1H core net profit down 4% due to property; Property sales to accelerate in 2H
Shanghai Industrial (SIHL) announced a set of 1H12 results that was in-linewith our estimates and market expectations. Attributable net profit increased4% to HK$2.5bn after excluding the one-off disposal gains from the sale ofFour Season Hotel last year. Core net profit declined 4% to HK$2.1bn due to a12% drop in property profits as a result of lower than expected property presalesof HK$3.2bn that accounts for 40% of SIHL’s full-year target.Fortunately, the company remains confident to deliver its target contractedsales of HK$8bn for FY12. The company’s other core segments –infrastructure and consumer delivered a stable 6% and a 9% net profit growththat should continue to provide support for SIHL’s 5%+ dividend yield inforecast years. The company maintains an interim dividend of HK$0.5. Netdebt-to-equity remains at a comfortable 42% level.
2H12 outlook
SIHL remains confident to deliver its target contracted property sales ofHK$8bn for FY12. SIHL also expects its defensive infrastructure and consumersegments continue to provide mid to high single-digit earnings growth in theforeseeable future. Base on SIHL’s good track record of delivering promises,we remain positive on the company’s near-term outlook.
Valuation attractive at 50% discount to NAV or 0.66x PB
Our target price of HK$28 is based on long-term historical average NAVdiscount of 30%. Valuation remains attractive with the stock trading at 50%NAV discount currently close to 1 s.d. below historical average.