SOHO中国(00410) 　　Comments 　　We suggest staying cautious on its business of co-working, or theprospects of SOHO 3Q due to the current fierce competition: 　　Heavy asset model falls behind. When compared tocompetitors excelling at the light asset model, the expansionof SOHO 3Q has been capped by SOHO China’s owninvestment properties. So far we estimate there are ~14,000seats available in 2 cities for the company, whereas URWORK,one of peers on a fast development track, has almost doublethe scale (CICCe). 　　Occupancy rate at ~70% at end-1H16. The rate is lessadvantageous when looking at incumbents such as NASHWork (~90%), Fountown (~90%) and URWORK (~80%), letalone the performance of traditional office buildings in Beijingand Shanghai of a similar location (>90%, CICCe). 　　Significant pressure on profitability. At the initial stagewhen scale expansion and improvement in the occupancyrate are the major concerns, the compromise on pricingtogether with the extensive efforts on promotion erodes on itscore earnings. As per CICCe, the marketing expenses wouldremain at ~7% of total revenue in FY16e/17e. 　　Valuation and recommendation 　　Cut core FY16e/17e earnings 21%/23% toRmb444mn/592mn on increased marketing expenses.Cut TP 13% to HK$3.98, at 40x 2016e P/E and 30%discount to 2016e NAV, implied 0% upside here. Thecompany now trades at 40x 2016e P/E. 　　Risks 　　The performance of co-working business outperforms.