Summary

In 1H2011 Shimao Property (“Shimao” or “the company”) had recorded contracted sales of RMB 14.2billion, up 26% YoY, completing 40% of full-year sales target. And we expect that the company will complete 70% of sales target by the end of 3Q2011.

Since 2010 the company's financial gearing rose significantly with sharp increasing sales, so financial risk also rose. For sharp increasing expense on land acquisition, the company will face risk of cash flow.

Since the last third of June, most properties companies` share price rebounded, especially on large and middle-sized developers, Shimao also recorded about 30% growth. In our opinion, the market reflects that sales of most developers in 1H exceeded market forecast, and the share price of Mainland developers will vibrate in 2H2011.

Shimao's booked GFA in 2011 will keep increase, its revenue in 2011 is expected to reach RMB 28.5billion, and net profit will exceed 4.2billion, EPS at 1.22. We give Shimao “Hold` rating, 12m TP at HKD11.9, representing to 8.2x P/E on forecasted EPS.

The company had completed 40% of sales target in 1H2011

In 1H2011 Shimao Property (“Shimao” or “the company”) had recorded contracted sales of RMB 14.2billion, up 26% YoY, completing 40% of full-year sales target, sold GFA of 1.09million sqm, up 8.4% YoY, and ASP was 13039/sqm, up 16.1% YoY, keeping rising trend.

See from single data, for several projects were launched in June, sales in June increased by 80% YoY to 3.2billion. 3Q will be important period for its sales, the company will boost its sales by enough supply and ASP adjustment. And we expect that the company will complete 70% of sales target by the end of 3Q2011.

Debt rose persistently

Shimao's financials kept stable. Since 2010 the company's financial gearing rose significantly with sharp increasing sales, so financial risk also rose. For sharp increasing expense on land acquisition, the company will face risk of cash flow. In 2010 the company's expense on land acquisition reach 20billion, the expense in 2011 and 2012 will keep high level.

On the whole, Shimao's financial gearing is high with bigger financial pressure, loans credit and bond issue may be improve its current status but with high dependency on properties sales.

Hotel business will complete the spinoff in 2012

In 2010 revenue from hotel was 974million, up 52% YoY, EBITDA was 434million, up 110% YoY. Performance of the three hotel in Shanghai was boosted by EXPO. By the end of 2010, the company has over 1700 rooms in Shanghai, leading the sector in Shanghai, and its hotel rooms nationwide totaled about 2000.

About its hotel spinoff, we are positive towards the deal, which may promote the market Cap and finance for hotel business. We expect that its market Cap of hotel business will exceed HKD 6.5billion, representing to 12x EBITDA in 2011.

Risk

Sales progress maybe slower than expectation.

Valuation

Since the last third of June, most properties companies` share price rebounded, especially on large and middle-sized developers, Shimao also recorded about 30% growth. In our opinion, the market reflects that sales of most developers in 1H exceeded market forecast, and the share price of Mainland developers will vibrate in 2H2011.

Shimao's booked GFA in 2011 will keep increase, its revenue in 2011 is expected to reach RMB 28.5billion, and net profit will exceed 4.2billion, EPS at 1.22. We give Shimao “Hold` rating, 12m TP at HKD11.9, representing to 8.2x P/E on forecasted EPS.

Financials

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