1H15 results higher than expectationRevenue +17% and recurrent profit +31% in 1H15, 5% higherthan our expectation.
Robust revenue growth was driven by: 1) 6.2% SSSGfor portfolio malls, 2) 57 new managed contracts signed andseven new managed malls opened.
Recurrent net margin +2.9ppt to 27.9%, thanks tooperating leverage and rental expense savings from theclosures of a portfolio mall in Baotou.
Operating cash flow +32.5%. We expect free cash flowto turn positive in 2016 with the asset light strategy.Trends to watchKey investor concern is the sluggish consumption and real estatemarket environment which may drag down sales growth.
However, strong operating figures (97% averageoccupancy rate and 6.2% same-mall growth rate) show avery healthy organic growth trend for the company. RSM isquickly gaining share in a fragmented market through its scaleadvantage and leading management capability.RSM had 409 pipeline managed malls in 1H15 toguarantee fast outward expansion in the future.
Valuation and recommendationMaintain Conviction BUY rating. Revise up 2015earnings by 2.3% and 2016 by 0.9% to Rmb2,670mnand Rmb3,482mn. Maintain TP at HK$16.Current valuation is very attractive. The stock trades at9.9x 2015e P/E. Value of investment properties is 119% higherthan current market cap. Dividend yield 5.0%.
Risks
Increased competition, SSSG lower than expectation.