Awaiting for catalyst
Strong 2012 results in line with our estimates but lower than the consensus
Despite slower cash inflow arising from lower saleable resources, SOHO will maintain a stable dividend payment
Leasing status for its completed projects has yet to see significant improvements. Pre-leasing for the two Shanghai projects and Qianmen II in 2H also faces uncertainties
Maintain HOLD due to lack of evidence for successful change in business model
No significant improvement in occupancy rate in existing IP. FY12 results are in line with our expectation but slightly below the consensus. Dividend yield is 5%, which is lower than the 5.6% based on the closing price on the results announcement day. See page 2 for more details. Rental income in FY12 increased by 63% y-o-y but it accounted for less than 1% of its revenues. Leasing of Qianmen Phase I and Shanghai Century Plaza saw minor improvements from half a year ago, with occupancy rates staying at 60% and 50%-60% respectively.
Need to prove itself as a landlord through pre-leasing in 2013. Along with rental growth in its current Qianmen project, FY13 rental income is likely to just exceed Rmb300m. Pre-leasing of the Fuxing Road project and Sky SOHO in Shanghai will be key to rental growth outlook in FY14 and beyond. Management has admitted that it needs to improve its expertise regarding the Shanghai rental market. As the both IPs to be completed in FY13 are located in Shanghai and given the slower-than-expected take-up rate in Century Plaza, we believe SOHO will need to prove its leasing capability this year to improve investors confidence. Maintain HOLD. The share is trading at 6.9x FY13 PE, 1.1x PB, and 43% discount to NAV. Although unbooked sales of Rmb16bn and total saleable resources of Rmb12bn-13bn in FY13 and FY14 will support SOHO’s earnings in FY13 and partially in FY14, we think investors should focus on whether its business model will be successfully changed to drive longer-term earnings growth. Maintain HOLD as uncertainty remains about SOHO's capability as a successful landlord.