Share price supported by NAV-accretive acquisitions. Its subsidiaryBlogis, as a key play in China’s logistics property sector, isexpanding at a decent pace and contributing a larger portion of thecompany’s revenue from 50% in 2014 to over 70% in 2017. Blogishas 1.4m sm of GFA completed by end-14 and expects to grow to5m sm by 2019. We believe its share price is well supported by NAVenhancement. Obtained land use right of four projects in the 2H15 and add twomore projects into acquisition pipeline. Blogis announced theestablishment of project companies in Chongqing, Nanjing (Gaoxin),Zhengzhou, and Ezhou in 2H15. These four projects have anestimated GFA of 545k sm which enhanced NAV by 4%. It alsoannounced the acquisitions of Shaoxing and Nantong Xitongprojects at a total estimated investment of Rmb560m and land areaof 513mu, which we estimate a yield on cost of 7% and 11%respectively. More successful case in B-to-A share conversion. The governmenthas approved Future Land (1030.HK)’s B-to-A share conversion plan. Yangchen (900935 CN) is also trying to follow a similar path toconvert into A-share listing status. This may give Chiwan one moreoption besides B-to-H conversion. B-to-A share conversion mayenable it to achieve higher multiples as well. Valuation:The stock is trading at a 44% discount to NAV. We rate the counteras a BUY with a TP of HK$20.26 based on a 30% discount to NAV. Key Risks to Our View:B-to-H or B-to-A share conversion, if unsuccessful, may restrict thecompany’s access to capital.

1H15 earnings slightly below. 1H15 net profit increased by1% y-o-y to Rmb3,174mn accounting for 47%/48% ofour/consensus FY15F. Gross profit was 10% below ourexpectations mainly because sales volume disappointed. 1H15steel sales volume was 10.7mt (-5% y-o-y) vs our forecast of11.5mt. Sales revenue decreased 17% y-o-y to Rmb80.9bn dueto lower steel sales volume and ASP as well. Unit steel GP wasRmb585/t vs Rmb536/t a year earlier as decline in unitproduction cost (-18% y-o-y) more than offset weaker ASP (-15% y-o-y) thanks to sluggish iron ore (-44% y-o-y) and cokingcoal price (-20.5% y-o-y). E-commerce growth on track. 1H15 sales revenue rose 27%supported by sales volume expansion by 63% to 2.91mt,contributing to c.10% of company’s total turnover. EasternTenpay (granted third-party service license) made a breakthroughfor online payment service which registered third-party paymentsof Rmb18.5bn. Ouyeel, the e-commerce platform was grantedup to 50mt warehouse storage capacity and obtained unusedbank credit facility of Rmb160bn. Cut FY15/16F earnings by 40%/19% to mainly reflectRmb2bn FX loss in 3Q15. Baosteel warned of potential FXlosses of Rmb2bn based on the revaluation of the company’sUS$ and EU denominated debts as Rmb:USD has depreciated by3% in mid August. We cut FY15/16F core earnings by 19%/26%to impute lower full-year steel GP of Rmb537/t vs Rmb579/tpreviously. According to the company, US$ debts equivalent toRmb5bn have been hedged. Assuming there is no significantdepreciation of the Rmb against US$, all FX losses should berecognised in 3Q15 results. Maintain BUY, TP cut to Rmb9.09. Our new TP represents 1.3xFY15F P/BV, or 36.6x FY15F PE including FX losses and 27xFY15F PE based on core earnings. We set our target market capat Rmb149bn based on i) market cap of Rmb90.6bn(Rmb6.03/sh) for steel business, pegged to 0.78x FY15F P/BV,and ii) a market cap of Rmb50.5bn (Rmb3.06/sh) for e-commerce,pegged at 1.7x FY15F P/Sales.

Q215 earnings miss consensus. 2Q15 earnings was up8% y-o-y to Rmb288m, 8% below consensus estimates. We believe this is due to sales growth slowdown. Publichospitals’ cost control and decrease of drug store numbersresulting from industry consolidation should have impactedthe sales generated from these two channels. Thus, the yo-y sales growth of the company slowed down from 8% in1Q to 4% in 2Q. With net cash of Rmb1.1bn (Jun-15), thecompany's balance sheet remained strong. But CCMG and margin expansion can drive stablegrowth ahead. Total earnings in 1H15 was Rmb627m. Webelieve the company can achieve our earnings estimates ofRmb1.19bn for 15F and earnings growth of 12%/12% in16F/17F, thanks to: 1) CCMG business is projected to makeup 11-16% of the company’s revenue in 15F-17F. Due tosubstantial increase of production capacity and strongdemand, we forecast the sales of this segment to grow by50%/30%/30% in 15F/16F/17F. As CCMG is a moreprofitable product for the company, increasing contributionfrom CCMG will help to expand its net margin from 14.2%in 2014 to 15.4% in 2017F; 2) thanks to persistent effortsto control cost, operating cost % (distribution + admin +others) in sales has dropped by 0.7ppt y-o-y in 2Q15. Webelieve this trend will continue and the ratio will drop from45% in 2014 to 44% in 2015. Maintain BUY. In view of the stable earnings growthmainly driven by CCMG, we maintain our BUY call with TPunchanged at Rmb36.2 (based on 28x 12-month forwardPE, representing 20% discount to our target PE of CCMGindustry leader China Traditional Chinese Medicine (570HK)).