What surprised us
SHKP’s 1H FY16 underlying profit came in 7% above our forecast, rising9.9% yoy to HK$9,298mn (HK$3.23/shr, up 4.9% yoy). The biggest positivesurprise is the 10.5% raise for 1H DPS from HK$0.95 to HK$1.05, the firstincrease since FY11. Key takeaways: 1) Property rental and sale operatingprofit grew by 8.3% and 6.8% yoy, respectively, to HK$2,474mn andHK$7,943mn; 2) Contracted sales of HK$14.4bn (HK$11.3bn from HK andHK$3.1bn from Mainland China) were achieved in 1H FY16; and 3)Experiencing a construction slippage in Grand YOHO, management hastrimmed its full year sales target from HK$33bn to HK$27bn.
What to do with the stock
Looking ahead, FY16 earnings should be relatively secure as the key projectsdue for completion are substantially presold. The slower sales pace in recentmonths will add some clouds to the FY17 earnings outlook, althoughmanagement remains confident about selling the key projects at a healthymargin. We do not view the 18% cut in the FY16 sales target as a big surpriseamid the current macro backdrop. The 10% dividend hike could reignitemarket expectations on more efforts to enhance capital management. Weraise our full year DPS forecast by 10.4% to HK$3.70 from HK$3.35. We finetune our FY16/FY17/FY18E EPS by -2.7%/0.0%/+2.1% to factor in the newcompletion schedule. At Feb 26’s close of HK$88.00, SHKP is trading at 48%discount to FY16E NAV and on 10.8X FY16E EPS. Retain Buy and HK$135.5012m TP based on a 20% FY16E NAV discount. Key risks: Abrupt economicdownturn, unexpected policy changes, unforeseen interest rate moves.