Yuexiu Property. OUTPERFORM (unchanged) China l Real Estate Investment & Services 22 August A new incubation strategy HKD 2.14 HKD 3.

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1 l Equity Research l China l Real Estate Investment & Services 22 August 213 Yuexiu Property A new incubation strategy Yuexiu Property s (YP) 1H13 earnings grew modestly, but the hike in interim DPS was a positive surprise. YP has partnered with a state-owned fund for acquisitions on a 2:8 basis, and owns a call option to acquire the remaining 8% stake later. This is another form of land bank incubation, which is fairly positive for YP, in our view. We lower our price target to HKD 3.35 (from HKD 3.53) on higher net gearing assumptions. Our price target represents a 4% discount to NAV. Reiterate Outperform. OUTPERFORM (unchanged) PRICE as of 22 Aug 213 HKD 2.14 PRICE TARGET HKD 3.35 Bloomberg code Reuters code 123 HK 123.HK Market cap 12-month range HKD 19,927mn (USD 2,57mn) HKD EPS adj. est. change 213E -14.6% 214E -5.5% Modest 1H13 results; interim DPS up two years in a row. YP s 1H13 core earnings grew a modest 8% YoY to RMB 1bn. That said, unbooked sales of RMB 7.2bn to be booked in 2H13 imply a 213E revenue of at least RMB 12.7bn (212: RMB 8.1bn). YP is on track to register decent earnings growth in 213. Interim DPS was a positive surprise, rising 17% to HKD.49. Maintaining its investment grade credit rating has been a top priority for YP, and a DPS increment signals that despite an increase in dividend payout, management is still quite upbeat about YP s cashflow outlook. Innovative land bank incubation strategy is a positive for YP. YP recently made two new land acquisitions on a 2:8 basis, in partnership with a state-owned fund. Moreover, YP owns a call option to acquire the remaining 8% stake from the fund at a premium of 11% (as the return to the fund), and the option is exercisable from the 12 th to the 18 th month after the establishment of the JV. We believe this innovative acquisition strategy is positive, as (1) the initial cash outlay is lower for YP; (2) management can adopt a wait-and-watch approach and choose not to fully acquire the remaining 8% stake if the land bank turns out to be sub-optimal for YP; and (3) YP s IRR could improve as cashflow recycling quickens (since the call option could be exercised as late as 18 months after the establishment of the JV). A sell-through rate of c.3% is enough to beat the target. YP needs to achieve sales of RMB 5.9bn in 2H13 to meet its newly revised 213 target of RMB 14.5bn (previous: RMB 13.2bn). Given saleable resources of 1.43mn sqm (or RMB 18bn, assuming an ASP of RMB 13k/sqm), YP needs a sell-through rate of just c.3% to achieve its new 213 sales target. Year-end: December E 214E Turnover (RMB mn) 9,569 8,12 13,653 16,888 Gross profit (RMB mn) 4,4 3,858 4,752 5,525 Associates and JCEs (RMB mn) Net profit (RMB mn) 5,236 2,482 1,852 2,448 Net profit adj. (RMB mn) 1,8 1,33 1,852 2,448 Net profit adj. growth (%) EPS adj. (RMB) DPS (RMB) DPS growth (%) nm Div. payout (%) Net gearing (%) Gross profit margin (%) Net profit margin adj. (%) ROE (%) Book value/share (RMB) PBR (x) PER adj. (x) Dividend yield (%) Contracted sales (CNY mn) 9,54 12,3 14,777 18,211 Net asset value/share (HKD) Prem./(disc.) to NAV (%) estimates Share price performance Aug-12 Nov-12 Feb-13 May-13 Aug-13 Source: Company, FactSet Yuexiu Property HANG SENG INDEX (rebased) Share price (%) -1 mth -3 mth -12 mth Ordinary shares Relative to index Relative to sector Major shareholder Yuexiu Enterprise (49.7%) Free float 5% Average turnover (USD) 6,284,773 Andy So, CFA Andy.So@sc.com Raymond Cheng, CFA Raymond.WM.Cheng@sc.com Important disclosures can be found in the Disclosures Appendix All rights reserved. Standard Chartered Bank 213

