17, mainlybecause it paid ~Rmb1bn of value-added tax on land. Its interest-bearing liabilities at end-1Q17 only totaledRmb710mn. The company still had net cash.

Trends to watch

Optimistic about its transition into a hi-tech industry service provider and its projects outside Beijing. In2016, the company actively explored value-added services for hi-tech industries. It introduced Honray Capital (LegendHoldings’ investment platform) as a strategic investor in its private placement, which may help its transition intobecoming a service provider for hi-tech industries. Moreover, the company made steady progress in property projects inShuozhou, Tianjin and Qinhuangdao, and it made preparations for new projects in Xiamen, Kunming and Nanjing. Italso won the bidding for a 103,000-sqm plot of land in Xiamen’s Jimei District, on which it plans to build an industrialpark project. The company’s projects outside Beijing merit attention in 2017.

Valuation and recommendation

We maintain our earnings forecasts for 2017/18. The stock is trading at 15.6x/12.3x 2017/18e P/E. Wemaintain our BUY rating and Rmb16.40 target price, implying 22.11% upside room, flat vs. its NAV.

Risks

Transformation and expansion disappoint.