1H11 Results – EPS Rmb0.48/sh:

In 1H11, revenue +27.6% YoY to Rmb2.58bn, of which rentalincome was Rmb456mn, +40.9% YoY, land leasing revenue fromTangdong 4-13 plot was Rmb1.67bn, +11.2% YoY. Net profit wasRmb892mn, or Rmb0.48/sh, down 12.2% YoY.

Positives:

Better-than-expected revenue, steady growth in leasingbusiness.

Net debt ratio fell slightly.

Negatives:

Financial expense increased.

Trend to watch:

The Company’s office building and commercial property rentalbusiness are entering a good track, and rental revenue will likelymaintain ~20% YoY growth in the next two years, helping ittransform itself from a land leaser to a commercial property operatorin prime locations of Shanghai. That said, its revenue and earningshave still been reliant on land leasing in recent years, leading tolimited earnings growth.

Revise earnings forecast and rating:

Given the better-than-expected land leasing revenue in 1H11, weadjusted our revenue assumption accordingly. However, due to thesubstantial increase in financial expenses and theworse-than-forecasted gross margin for land leasing, we slightlyrevised our 2011 and 2012 earnings forecasts to Rmb0.68/sh andRmb0.69/sh. Currently, it’s B-share is trading at 11.7x 2011e P/E and11.4x 2012e P/E, a 59% discount to 2011 NAV, relatively attractive.

We maintain our BUY rating and a US$2.45 TP.