1H16 beat CICCe by 51% with strong performance
Shenzhen Investment announced 1H16 results: revenue wasHK$6,383mn, up 1.6% YoY; core net profit was HK$589mn, up34.6% YoY, with a core diluted EPS of HK$0.08. Ramp-up inmargins yielded the strong outperformance of bottom line. Aninterim dividend of HK$0.07/share was declared, implying agenerous dividend yield of 1.9%.
Product mix change and RMB depreciation explained theplunge in ASP (-47.6% YoY). SZ High-margin projects madeup 45.4% of booked revenue (vs. 72.2% in 1H15). However, asprofitability of the company’s projects improved nationwideespecially in tier-3 cities, GPM was well sustained at 33.8%.Shared profits of Tanglang City (~HK$0.14bn) served asthe major pipeline to uplift CNPM by 2.3ppt YoY to 9.2%.Associates/JVs’ profits surged by 119% in period under review.
Trends to watch
Margins in the harvest time. Project delivery in 2H16 willmainly come from Shenzhen star projects such as T2 building ofUpper Hills, office buildings of Shumyip Zhongcheng and RoseGarden, whose GPMs are all above 40%. As booked revenue in2H16 may exceed 2/3 of our full-year estimate, margins are wellon the track of further improvement.
FY16 sales target of Rmb18.5bn will be achieved with aslight beat considering the saleable resources of ~Rmb15bn for2H and sell-through of ~70% in 1H.
Earnings forecast
Lift 2016/17e EPS by 3.87%/10.75% from HK$0.4/0.49to HK$0.42/0.54, considering advantageous delivery in 2H16.
Valuation and recommendation
The stock is trading at 53% discount to 2016e NAV. We maintainour BUY rating, but raise our target price by 23.36% to HK$4.7 ,implying 28.07% upside, 40% discount to 2016e NAV and 11.2x2016e P/E. Risks: Project delivery in 2H16 disappoints.