1H11 recurring EPS at Rmb0.06/sh
Shui On Land announced its 1H11 results: Revenue dropped 43% to Rmb1.79bn; Recurring net profit decreased 35% to Rmb288mn, or Rmb0.06/sh, in line with our expectations. A HK$0.025/sh interim dividend was declared.
Positives:
Contract sales surged: Contract sales increased 240% to Rmb5.27mn, with 53% of 2011 target achieved. Total GFA soldincreased 102% to 206,600sqm. Advance deposits from property sales were Rmb4.5bn, +115% compared with end-2010.
Gross margin improved 5ppt to 46%, mainly thanks to the delivery of high-margin projects in Shanghai and Foshan. Negative:
Revenue decreased significantly, which was largely due to a 51% decrease in recognized property sales in 1H11.
SG&A expenses ratio increased 9ppt to 20%, due to decrease of revenue and growth of contract sales.
Net gearing ratio rose 13ppt to 51%, due to more bank borrowings in the period, while cash on hand decreased 15% to Rmb4.4bn. Financial burden is aggravated in our view.
Trends to watch:
Most of the contract sales will be recognized in 2H11 as deliverable GFA will increase according to the company’s development schedule. Contribution from investment properties is likely to be stable in 2H11. So we expect earnings to pick up in 2H11. HOLD maintained, New TP at HK$3.5/sh:
We maintain our earnings forecasts. Shui On Land is currently trading at 13.7x/11.2x 2011/12 P/E, with a 64% discount to 2012NAV. We maintain our HOLD recommendation, and revise down the target price to HK$3.50.