Although Lin-gang Special Area and Zhangjiang Science City have different emphases on industrial positioning, they complement each other and jointly facilitate high-quality economic development in the Yangtze River Delta region. From the perspective of industrial and economic fundamentals, the formation of a comprehensive and open industrial cluster in Shanghai and even the Yangtze River Delta region is of mutual significance to promoting the development of industrial and economic platforms such as the Lin-gang Special Area and the Zhangjiang Science City (formerly known as the Zhangjiang Hi-tech Park). On the policy side, new practices adopted by some parks on industrial land use, infrastructure construction, financial support and innovation may be replicated in other parks with suitable conditions.

Event: On Sep 5, 2023, the Management Committee of the Lin-gang Special Area and the Shanghai Municipal Commission of Commerce issued the "Implementation Plan for Supporting Lin-gang Special Area to Deepen High-level Institutional Opening-up to Promote the Innovative Development of Trade in Services” (the Plan), easing market access restrictions on trade in services in the Lin-gang Special Area, promoting the coordinated development of core industries and trade in services, and building an open trade in services system represented by digital trade, emerging financials, shipping services and technology trade. The Plan proposes that by 2025, trade in services in the Lin-gang Special Area should have achieved leapfrog and innovative development, and the 5-year aggregate import and export volume of trade in services should reach Rmb200bn, with cross-border digital trade volume increasing by 10% annually.

Lin-gang Special Area will deepen high-level institutional opening-up to create a new development platform for relevant industries. The Plan focuses on three directions. 1) Building a demonstration zone near an international hub port for Shanghai's digital trade. The initiative aims not only to directly strengthen the construction of digital infrastructure and promote the secure and orderly flow of data, but also to promote the development of data factor industries (eg the Shanghai Data Exchange) and digital trade from the perspective of data industry services. 2) Deepening innovative development in the key areas of trade in services. The initiative has put forward relevant innovation and development directions in five areas: cross-border financial services; international shipping; technology trade; business, culture, sports & tourism; and education & healthcare. 3) Building an all-round trade in services promotion system. The focus is placed on eight fronts, including strengthening international exchanges and cooperation, diversifying spatial arrangement and improving the facilitation of capital flow. Although Lin-gang Special Area and Zhangjiang Science City have their own emphases on industrial positioning (refer to the "Three-year Action Plan of Zhangjiang Science City for Building a Cluster of Data Factor Industries", "Opinions on Pilot Land Administration for Promoting Scientific and Technological Innovation and Industrial Financing Development Planning in Zhangjiang Science City", etc), they complement each other and jointly facilitate high-quality economic development in the Yangtze River Delta region. From the perspective of industrial economy fundamentals, the formation of a comprehensive and open industrial cluster in Shanghai and even the Yangtze River Delta region is of mutual significance to promoting the construction of industrial and economic platforms such as the Lin-gang Special Area and the Zhangjiang Science City. On the policy side, new practices adopted by some parks on industrial land use, infrastructure construction, financial support and open innovation may be replicated in other parks with suitable conditions.

The growth of enterprises within Shanghai Lingang's industrial parks significantly outpaces the rent spikes, demonstrating the great growth potential of these companies. Shanghai Lingang has invested continuous efforts in the Lin-gang Special Area, and holds assets in the Dishui Lake Financial Bay, the Yangshan Special Comprehensive Bonded Area, and Infinity Isle. With continuous efforts in promoting the development of trade in services and cross-border finance, cross-border direct data connection, and digital economy industry clusters, the Company has facilitated the high-quality development of enterprises within its industrial parks. Shanghai Lingang has always followed the planning of the Lin-gang Special Area and facilitated the development of relevant industries therein. According to the Company's announcements, the aggregate fixed asset investment/aggregate revenue/aggregate tax payment of enterprises within its industrial parks increased by 48%/57%/73% YoY in 1H23. Shanghai Lingang also announced a double-digit increase in its 1H23 rent revenue. The revenues of enterprises served and incubated by the Company continued to grow at a high speed, fully reflecting vitality after the formation of industrial agglomerations.

Continuous acquisition of land banks for another real estate development boom. On Sep 8, 2023, Shanghai Lingang announced its successful bid for land plot D1-14 of land parcel MHPO-1306 in Pujiang Town, Minhang District. The 90,000 sqm land plot is intended for industrial projects, with a planned gross floor area (GFA) of 210,000 sqm. This is another land plot acquired by the Company, shortly after acquiring two land plots in the Dishui Lake Financial Bay. Before 1H23, Shanghai Lingang experienced a relatively low tide period (from land acquisition to start of construction), which may limit its saleable resources in the short term. We believe that the Company will embrace another growth window for real estate development.

Potential risks: Fluctuations in the rents of some parks operated by Shanghai Lingang as these parks have not yet reached the period of stable growth; losses associated with some fund investments and investments on park industries; and uncertainties in policy implementation.

Investment recommendation: In 1H23, enterprises within the industrial parks operated by Shanghai Lingang have made progress on several fronts. We reckon that Shanghai Lingang is truly a park developer with excellent industrial service capabilities and dedicated to serving the real economy. As the planning policies of the Lin-gang Special Area become more favorable, Shanghai Lingang, an industrial park developer and provider of industrial services, will continue to promote the orderly settlement of key industries and facilitate the rapid development of Lin-gang Special Area. As the seller and lessor of key park properties in the Lin-gang Special Area, the Company will benefit continuously from new policies supporting the development of five new towns in Shanghai. We maintain our 2023E/24E/25E EPS forecasts of Rmb0.65/0.69/0.76 for Shanghai Lingang. Based on the dividend yield and valuation levels of China’s real estate investment trust (C-REIT) market, the valuations of the Company's wholly-owned subsidiaries after their introduction of strategic investors, and the PE valuations of comparable companies, we maintain our 2023E market cap forecast at Rmb42.1bn and the target price of Rmb17, and reiterate the "BUY" rating.