2 ,28 1, ,2 2,92 2,58 2,21 (' sqm) 3,96 5,53 Land acquisition cost (RMB bn) 7,8 Recognized sales (RMB m) Sales (RMB m) Equity Research l Yuexiu Property Figure 1: Recognised sales locked in We believe more than 4% of 214 property delivery locked in 2, Recognized sales locked in (RMB m) (LHS) Unlocked recognized sales (RMB m) (LHS) Recognized ASP (RMB/sqm) (RHS) 2, Figure 2: Unbooked sales and ASP Sizable unbooked sales means good earnings visibility 2, Unbooked sales by year end (RMB m) (LHS) ASP of unbooked sales (RMB/sqm) (RHS) ASP of recognized sales (RMB/sqm) (RHS) 2, 1 1, 1 1, Recognized ASP (RMB/sqm) 1 1, 1 1, ASP (RMB/sqm) E 214E H13 Figure 3: New starts and property under development High new starts in 1H13 means more saleable resources Figure 4: Land acquisition and average cost We believe YP could be more conservative in land bidding 8, Property under development by period end (' sqm) New starts (' sqm) 1. Land acquisition cost (RMB bn) (LHS) Land acqusitiion AV (RMB/sqm) (RHS) 7, 7, 6, 4, 3, 2, 1, , 4, 3, 2, 1, Average land cost (RMB/sqm) H H13 Figure 5: Land bought by YP in partnership with the fund. More land could be bought on a 2:8 basis Acquisition date Stake owned by YP Total GFA (sqm) Attri GFA (sqm) Total land cost (RMB mn) Attr. land cost (RMB mn) Land cost (RMB/sqm) Hangzhou Jianggan Sanbao Land Jun-13 2% 63,8 12, ,154 Foshan Chancheng Tongji Road Land Jul-13 19% 31,8 59,52 1, ,71 Total 374,6 71,812 2, ,289 *YP bought the 2% stake of the Foshan project company via a 95% subsidiary. Therefore, the effective stake is 19% instead of 2% Figure 6: Change in estimates Net profit (RMB mn) 213E Net profit (RMB mn) 214E NAV (HKD/share) PT (HKD/share) Old 2,168 2, New 1,852 2, Change -14.6% -5.5% -5.1% -5.2% Source: Standard Chartered Research 22 August 213 2

3 Figure 7: NAV breakdown Value Value RMB mn RMB/share % of GAV Property development 51, % Investment properties 5, % O/S land premium by end of 1H13 (2,1) (.23) -4% Market cap of Yuexiu REIT 3, Available for sale asset by end of 1H % GAV 58, % LAT (3,21) (.34) -- Net debt (13,846) (1.49) -- NAV 41, NAV (HKD) Source: Standard Chartered Research Figure 8: Key ratios and estimates (RMB mn) 1H12 1H13 YoY (%) 213E 1H13/213E "Other revenue"/sales 3.8% 2.% -2% 2.1% NA Selling expenses/revenue -3.3% -2.5% 1% -4.% NA Admin expenses/revenue -9.% -6.7% 2% -6.% NA SG&A/revenue -12.3% -9.2% 3% -1.% NA Selling expenses/contracted sales -2.% -1.8% % -3.7% NA Admin expenses/contracted sales -5.4% -4.7% 1% -5.5% NA SG&A/contracted sales -7.4% -6.4% 1% -9.2% NA Gross profit margin 6.6% 4.9% -2% 34.8% NA Reported net margin 37.1% 38.6% 2% 13.6% NA Recurring net margin 22.5% 17.1% -5% 13.6% NA Operating profit margin 77.2% 64.1% -13% 24.8% NA Effective tax rate 48.5% 39.6% -9% 36.4% NA Interest capitalisation ratio -74.% -73.7% % -7.% NA LAT/recognised sales 4.2% 9.9% 6% 4.3% NA Contracted sales value 7,119 8,616 21% 14,777 58% Contracted sales volume (' sqm) % 1,352 46% Contracted ASP (RMB/sqm) 12,476 13,888 11% 1,93 NA Recognised sales value 4,224 5,531 31% 12,731 43% Recognised sales volume (' sqm) % 1,181 31% Recognised ASP (RMB/sqm) 21,335 14,962-3% 1,78 NA 22 August 213 3

