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SOHO China (0410.HK): Below expectations:
Due to low project bookings/FX losses
Company Name:  SOHO China                              Ticker: 0410.HKPrice:
2.73                             52-Week Price Range (HK$): 5-2
Year             Net         EPS         EPS          .       Dividend
To            Income      Diluted     Growth        P/E        Yield
December         Rmb         Rmb        Dil%          X           %
2007          1,965.660      0.48       433.33       5.02        4.15
2008            399.07       0.08      -84.07       31.49        4.15
2009E         1,717.027      0.33       330.25       7.32        4.11
2010E         1,902.416      0.37       10.80        6.61        3.78
2011E         1,282.010      0.25      -32.61        9.80        2.03
Price Performance (absolute):    1m: -7%   3m: -4%    12m: -45%
Price Performance (relative):    1m: -3%   3m: +6%    12m: +1%
Stock Rating:      N
What surprised us
SOHO reported 2008 results with underlying profit down 80% yoy to Rmb399mn,
34%/46% below our/Reuters consensus estimates. Partial booking of its SOHO Residence
project is the main reason for the discrepancy, in our view. EBIT margin is in line with
our estimate as the lower-than-expected gross margin is offset by better-than-expected
control of its SG&A expenses. The unexpected net FX loss (Rmb124mn) contributed to
worse-than-expected net margin, in our view. Despite the sharp earnings decline, the
company proposed a 130% dividend payout ratio to keep its DPS largely unchanged from
last year.
What to do with the stock
We expect SOHO’s reported earnings growth to recover in 2009E-10E with the
completion of its Sanlitun SOHO project, from which the company has already received
Rmb6.9bn in presale proceeds, or 90% of its 2008 total. That said, we feel the economic
slowdown in 2009 will negatively affect investment demand for its portfolio, which is
mainly retail, office and high-end residential properties in Beijing. We estimate its 2009
contract sales to be half that of 2008 or Rmb3.9bn, which implies possible cash depletion
vs. our estimated capex of Rmb3.8bn (excl. taxation, interest expenses). We cut our NAV
based 12-m TP by 4% to HK$3.29 and cut our 2009E-11E underlying profit by -9% to
+36% after revising Sanlitun project’s bookings between the years. Maintain Neutral. Key
risks: Upside: Faster/stronger-than-expected transaction volume recovery amid
government policy stimulus. Downside: Prolonged slowdown of China’s economy.
The Goldman Sachs Group Inc. does and seeks to do business with companies covered in
its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their investment
decision.
March 13, 2009 Analyst Comment
2 Goldman Sachs Global Investment Research