Weekly Property Sales Flash (13-19 February 2012) 20 February 2012

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Karin Stafford
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China/Hong Kong China Property Weekly Property Sales Flash (13-19 February 2012) 20 February 2012 Recovery now more likely Property sales in ten major Chinese cities continued to recover over the

1 China/Hong Kong China Property Weekly Property Sales Flash (13-19 February 2012) 20 February 2012 Recovery now more likely Property sales in ten major Chinese cities continued to recover over the past week, with GFA sold growing 45.0% WoW. Growth in transaction volume was mainly due to declining ASP, which made housing more affordable. The Yangtze River delta region led the growth, with average volume growth of 78%, with Hangzhou recording growth of 214%. Volume in the area remained at a relatively low level compared with 2011 due to the continuance of tightening policies. 50bp cut in RRR. On 18 February 2012 the PBOC announced a 50bp cut in the reserve requirement ratio (RRR), effective 24 February The gradual loosening of credit in China together with additional cuts in property prices is likely to further the recovery within China s property market. Price-cutting to attract sales. After the Chinese New Year holidays, developers cut prices in Beijing and Nanjing by around 10% and 15%, respectively. We expect further price-cutting to take place in China s more competitive property markets like Tianjin. Amended ordinary housing policy in Shanghai. On 17 February 2012, Shanghai changed the definition of ordinary housing to include more housing in the property deed tax exemption, effective 1 March In contrast with the subsidy program rescinded in Wuhu, the policy in Shanghai encourages user demand while suppressing speculative demand through the use of purchase limits. Looking ahead. With more policy relaxation to come, transaction volumes will slowly recover, in our view. Even so, purchase limits are likely to remain in place and we believe volumes will stay at relatively low levels throughout 1Q12. Prefer low-risk players with growth potential. The current market is beginning to show more signs of a recovery. Transaction volumes, however, remain low. In this environment we prefer stocks with low risk and solid growth potential. CR Land (1109 HK, Outperform) falls into this category due to its large market capitalization and healthy launching schedule in China developer ratings and target prices Company Stock code Share price (HK$) Rating* Target price Upside (HK$) Agile 3383 HK 9.92 N 8.60 (13.3) CC Land 1224 HK 1.93 O COLI 688 HK N (8.3) Country Garden 2007 HK 3.61 O CR Land 1109 HK O Glorious 845 HK 1.45 N 1.21 (16.9) Greentown 3900 HK 5.38 U 2.97 (44.8) KWG 1813 HK 4.15 O 4.10 (1.1) Minmetals Land 230 HK 1.06 N 0.80 (24.5) R&F 2777 HK 9.48 U 4.23 (55.4) Renhe 1387 HK 0.92 O Shimao 813 HK 9.63 N 6.55 (32.0) Sino-Ocean Land 3377 HK 4.45 U 2.46 (44.8) Shui On Land 272 HK 3.00 N 2.24 (25.4) * CCBIS ratings: O = Outperform; N = Neutral; U = Underperform Closing price on 20 February 2012 Source: Bloomberg, CCBIS estimates Five-week moving average of sales volume in residential properties GFA sold (10k sqm) Dec-09 Apr-10 Aug-10 Nov-10 Mar-11 Jul-11 Oct-11 Feb-12 Source: China Real Estate database Low volumes maintained. Throughout the week, China property continued to recover, with a 45.0% WoW increase in volume. Nevertheless, volume remained at a low level, in line with our expectation as outlined in the previous issue of our Weekly Property Sales Flash (6-12 February 2012). Edmond Chan (852) edmondc@ccbintl.com (%) Please read the analyst certification and other important disclosures on last page

2 Weekly China property sales data Average weekly transaction (sm) 1Q11 2Q11 3Q11 4Q11 Dec 2011 Jan January 2012 WoW (%) Policies Bohai Rim Beijing 121, , ,100 99,908 99,360 32,025 52, Purchase limits Tianjin 202, , , , ,160 39,000 85, Purchase limits YRD region* Shanghai 275, , , , , , ,100 (24.9) Purchase limits, Property tax Nanjing 98,157 63,192 73,223 85,308 85,860 50, , Purchase limits Hangzhou 103,600 95,238 90,885 86,562 93,520 39,900 70, Purchase limits Suzhou 93,893 86, , , ,840 90, , Purchase limits PRD region** Guangzhou 165, , , , ,080 70, , Purchase limits Shenzhen 59,829 53,708 51,654 47,031 61,480 28,400 37, Purchase limits Western Chongqing 299, , , , , , , Property tax Chengdu 265, , , , , , , Average 161,618 76, , * YRD region = Yangtze River Delta region ** PRD region = Pearl River Delta region Source: China Real Estate database 2

