Yum Cha 飲茶. September 19, 2013 CHART OF THE DAY BUSINESS AS USUAL AS SOE PROFITS ACCELERATE TALKING POINTS. INDICIES Closing DoD% Hang Seng Index

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1 Yum Cha 飲茶 September 19, 13 CHART OF THE DAY BUSINESS AS USUAL AS SOE PROFITS ACCELERATE INDICIES Closing DoD% Hang Seng Index HSCEI Shanghai COMP Shenzhen COMP Gold BDIY 23,117.5 (0.3) 10,588.0 (0.6) 2, , ,363.2 (0.1) 1, REVENUE SHARE WORLD S LARGEST LISTED COMPANIES SOE PROFITS RISING...BUT ASHARE PERs FALLING Crude Oil, WTI(US$/BBL) Crude Oil, BRENT(US$/BBL) HIBOR, 3M SHIBOR, 3M RMB/USD DIARY NOTES FOR THIS WEEK Sep Sep 23 Source: Bloomberg August FDI YoY% [previous 24.1%] Sep HSBC/Markit Flash Mfg PMI [previous.1] Construction, property, oil refining, electricity companies are leading profit growth among state owned enterprises (SOEs), although centrally managed SOEs are performing a lot better than SOEs managed by local governments. Central SOE profits rose 16.6% yearonyear (YoY) in the first eight months of the year, while local SOE profit fell 5.3% YoY. Overall SOE profit rose 9.7% yeartodate. In absolute numbers, SOE profits totaled RMB1,530bn for the year to August, while revenues rose 11% YoY to RMB29,590bn (RMB29.59trn). The huge cashflows from SOEs continue to drive China s economy, and on a global basis (see table above) China s biggest companies now account for 8.5% of total revenue of the world s 2,00 biggest companies. The transition of China s position in the table from 04, when its share was less than 1%, is dominated by the influence of banks and national oil companies, all of which have listed over the past 10 years. The current ministimulus is likely to support continuing profit growth this year, one caveat being the potential impact of increased nonperforming loans on banks. The property sector, as our weekly Round the Houses report shows today, is buoyant, although a twospeed market is emerging, with Tier1 and Tier2 property markets performing better than lowertier cities. Analyst: John Mulcahy, Managing Director TALKING POINTS PROPERTY WEEKLY Round the Houses Residential property prices in China are continuing to rise. According to the National Bureau of Statistics (NBS), prices for new commodity residential units increased on average by 7.9% yearonyear (YoY) in August. The divergence of property price performance between cities suggests to us that blanket propertyrelated austerity measures are highly unlikely. Share prices of the largest Hong Konglisted China property developers dropped on average 2.4% over the last week, underperforming the HSI (+0.8%) and HSCEI (0.5%), by fears of new austerity measures. Worst performers were Sunac (7.6%, 1918.HK, NR), and Greentown China (6.1%, 3900.HK, BUY, TP:HK$19.12).

2 China Property Sector All around the houses #2 September 19, 13 12:17:41 (12 city prices up doubledigit %; 17 up 810%; 41 up <8% in August) Key view: Residential property prices in China are continuing to rise. According to the National Bureau of Statistics (NBS), prices for new commodity residential units increased on average by 7.9% yearonyear (YoY) in August (Figure 12). As in July, 69 out of 70 cities reported YoY increases, 66 (62 in July) out of 70 cities saw monthonmonth (MoM) increases (Figure 34). Twelve cities saw doubledigit YoY property price increases, led by Beijing (19.3% YoY) and Guangzhou (19% YoY), while 17 cities saw YoY property price growth of between 8%10% YoY. Prices increased by less than 8% in the remaining 41 cities (Figure 5). The difference in magnitude of property price growth between the 10 bestperforming cities and the 10 worstperforming cities widened from 6.6% at the start of the year to 12.2% in August (Figure 6). The divergence of property price performance between cities suggests to us that blanket propertyrelated austerity measures are highly unlikely. That said, we do expect negative headwind from news media and eyecatching comments from industry experts that could dampen market sentiment. The lack of shortterm visibility leads us to believe that the best strategy is to stick with highquality developers that are prudent and diversified, such as Longfor [09.HK; BUY; TP: HK$18.83). For investors looking to hedge policy risks, we believe Hopson [0754.HK; NR] should be most vulnerable to any regional policy adjustments targeting cities with high property price growth, due to Hopson s slow asset turn, perceived poor corporate governance, and highly concentrated landbank (57% of total landbank in Guangzhou, Beijing, and Shanghai combined). Major news/updates: Zhoushan s struggle to stabilise local property market. Central government s attempt to promote senior homes. Land market cooling selectively. Frank Miao, CFA Senior Analyst (852) Frankmiao@chinastock.com.hk John Mulcahy Head of Research (852) johnmul@chinastock.com.hk Weekly sales: Average Gross Floor Area (GFA) sold in 22 major Chinese cities increased 13% weekonweek (WoW) in the second week of September with Harbin (+95% WoW) and Hangzhou (+77% WoW) performing the best. In the 10 cities we track, average inventory was flat at 6.6m m 2 over the week. Weekly average selling prices (ASP) were flat on average in the cities we track, with Beijing and Shanghai down *15% and *7% WoW and Shenzhen and Guangzhou up 11% WoW. Share performance: Share prices of the largest Hong Konglisted China property developers dropped on average 2.4% over the last week, underperforming the HSI (+0.8%) and HSCEI (0.5%), by fears of new austerity measures. Worst performers were Sunac (7.6%, 1918.HK, NR), and Greentown China (6.1%, 3900.HK, BUY, TP:HK$19.12). * Prices are not necessarily from the same projects