4 Figure 9: 1H13 results comparison (RMB mn) 1H12 1H13 YoY (%) 213E 1H13/213E Sales of properties 3,649 5,525 51% 12,731 43% Property management fee income % % Rental income % % Others % % Total 4,264 6,59 42% 13,653 44% Cost of sales (1,68) (3,58) 113% (8,91) 4% Gross profit 2,584 2,48-4% 4,752 52% Gain from sale of investment properties % NA Fair value (losses)/gains on revaluation of investment properties 94 1,862 16% NA Gain on disposal of a subsidiary % NA Selling and distribution expenses (14) (152) 9% (546) 28% General and admin expenses (385) (43) 5% (819) 49% Operating profit 3,292 3,883 18% 3, % Total finance income % 35 44% Total finance costs % 526 4% Net foreign exchange gain on financing activities (4) 136 NA NA Share of profit/loss of JCEs 1-78% () -219% Share of profit/loss of associate % % Profit before tax 3,153 3,96 24% 3, % Total tax 1,529 1,547 1% 1, % MI % % Profit attributable to shareholders 1,58 2,341 48% 1, % Basic EPS (RMB) % % Diluted EPS (RMB) % % Recurring EPS (RMB) % % Interim DPS (HKD) %.49 NA Total one-off gain/(loss) 62 1,37 111% NA Recurring net profit from continuing operations 96 1,34 8% 1,852 56% 22 August 213 4

5 Income statement (RMB mn) Cash flow statement (RMB mn) Year-end: Dec E 214E Year-end: Dec E 214E Turnover 5,634 9,569 8,12 13,653 16,888 EBIT 1,599 3,281 3,237 3,37 4,91 Gross profit 1,881 4,4 3,858 4,752 5,525 Depreciation & amortisation SG&A (88) (985) (1,296) (1,365) (1,351) Net interest (711) (1,138) (1,646) (49) (429) Other income Tax paid (569) (531) (843) (796) (991) Other expenses Changes in working capital (6,835) (6,351) (3,932) (2,39) (346) EBIT 1,599 3,281 3,237 3,37 4,91 Others (497) (218) (629) 8 84 Cash flow from operations (6,949) (4,89) (3,738) 141 2,492 Interest expense (22) (473) (553) (526) (454) Interest income Capex (616) (645) (42) (54) Associates Acquisitions JCEs 23 (1) () () () Disposals 2,329 (315) 4,432 (1,552) (1,765) Property reval. gain/(loss) 259 4,956 1,567 Others (1,44) (648) (877) Other exceptional items Cash flow from investing 889 (1,578) 2,99 (1,972) (2,269) Pre-tax profit 2,1 8,364 4,635 3,124 4,19 Dividends (31) (33) (659) (532) (741) Taxation (1,21) (3,8) (2,75) (1,137) (1,415) Issue of shares 2, Minority interests (61) (12) (77) (134) (155) Change in debt 5,269 4,793 2,314 3, (3,) Exceptional items after tax 194 4,228 1,449 Other financing cash flow ,449 (569) (683) Net profit 919 5,236 2,482 1,852 2,448 Cash flow from financing 8,227 4,865 3,111 1,899 (4,424) Net profit adj ,8 1,33 1,852 2,448 Change in cash 2,167 (1,63) 2, (4,21) EBITDA 1,663 3,348 3,313 3,386 4,174 Exchange rate effect (44) (27) (45) (45) (45) Free cash flow (6,949) (5,56) (4,383) (279) 1,988 Balance sheet (RMB mn) Financial ratios and other Year-end: Dec E 214E Year-end: Dec E 214E Investment properties 7,632 11,923 6,185 6,495 6,819 Operating ratios PP&E 2,2 2, EBIT margin (%) Associates and JCEs 1,719 2,19 6,956 7,115 7,37 Net margin adj. (%) Other non-current assets 1,746 1,439 1,261 1,43 1,584 Sales growth (%) Total non-current assets 13,297 18,95 15,166 15,814 16,552 Net income growth (%) nm Cash & equivalents 6,451 4,821 7,6 7,82 2,836 EPS growth (%) nm Short-term investments 1,29 82 EPS growth adj. (%) Prop. under dev./held for sale 19,927 32,444 37,821 39,775 4,11 DPS growth (%) - nm Inventory Div. payout (%) Trade and other receivables 3, ,588 9,234 13,271 Other current assets 7,719 3,872 8,269 8,597 8,954 Efficiency ratios Total current assets 37,484 43,119 54,831 64,71 65,85 ROE (%) Total assets 5,781 61,213 69,997 8,515 81,637 ROCE (%) ROA (%) Short-term debt 6,34 1,591 6,829 8,29 6,829 Pre-sale deposits 7,91 5,393 1,3 13,455 13,314 Leverage ratios Trade and other payables ,272 1,623 Net gearing (%) Income taxes payable ,534 1,591 1,661 Debt/capital (%) Other current liabilities 4,679 6,277 8,855 1,151 11,12 Interest cover (x) Total current liabilities 19,322 23,359 27,556 34,497 34,548 Current ratio (x) Long-term debt 11,73 11,191 13,32 15,12 13,32 Deferred tax 3,41 5,966 5,78 6,49 6,473 Per share Other long-term liabilities EPS (RMB) Total long-term liabilities 15,113 17,226 19,32 21,151 19,776 EPS adj. (RMB) Total liabilities 34,435 4,584 46,877 55,648 54,324 DPS (RMB) Shareholders' funds 15,86 2,187 22,158 23,857 26,253 Book value/share (RMB) Minority interests ,1 1,61 Total equity 16,346 2,629 23,12 24,867 27,314 Valuation EV/sales (x) Total liabilities and equity 5,781 61,213 69,997 8,515 81,637 EV/EBITDA (x) EV/EBIT (x) Gross debt 17,736 21,782 2,131 23,131 2,131 PER (x) Net debt (cash) 1,264 15,655 1,868 13,846 15,92 PBR (x) YE fully diluted shares (mn) 9,282 9,284 9,298 9,298 9,298 Dividend yield (%) estimates 22 August 213 5

