In 1H21, the on-balance sheet revenue was totaled at RMB 3.54 billion, a 24% YoY increase. The off-balance sheet revenues from J.V. and associates recorded RMB 1.11 billion, a -58% YoY decrease. The consolidated on and off-balance sheet revenue totaled RMB 4.64 billion, a decrease from the previous RMB 5.5 billion. The gross margin increased from 17.7% to 22.6%, totaled at RMB 799 million, a 58.1% increase, while the gross profit for both on and off-balance sheet totaled at RMB 1.043 billion, a -1.13% YoY decrease. The core net profit was RMB 132 million (excluded gain or loss from the exchange rate and listing cost), a 29.5% YoY increase.

For the PRC businesses, the Development Service segment has positively impacted the gross margin to 33.1%, a 7% YoY increase. For the U.S businesses,the on and off-balance sheet revenue totaled RMB 2.756 billion, a 62.7% increase.

Investment Highlight - Solid growth in Development Service segment; and maintained high gross margin. In 1H21, the Development Service segment's revenue grew concurrently in absolute value RMB 404 million, a 17.1% YoY increase and percentage revenue share, from 29% to 46%. The gross margin for the "Development Service" segment maintained a high level of 57%. As of June 30, 2021, the Company's Ark of Freedom brand achieved sustainable business expansion in 6 cities, totaling 3,732 housing units. Landsea has strengthened the

Green-building branding and subsequently translated into price premium in the range RMB 3000 and RMB 6000 per sqm.

Stable growth in sales and sustaining Asset-Light Strategy. Landsea's contracted value and constructed area are RMB 23.4 billion contracted sales and 1.48 million sqm, representing 81.6% and 101.1% YoY increase. In addition, Landsea continues the Asset-Light strategy with an average 52% equity interest in new real estate development projects in 1H21.

Maintain BUY rating. For 2021 and 2022, we estimate the on-balance sheet revenue to reach RMB 9.2 billion and RMB 10.2 billion. The net profit from J.V. and associates to reach RMB 520 million and RMB 660 million, and net profit attributable to the shareholder of the Company to reach RMB 217 million and RMB 488 million. The forecasted EPS is HKD 0.05 and HKD 0.1.

In considering the business transformation and asset diversity, we apply the sum of parts analysis to estimate Landsea. For 2021 and 2022, we estimate the PRC real estate segment to value at HKD 960 million and HKD 1.08 billion, based on estimated core net profit of HKD 160 million and HKD 179 million 5-times P/E multiples. For the U.S. listed Landsea Homes, which has an estimated market capitalization of HKD 3.09 billion, we apply a 50% conglomerate and liquidity discount method and value Landsea Homes at HKD 1.09 billion.

Due to the growing stage and competitive advantages, we apply 10-times P/E multiples against Landsea's Development Service segment. For 2021 and 2022, we estimate the core net profit to reach RMB 185 million and RMB 270 million, and the Development Service segment is valued at HKD 2.22 billion and HKD 3.25 billion. The sum valuation includes PRC real estate, the U.S.'s Landsea Homes, and the Development Service segment, totaling HKD 4.29 billion and HKD 5.4 billion for 2021 and 2022. The corresponding EPS are HKD 0.91 and HKD 1.14.