3 Key news/updates September 12, 13 Zhoushan s struggle: According to the National Business Daily, Zhoushan city has relaxed its local Home Purchase Restriction (HPR) to allow one more unit of property purchase (See our September 17th report: More evidence on regional divergence). One day after the reported relaxation, a local official reportedly denied the relaxation but admitted that Zhoushan is current reevaluating the implementation of HPR. Our view: Zhoushan s reported dilemma reflected local government s struggle to strike a balance between stimulating economic growth and avoiding public and political pressure this may also apply to other lowertier cities, in our view. Irrespective of the actual implementation, the mere attempt to relax implies local government s continuing reliance on the real estate sector to boost the local economy. Central government s attempt to promote senior home: The State Council issued a notice on September 13th to promote services for senior citizens with a target of establishing a comprehensive service system for senior citizens by year. On September 17th the Ministry of Civil Affairs hosted a video conference to reiterate and further elaborate on The State Council s notice. Our view: A service targeting senior citizens, including but not exclusively providing shelter/hospitality at a fee, could be a new source of recurrent revenue for developers in the longer term. Among Hong Konglisted China property developers, Sino Ocean Land (3377.HK, BUY, TP:HK$5.68) is best equipped to capture market share in the senior service industry, due to, 1) potential capital support from China Life, and, 2) first mover advantage as the company already has a senior service brand, Chunxuanmao, currently under trial in Beijing. Land market cooled down selectively: According to Guandian, Hangzhou launched the sale of three sites in the Yuhang district on September 17th, with all three sites sold at the starting bid. Guangzhou launched four sites on September 15th. One site in the Huadu district was sold at a 24% premium to the starting bid; two sites were sold at the starting bid; and one site fell through due to a lack of bidders. Foshan launched four sites on September 17th, none of which sold. Our view: In spite of the numerous reported land kings, land market performance also seems to be divergent. Prime sites in key cities often attract multiple interested buyers and receive the most extensive media coverage, but they are not necessarily accurate reflections of the land market elsewhere. The bestcase scenario for China s property market is for the property price to drop simultaneously with land prices, so that properties are more affordable to average buyers while developers can protect their margins Greentown (3900.HK, BUY, TP:HK$19.12) issued a US$m senior note at 8% due 19 Country Garden (07.HK, NR) achieved contracted sales of RMB51.9bn in 8M13. CR Land (1109.HK, NR) achieved contracted sales of RMB5.5bn in August.

4 Figure 1: Month YoY (%) property price increase 70 city average (2) Figure 3: Number of cities with YoY price increase/flat/down 70 Increase Flat Down Figure 2: Month MoM (%) property price increase 70 city average Figure 4: Number of cities with MoM price increase/flat/down 70 Increase Flat Down Figure 5: Number of cities with different magnitude of price increase (%) > < Figure 6: YoY price growth (%) difference between 10 best/worst cities.0 Top 10 cities Bottom 10 cities

5 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 Figure 10: Beijing weekly transaction Figure 11: Shanghai weekly transaction ,000 2, ,000 2,000 1 Figure 12: Tianjin weekly transaction Figure 13: Shenzhen weekly transaction ,000 2,000 1 Figure 14: Guangzhou weekly transaction Figure 15: Ningbo Weekly transaction ,

6 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 1/1/12 2/1/12 3/1/12 4/1/12 5/1/12 6/1/12 7/1/12 8/1/12 9/1/12 10/1/12 11/1/12 12/1/12 1/1/13 2/1/13 3/1/13 4/1/13 5/1/13 6/1/13 7/1/13 8/1/13 9/1/13 Figure 16: Shenyang weekly transaction Figure 17: Xi an weekly transaction ,000 7,000 3,000 1, ,000 7,000 3,000 1,000 Figure 18: Hangzhou weekly transaction Figure 19: Nanjing weekly transaction Figure : Chengdu weekly transaction Figure 21: Changsha Weekly transaction

