Shanghai Industrial Holdings Ltd. (SIHL)’s 1H13 results were in-line. Revenue reached HKD8,789mn, up 40.9% yoy. Net profit reached HKD1,675mn, down 34.1% yoy. EPS reached HKD1.550, down 34.1% yoy.
The ratios of selling expenses and administrative expenses to revenue reached 4.6% and 8.5%, down 0.3ppt and 2.9ppt yoy.
Key points: 1) Property integration continues. Property segment mainly consists of SIUD (563.HK) and SID (600748.SH). Public house projects and projects from original Neo-China Property have low profit margin and it might take 2-3 years to sell them. SIHL might maintain its curr ent profitability by disposing low profitable projects. 2) SIIC Environment (SIE) will become the leading water company in China. In 1H13, SIHL’s sewage treatment capacity only accounted for around 3% of total domestic market. SIE, the only platform of SIHL’s environmental protection industry, which might go public in 2014 in Hong Kong, is a key catalyst for SIHL and SIE’s stock prices. 3) Hangzhou Bay Bridge might be injected. Currently, 23% shares of Hangzhou Bay Bridge are held by SIHL’s parent company.
Target Price is HKD31.00 and investment rating is ‘Accumulate’. SIHL might benefit from Shanghai Free Trade Zone (FTZ) as 40% of SIHL’s land reserves are in Shanghai by EV val uation. Moreover, SIHL has begun to enter financial leasing business in FTZ. Our FY13-15 earnings estimates are HKD2.718, HKD2.839 and HKD3.106. Our TP is at HKD31.00, representing 11.4x 2013PE and 1.0x 2013E PB, 30.0% discount to NAV