Reaffirm SouFun stock Buying rating

The following is a summary of the contents of the report:

Benefit from the recovery market; raise target prices to 46 dollars

-Real estate advertising revenue will be able to achieve recovery

We believe that, as the medium of real estate market, SouFun is occupying a best position in the stable but imperfect real estate market. Real estate developers have plenty of budgets, and there are plenty of incentives to pay for advertising. Since the second half of 2012, China's housing sales market growth has begun to turn positive, and in the first half of the 2013 fiscal year gradually increased. On the other hand, most market participants remain somewhat concerned about the market's prospects, mainly due to factors such as tightening policies enacted in May, liquidity tightening at the end of June, and weak performance in some macro indicators.

As a result, real estate developers and real estate intermediaries are willing to donate money in marketing and promotional spending. In addition, the SouFun performance of the second-quarter results can also be evidence.

We expect that similar market conditions will continue into 2014, with the result that revenue forecasts for fiscal year 2013 and 2014 will be increased by 11% and 12% respectively, with an increase of 2013 and 2014 per share earnings forecasts for the fiscal year 11% and the fiscal year 12%, SouFun The reason is that SouFun is expected to have a modest operating lever, but will be partially offset by higher tax rates. We cut the SouFun WACC (Weighted average capital cost) by 1% to 11%, because the debt capital structure is changing.

Based on the cash flow discount method, we will raise the soufun target price to 46 US dollars. We also expect the SouFun to distribute a 2013-year dividend of $1 per share, with a dividend yield of 3% based on current stock prices. We reaffirm the "buy" rating of the SouFun stock.

-Solid performance in second quarter

SouFun's second-quarter sales were $144 million, up 49% from the same period last year, up 58% from the previous quarter, or 20% higher than we had expected. SouFun's operating profit margin for the second quarter was 52%, up 4% from a year earlier. SouFun's earnings for the second quarter were $0.7 trillion, above our expected $0.5 trillion. In addition, SouFun management also increased the 2013 fiscal year revenue outlook by 2%, the year-on-year growth rate of 25% to 27.5%.

Target Price:

In terms of the cash flow discount, we set the target price of soufun at USD 46, which is based on net cash per share of USD 4, 11.2% discount rate and 3% final growth rate.