7 Figure 22: Valuation comparison for major Hong Konglisted China developers. Comp Code Currency Mar Cap Share Price (HK$) TP CGI Upside NAV Core EPS PER BPS PBR Net Gearing Price performance Dividend Yield HK$(bn) HK$ Rating (%) HK$ FY12A FY13E FY14E FY12A FY13E FY14E FY12A FY13E FY14E FY12A FY13E FY14E FY12A FY13E FY14E 5D 1M 3M FY12A FY13E FY14E COLI 688 HK HKD n.a n.a n.a n.a % 18% 9% 0.2% 3.6% 14.4% 1.7% 2.0% 2.3% CR Land 1109 HK HKD n.a n.a n.a n.a % 47% 38% 2.9% 0.4% 7.9% 1.5% 1.7% 2.1% Country Garden 07 HK CNY n.a n.a n.a n.a % 56% % 3.3% 0.8% 27.9% 3.5% 4.1% 4.8% Longfor 9 HK CNY BUY 43% % 65% % 2.2% 2.4% 5.8% 1.9% 2.1% 2.6% Shimao 813 HK CNY n.a n.a n.a n.a % 56% % 4.4% 3.4%.2% 3.1% 3.6% 4.3% Evergrande 3333 HK CNY n.a n.a n.a n.a % 91% 88% 2.1% 1.5% 9.5% 0.0% 4.2% 5.4% Guangzhou R&F 2777 HK CNY n.a n.a n.a n.a % 84% 75% 1.9% 2.9% 2.2% 6.0% 6.5% 7.3% Greentown 3900 HK CNY BUY 32% % 42% 21% 6.1% 7.2% 4.9% 4.4% 4.4% 5.0% Soho 410 HK CNY n.a n.a n.a n.a % 27% 36% 2.0% 0.2% 3.8% 4.9% 4.9% 4.7% Agile 3383 HK CNY n.a n.a n.a n.a % 74% 67% 2.9% 1.9% 2.3% 5.5% 4.9% 5.5% Sino Ocean Land 3377 HK CNY BUY 21% % 42% 36% 3.7% 2.2% 9.3% 4.9% 4.1% 5.0% Franshion 817 HK HKD n.a n.a n.a n.a % 55% 39% 3.2% 1.5% 6.6% 2.6% 2.9% 3.7% Shui On 272 HK CNY n.a n.a n.a n.a % 67% 68% 2.4% 2.0% 3.3% 2.6% 3.6% 3.7% Yuexiu 123 HK CNY n.a n.a n.a n.a % 56% 53% 1.8% 0.5% 6.8% 4.4% 4.2% 5.1% Sunac 1918 HK CNY n.a n.a n.a n.a % 52% 24% 7.6% 13.2% 12.1% 12.6% 1.4% 2.6% Poly Hong Kong Investment 119 HK HKD n.a n.a n.a n.a % 87% 80% 2.0% 1.0% 3.4% 4.6% 4.4% 5.1% KWG Property 1813 HK CNY n.a n.a n.a n.a % % 53% 3.6% 4.3% 15.1% 3.6% 4.6% 5.2% Kaisa Group 1638 HK CNY HOLD 3% % 76% 59% 2.5% 10.3% 15.2% 0.0% 0.0% 0.0% Glorious 845 HK CNY n.a n.a n.a n.a % 75% 68% 1.7% 5.0% 9.5% 0.0% 0.0% 0.4% C C Land 1224 HK HKD n.a n.a n.a n.a % 24% 8% 2.3% 0.5% 1.3% 5.9% 2.3% 2.8% Average % 58% 48% 2.4% 0.8% 6.6% 3.7% 3.3% 3.9%

8 DISCLAIMER For private perusal only. This report (including any information attached) is issued by China Galaxy International Securities (Hong Kong) Co., Limited, one of the subsidiaries of the China Galaxy International Financial Holdings Limited, to individual addressee whether they are professional, institutional client or otherwise, in good faith from sources believed to be reliable but no representation or warranty (expressly or implied) is made as to their accuracy, correctness and/or completeness. Where any part of the information, opinions or estimates contained herein reflects the personal views and opinions of the analysts who prepared this report, such views and opinions may not correspond to the published view of China Galaxy International Financial Holdings Limited and any of its subsidiaries. This report shall not be construed as an offer, invitation or solicitation to buy or sell any securities of the company or companies referred to herein. All opinions and estimates reflect the judgment of the analyst on the date of this report and are subject to change without notice. Please take note that member companies of China Galaxy International Financial Holdings Limited (including but not limited to China Galaxy International Securities (Hong Kong) Co., Ltd) and/or their directors, officers, agents and employees ( the Relevant Parties ) may have an interest in securities of the company or companies referred to in this report. The Relevant Parties hereby disclaim any of their liabilities arising from the inaccuracy, incorrectness and incompleteness of this report and its attachment/s and/or any action or omission made in reliance thereof. Accordingly, this report must be read in conjunction with this disclaimer. COPYRIGHT RESERVED China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459, Room 3137, 35/F, Cosco Tower, Grand Millennium Plaza, 183 Queen s Road Central, Sheung Wan, Hong Kong. General line: CONTACT US John Mulcahy Wong Chi Man, CFA Frank Miao, CFA Wayne Fung, CFA Angela Han Lee Vicky Lai johnmul@chinastock.com.hk cmwong@chinastock.com.hk frankmiao@chinastock.com.hk waynefung@chinastock.com.hk angelahanlee@chinastock.com.hk vickylai@chinastock.com.hk