Shanghai industry rises 5% but Citi's potential is limited

Shanghai Industrial Holdings, which edged higher in the morning, expanded in the afternoon, with shares rising 5.38% per cent to HK $34.25 and trading 3.14 million shares. Citi issued a report saying to reduce the stock rating from Buy to hold, and to increase the target price from HK $28 to HK $36.2, by extending the valuation benchmark to the net asset value of fiscal year 2010, narrowing the value of the valuation over Nav from 20% to 15% to increase the estimated net asset value, To reflect the latest average selling price of Wanyuan City project.　　The target price is 6% higher than the market premium. Citi, while bullish on the company's high quality real estate assets, defensive portfolios and a 3.4% dividend yield, said it was a reasonable valuation, a 21% discount to equity, and a 15% per cent historical average discount of 6%.　　While there appears to be a catalyst to stimulate share prices, the stock's potential for rising is limited. Citi has increased the earnings forecast for Shanghai industry for the 2009-11 fiscal year by 0.6% to 6.3%, as the higher profits from the Wanyuan city will offset the expected widening losses of SMIC (00981-HK). With cash on hand, the company was able to seize the opportunity in the short term, but feared that the parent company would not necessarily sell the assets at a substantially discounted price.