Positive surprise on special dividend with in-line 1H17 operationsPAH reported 1H17 results after market close on 20 July. While operations werebroadly in line, we see the HKD7.5/share special dividend as a positive surpriseand expect strong near-term share price reaction.
　　1H17 operations in line
　　PAH’s recurring earnings reached HKD4.0bn in 1H17, up 16% yoy andrepresenting 54% of consensus/DBe for FY17 （54% for 1H16/FY16）。 The majorsurprise was from "All other activities" where PAH recorded net income ofHKD534m in 1H17 （versus net loss of HKD11m in 1H16）， as PAH enjoyedGBP appreciation in 1H17 （versus depreciation in 1H16）。 Operating results werebroadly in-line, with lower-than-expected earnings' contribution from the UK（primarily on GBP depreciation） mostly offset by higher-than-expected earningsfrom Other Countries and Australia.
　　Positive surprise on special dividend
　　Interim DPS was up 10%yoy to HK$0.77. In addition, the board has declared aone-off special interim dividend of HK$7.50/sh （payable in end Aug） to addressshareholder expectations while staying prepared for future acquisitions （wecalculate that PAH should be in net cash position of ~HKD16bn by 30 Juneafter stripping out the proposed dividends）。 PAH is committed to enhancingshareholder returns in the form of M&A or dividend payments. We believe thespecial dividend is a positive surprise for the market and expect positive neartermshare price performance.
　　Earnings breakdown by country
　　Profit from UK was HKD2.1bn, down 7% yoy on GBP depreciation despite strongassets performances. Profit from Australia was HKD621m, up 11% yoy and drivenby outperformance of the assets and profit contribution from DUET. Profit fromOther Countries reached HKD356m, up 42% yoy on strong performance acrossmainland Europe, Canada, Thailand and New Zealand.
　　Valuation and risks
　　Our target price values existing assets at HK$61.7 and HK$9.0 for value creationfrom potential M&A. Risks: failure or success in doing value-accretive M&A, andhigher/lower bond yields.