What surprised us
SOHO reported 2012 results with underlying profit up 135% yoy to Rmb3.3bn, 18% above GSe but 10% below Bloomberg consensus. Highlights: 1) The higher than expected underlying profit was largely due to faster than expected booking of its Galaxy SOHO, which was partly offset by a surprisingly higher than expected LAT (22% of revenue); 2) We estimate that as of Feb 25, the company had total unbooked sales of Rmb17.1bn, suggesting 100%/26% revenue lock-in ratio for 2013E/14E. But as of end-2012, only Rmb8.9bn cash had been received, implying 56% cash collection ratio at end-2H12 vs. 61% at end-1H12; 3) Management declared Rmb0.25 DPS for FY2012 (same as 2011), in line with its guidance and implying 5% dividend yield at share price of HK$6.2. Before its rental properties start to contribute meaningful income (management expects Rmb4bn in 2017), we believe a stable dividend will be important to provide share price support. 4) With Rmb22bn cash on hand and net gearing of 3% as of end-2012, management budgeted Rmb10bn for new land/project acquisitions in Beijing and Shanghai in order to improve its portfolio.
What to do with the stock
We fine-tune our 2013E-2015E underlying EPS by -5%/+5%/+5% to Rmb0.61/0.42/0.26 after factoring in an updated development schedule. Our 12-m NAV-based TP is unchanged at HK$6.6. The stock is trading at 43% discount to end-13E NAV and 7.9X 2013E underlying P/E vs. offshore coverage average discount of 46% and 8.2X. Maintain Neutral. Risks:
Upside: More balanced strategy to stabilize growth and return. Downside:
execution and/or worse-than-expected operating performance of its assets.