1~3Q12 EPS at Rmb0.35

Lujiazui released its 1~3Q12 results: Revenue -30.3% YoY toRmb2.26bn (+55.3% YoY in 3Q12), and net profit -36.4% YoY toRmb650mn or Rmb0.35/sh.

3Q12 revenue surged YoY on growing revenue booked fromproperty business & rising income from real estate leasing.

3Q12 gross margin recovered, investment income fell QoQ.

Under some financial pressure near term, in spite ofrelatively low net gearing ratio.

Trends to watch

The company is closing down its land leasing business and shiftingits focus to property management and sales, and this strategic changein business structure is gradually paying off. We expect 10~15%YoY growth in rental income over the next two years as office andcommercial property leasing are hitting the right track. We believe itis unlikely to make up for the decline in business revenue fromdeclining land leasing business in the near term as commercialproperty settlement is not progressing quickly and revenue from realestate leasing is relatively stable.

Valuation and recommendation

We maintain our 2012/13e EPS forecasts of Rmb0.53/Rmb0.56.

Lujiazui-A is trading at 19.9x/19.1x 2012/13e P/E, implying a 32%discount to 2013 NAV, relatively fair. We maintain our HOLD ratingon Lujiazui-A as the company is in the midst of a businesstransformation with limited near term catalysts. Lujiazui-B is tradingat 11.9x/11.4x 2012/13e P/E, implying a 59% discount to 2013eNAV; we maintain our BUY rating and US$1.29 target price.