FY12 largely in line, DPS maintained at Rmb0.25/sh
SOHO reported FY12 revenue of Rmb15.3bn (+169% YoY), driven by an increase of 136%/18% in GFA/ASP booked. GM improved ~11ppt to ~59% from 1H12’s ~48%, as the highly lucrative Galaxy SOHO was delivered before year-end. Core net profit came in at Rmb3,335mn (+134% YoY), ~5%/~10% below our estimate/consensus. Full-year dividend was maintained at Rmb0.25/sh, or ~5% yield based on closing price of HK$6.22.
Net gearing dropped to 2.6% at end-2012 vs. 1H12’s 20.1%, due to strong collection of mortgage loans for the sales of Galaxy SOHO, yet total borrowings ballooned by 69% YoY to ~Rmb23bn.
2012 pre-sales were Rmb9.5bn (-13.2% YoY), ~85% of which werecontributed by sales of SOHO Peaks. With limited for-sale projects on hand, valued at ~Rmb9bn by our estimates (including ~Rmb2.2bn from SOHO Peaks, ~Rmb4.2bn from Jing’an Plaza and ~Rmb2.2 from Zhongshan Plaza), we expect SOHO’s contracted sales to see a ~61% YoY decline in 2013, followed by another ~19% YoY drop in 2014. Trends to watch High earnings volatility ahead. With sales deposits totaling ~Rmb9bn and proceeds of ~Rmb7bn to be collected, we see high visibility for SOHO’s FY13 top line, estimated at Rmb14.4bn. Given limited IPcontributions and the majority of SOHO Peaks to be recognized in FY13, we expect its FY14 revenue to drop ~58% YoY to ~Rmb6bn.
Remain conservative over SOHO’s prime-location IP. Due to its limited experience in tenant sourci ng and operations, occupancy rates are likely to stay low during the incubation stage, in our view. We believe material contribution from IP will not occur until 2016/17 time frame, when rentals could reach Rmb4bn. In addition, SOHO’s cash flows would be constantly challenged over the transition phase due to the pre-sales shortfall and elevated CAPEX, thus we see a potential downside to its aggressive completion schedule.
Earnings revision
We trim FY13e core EPS by 2% to Rmb0.59/sh, or HK$0.72/sh, and introduce our FY14e EPS at Rmb0.24/sh, or HK$0.30/sh. Our 2013e NAV is kept at HK$9.17/sh.
Valuation and recommendation
The stock is currently trading at 8.7x 2013e P/E, with a 32% discount to 2013e NAV. Maintain HOLD with TP unchanged at HK$5.50/sh, or a 40% NAV discount (unchanged), to reflect SOHO’s earnings volatility and our conservative stance on its IP business.