Trends to watch

The company is shifting focus to property-holding and property-sales businesses and exiting land leasing business, and this is paying off. We expect ~15% YoY growth in rental income in the next two years.Several major projects will be launched for sale in 2012. As propertysales accelerate, commercial housing will become the main source ofrevenue, though it is unlikely to fully make up for falling land leasing revenue in the short term.

Valuation and recommendation

We lower 2012/2013e EPS to Rmb0.53/Rmb0.60 to reflect higher-than-expected financial expenses. With land leasing revenue falling, a rapid turnaround in earnings is unlikely in the short term. Lujiazui-A is trading at 23.7x/21.3x 2012/2013e P/E and at a 28% discount to 2012 NAV, relatively fair value. Maintain HOLD rating.Lujiazui-B is trading at a 64% discount to 2012 NAV. Maintain BUY rating and US$1.29 target price.