1st Take:Profit warning driven by non-operating items

　　What's new: Shangri-La Asia issued a profit warning, anticipating that thecompany will record a material decline in profit, and potentially even a loss, in2016 interim results. This is attributable to the effect of non-operating items,mainly an anticipated material decrease in fair value gains on investmentproperties and an increase in provision for impairment losses for hotelproperties. However, profit excluding the non-operating items will not bematerially changed when compared with the same period last year.

　　Our take: We think investors are more focused on profit excluding non-operatingitems and thus expect the profit warning to have a limited impact on the shareprice. But we believe an increase in provision for impairment is a reflection ofcontinued pressure in China's high-end hotel market in lower-tier cities. In 1H15,the company recorded a US$126mn gain in fair value of investment propertiesand US$69mn impairment loss for hotel properties/development project.