Summary

Shimao Properties (“Shimao” or ”Company”) recorded its turnover and net profit in 2009 to RMB (same as below) 17billion and 3.5billion, soaring by 137% and 317% respectively. Meanwhile, its contracted sales reached 22.5billion, up 88% YoY, contracted GFA was 2.5million, up 98% YoY.

Hot sales and increasing completion areas will boost Company's performance strongly, but anxiously policy risk may erode the future profit and lower the valuation. We give Shimao “Hold” rating, 12m TP at HKD10.5, 13% lower than current close.

Proportion of sales in the second tier cities rose obviously

In 2009 Shimao's revenue from development was 16.2billion, 95% of totals, increasing 159% YoY. For increasing proportion of sales in the second tier cities, the average booked price declined from 9119 per sq.m. in 2008 to 8507 per sq.m. in 2009, dropping by 7%. Company's profitability was improved by hot sales in 2H2009, gross profit margin rose 29% of 1H2009 to 35% of full year. The core net profit in 2009 was 2.77billion, up 150% than that in 2008.

Uncertain sales in 2010

In 2009 Shimao completed contracted sales of 22.5billion, increasing 88% YoY, total sales areas were 2.5million, up 98% YoY. In 2009 its top sales projects were Shanghai Shimao Riviera Garden, Fuzhou Shimao Skyscrapers, Hangzhou Shimao Riviera Garden, Suzhou Shimao Canal Scene, Kunshan Shimao Butterfly Bay.

Shimao will expand its development scales continuously. Its sales target is 30billion, it's expected that 38 projects will be launched and total areas for sale will reach 4.3million. Shimao's planned completion GFA is 3.1million while GFA under construction will reach 10million.

In 1Q2010 Shimao 's contracted sales were 5.5billon, contracted GFA was 0.46million sq.m., increasing 21.1% and 0.3% respectively, ASP rose from 9940 in 2008 to 12000 in 2009. Shimao's projects on sale totaled 23, best-selling projects mainly are located in the second tier cities, such as Kunshan, Fushan, Shaoxing, Wuhan and Changzhou.

In1Q2010 Shimao had plentiful GFA for sale, and completed 18% of full-year sales target, slightly lower than our previous expectation of 20%. Recent control policy will have impressive effect on property sector, both properties sales and ASP will be affected negatively. We are worried about the company's future condition, and we expect that its sales target will be lowered if sales in 1H2010 could not reach 12bilion.

Hotel business will benefit from Shanghai EXPO

In 2009 Shimao injected its all commercial properties into Shanghai Shimao(600812,SH), and Shanghai Shimao have become its development platform of commercial properties. Shanghai Shimao expanded its business by Shimao Department Store and Shimao International Studio, and land bank of Shanghai Shimao has reached 8million sq.m..

For global financial crisis, luxury hotel industry in Shanghai had been affected strongly, turnover of Shimao's 3 hotels in Shanghai declined at certain extent. In 2009 turnover from hotel was 642million, dropping by 17% YoY. Shanghai EXPO will be open soon, we are positive towards promoting effect on performance of the company's hotels. Room price and occupancy rate in 2010 will be higher obviously than that in 2009, revenue from hotel in 2010 will be 860million.

Financial condition kept healthy.

At the end of 2009 cash and banking balance of Shimao were 7.28billion, loans were 20.5billion, and net loans were 13.3billion. net debt ratio declined from 65.7% in 2008 to 51.9%. In 2010 Shimao's capital expenditure are expected to be 10billion to 12billion, in which 5billion will be used for land cost. Considering 25billion to 30billion of contracted sales in 2010, we think that Shimao kept healthy financial condition. Besides, its debts and liquid level are good enough.

Risk

Recently consecutive policies will obviously increase risk of sector.

Limited development loans and housing loans have negative impact on properties sale.

There are uncertainties on occupancy rate of hotels in the period of Shanghai EXPO.

Valuation

Shimao's turnover and net profit are expected to be 20.7billion and 2.98bilion respectively, and EPS was 0.84, representing to HKD0.95.

Hot sales and increasing completion areas will boost Company's performance strongly, but anxiously policy risk may erode the future profit and lower the valuation. Policy risk will limit the sector valuation, we give Shimao P/E of 12x. We give Shimao “Hold” rating, 12m TP at HKD10.5, 13% lower than current close.

Financials

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