Start construction of “Corporate Avenue Phase II” in Shanghai Shui On Land announced the new construction start of “C orporate Avenue Phase II” in Shanghai yesterday. “Corporate Avenue” is designed as Grade A office buildings which will combine retail and offices development for the Shanghai Taipingqiao project. The Phase II includes No.3 and No.5 buildings and has a total GFA of approximately 156,000sqm; No.5 building is estimated to be completed at the end of 2013 and No.3 building is estimated to be completed at the end of 2014. The management team said that “Corporate Avenue” will attract more high-quality tenants for office rentals since more Fortune 500 Corporate set up headquarters in Shanghai and it reflects the promising future of investment properties in Shanghai.
Sustainable rental revenues from investment properties The management team also stated that the company has completed the investment properties with GFA of total around 630,000sqm so far in China with market value of approximately RMB28bn. Investment properties under development is around 1msqm and estimated at value of up to RMB40bn. Currently the commercial properties of Taipingqian project in Shanghai contribute the rental revenues of mo re than RMB700mn every year. It is expected by the management that the “Corporate Avenue Phase II” will bring additional annual rental revenues of RMB600-700mn when the project is completed.
Current landbank of 13.3msqm Shui On Land has current landbank of approximately 13.3msqm (11.11msqm for leasable and saleable area; 2.2msq m for carpark and other facilities). The company has eight different projects in Shanghai, Chongqing, Dalian, Wuhan, and Foshan. As more saleable resources in Shanghai and in non-core commercial properties should become available in 2013, we expect to see acceleration in property sales this year, which should present positive catalysts. In addition, with more planned property delivery, we expect to see strong earnings momentum in 2013.
Valuation attractive at a 54% NAV discoun t, 0.5x P/B, 4% 2013E dividend yield Our target price of HK$5.01 is based on a 54% discount to our estimated NAV of HK$8.35, which factors in 10-20% declines in ASPs in Tier-1/2 cities. Key risks:1) stricter-than-expected governme nt tightening measures, 2) unexpected economic fluctuations in the Chines e economy, 3) competition from other commercial properties in mainland China, 4) potential delays in completion of new properties and 5) slower-than-expected ramp-up of investment properties.