Since we raised our recommendation on 16 Mar, share price of Shimao gainedby 33.7%. We continue our optimistic view on Shimao’s future development.
　　Using 25% discount to NAV, we raise TP from HK$32.21 to HK$37.85. ReiterateBUY.
　　Two placements in the year. After top-up placing in Jan 2020, Shimaounderwent another placing in Apr 2020. It issued 78.2mn shares atHK$29.73 to raise HK$2.31bn in the second placement. After twoplacements, outstanding shares increased from 3,301mn shares as at 1 Janto 3,538mn shares as at 5 May. The newly issued shares in two placementsaccounted for 6.7% of enlarged capital. The Company revealed that CapitalResearch and Management Company was one of placees in the secondplacement. The famous fund house would increase investors’ confidence tothe Company.
　　Closer to spin-off of property management business. Shimaoannounced Sequoia Capital China and Tencent (700 HK, BUY) haveinvested US$130mn and US$114mn in Shimao Services, respectively, inMay 2020. Both investors of Shimao Services would bring synergies throughthe application of technologies at Shimao Services, which is one of theleading property management companies in China. After the introduction ofthese strategic investors, we believe it not only strengthens Shimao Services’
　　capabilities, but also accelerates its spin-off and listing pace.
　　Contracted sales up 4% in 4M20. Sales of most of property developers inChina were dragged down by the impact of COVID-19. According to NBS,contracted property sales declined by 18.6% YoY to RMB3.2tn in 4M20.
　　Shimao posted a 4% contracted sales growth to RMB58.3bn in 4M20.
　　Although hit rate reached 19.4% by Apr, we believe Shimao could achieveits full year sales target of RMB300bn because its sales pace recovered inApr as contracted sales soared 41% to RMB21.2bn in Apr 2020.
　　Raise TP to HK$37.85. Due to 2.2% new shares issued in secondplacement, we cut EPS forecast by 1.4%, 2.1% and 2.2% in 2020-22,respectively. Furthermore, we raise our end-20 NAV forecast from HK$46.02to HK$50.46 due to new fund raising and increase of our valuation forproperty management business. TP is revised upward from HK$32.21 toHK$37.85, representing a 25% discount to NAV (previously 30%).