6 Disclosures appendix The information and opinions in this report were prepared by Standard Chartered Bank (Hong Kong) Limited, Standard Chartered Bank Singapore Branch, Standard Chartered Securities (India) Limited, Standard Chartered Securities Korea Limited and/or one or more of its affiliates (together with its group of companies, SCB ) and the research analyst(s) named in this report. THIS RESEARCH HAS NOT BEEN PRODUCED IN THE UNITED STATES. Analyst Certification Disclosure: The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts. Where disclosure date appears below, this means the day prior to the report date. All share prices quoted are the closing price for the business day prior to the date of the report, unless otherwise stated. SCB and/or its affiliates have received compensation for the provision of investment banking or financial advisory services within the past one year for the following companies: Yuexiu Property Co., Ltd. HKD Recommendation and price target history for Yuexiu Property Sep-1 Dec-1 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Date Recommendation Price target Date Recommendation Price target Date Recommendation Price target 1 2 Nov 1 OUTPERFORM Aug 11 OUTPERFORM Aug 12 OUTPERFORM Dec 1 OUTPERFORM Oct 11 IN-LINE Nov 12 OUTPERFORM Jan 11 OUTPERFORM Feb 12 IN-LINE Jan 13 OUTPERFORM Mar 11 OUTPERFORM Feb 12 OUTPERFORM Mar 13 OUTPERFORM Mar 11 OUTPERFORM Mar 12 OUTPERFORM Mar 13 OUTPERFORM Jun 11 OUTPERFORM Jul 12 OUTPERFORM 2.45 Source: FactSet prices, SCB recommendations and price targets Recommendation Distribution and Investment Banking Relationships % of covered companies currently assigned this rating % of companies assigned this rating with which SCB has provided investment banking services over the past 12 months OUTPERFORM 52.6% 14.3% IN-LINE 34.3% 16.1% UNDERPERFORM 13.1% 9.% As of 3 June 213 Research Recommendation Terminology OUTPERFORM (OP) IN-LINE (IL) UNDERPERFORM (UP) Definitions The total return on the security is expected to outperform the relevant market index by 5% or more over the next 12 months The total return on the security is not expected to outperform or underperform the relevant market index by 5% or more over the next 12 months The total return on the security is expected to underperform the relevant market index by 5% or more over the next 12 months SCB uses an investment horizon of 12 months for its price targets. Additional information, including disclosures, with respect to any securities referred to herein will be available upon request. Requests should be sent to scer@sc.com. Global Disclaimer: Standard Chartered Bank and/or its affiliates ("SCB ) makes no representation or warranty of any kind, express, implied or statutory regarding this document or any information contained or referred to in the document. The information in this document is provided for information purposes only. It does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future movements in rates or prices or represent that any such future movements will not exceed those shown in any illustration. The stated price of the securities mentioned herein, if any, is as of the date indicated and is not any representation that any transaction can be effected at this price. 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