3 Policy impact on the China property sector Policies Purchase limits Property tax Possible impact May reduce property demand May negatively affect sentiment of potential buyers Land bank exposure of our coverage Exposure in cities in terms of GFA (%) Company Beijing Tianjin Shanghai Nanjing Hangzhou Suzhou Guangzhou Shenzhen Chongqing Chengdu Total Agile CC Land COLI Country Garden CR Land Glorious Greentown KWG Minmetals R&F Renhe Shimao Shui On Land Sino Ocean Land Source: Company, CCBIS estimates 3

4 Sales volume of residential properties in China (WoW) Sales volume of residential properties in China (YoY) k sm % 240% 200% 160% k sm % 100% 80% 60% 40% % % % 59% 35% 32% 31% 17% 14% 10% (25)% 80% 40% 0% % (22)% (38)% (46)% (47)% (47)% (48)% (52)% (67)% 0% (20)% (40)% (60)% 0 (40)% 0 (80)% Hangzhou Nanjing Suzhou Beijing Chengdu Tianjin Guangzhou Shenzhen Chongqing Shanghai The week before (LHS) This week (LHS) WoW (RHS) Suzhou Chongqing Nanjing Guangzhou Shenzhen Shanghai Chengdu Hangzhou Tianjin Beijing Average YTD 2011 (LHS) This week (LHS) YoY (RHS) Source: China Real Estate database 4

5 China property sector ratings and valuations Net gearing Current Target as at 1H11 FY10A FY11F FY11F Market NAV Target Stock cap Price NAV discount price Upside NAV discount Land unless bank otherwise Net profit (RMB m) 2012F 2012F 2012F contracted contracted contracted PER PBV yield sales sales sales target % Data Company code (US$m) (HK$) (HK$) (%) Rating # (HK$) (%) (%) (m sm) stated (%) Currency FY11F FY12F FY13F (x) (x) (%) (RMB b) (RMB b) (RMB b) achieved up to Footprint Agile 3383 HK 4, (36.6) N 8.60 (13.3) (45.0) RMB 5,016 5,397 6, Dec National CC Land 1224 HK (47.1) O (45.0) 11.1 Net cash HK$ , Jan Western COLI 688 HK 16, (12.8) N (8.3) (20.0) HK$ 12,511 15,317 18, Jan National Country Garden 2007 HK 7, (27.2) O (20.0) RMB 5,817 6,913 8, Dec National CR Land 1109 HK 11, (25.6) O (20.0) HK$ 5,429 6,809 8, Dec National Glorious 845 HK 1, (51.9) N 1.21 (16.9) (60.0) RMB 2,353 2,874 3, Dec National Greentown 3900 HK 1, (27.5) U 2.97 (44.8) (60.0) RMB 2,122 2,791 3, Jan YRD KWG 1813 HK 1, (59.6) O 4.10 (1.1) (60.0) RMB 1,954 2,353 2, Nov Southern Minmetals Land 230 HK (47.0) N 0.80 (24.5) (60.0) HK$ 791 1,003 1, Sep National R&F 2777 HK 3, U 4.23 (55.4) (50.0) RMB 4,903 5,374 6, Dec National Renhe 1387 HK 2, (72.9) O (70.0) RMB 3,896 4,999 6, Jul National Shimao 813 HK 4, (4.5) N 6.55 (32.0) (35.0) RMB 4,407 4,789 5, Jan National Sino-Ocean Land 3377 HK 3, U 2.46 (44.8) (35.0) RMB 2,385 3,081 4, Dec Bohai rim Shui On Land 272 HK 2, (26.2) N 2.24 (25.4) (45.0) RMB 1,539 1,881 3, Dec National Coverage average (29.2) (16.7) (45) # CCBIS ratings: O = Outperform; N = Neutral; U = Underperform Closing price on 20 February 2012 CCBI HK/China Property Team Rose Zhang, (86755) , rosez@ccbintl.com Edmond Chan, (852) , edmondc@ccbintl.com Edison Bian, (86755) , edisonbian@ccbintl.com 5

6 Rating definitions Outperform (O) expected return > 10% over the next twelve months Neutral (N) expected return between -10% to 10% over the next twelve months Underperform (U) expected return < -10% over the next twelve months Analyst Certification: The authors of this report, hereby declare that: (i) all of the views expressed in this report accurately reflect their personal views about any and all of the subject securities or issuers; and (ii) no part of any of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report; and (iii) they receive no insider information/non-public price-sensitive information in relation to the subject securities or issuers which may influence the recommendations made by them. The authors of this report further confirm that (i) neither they nor their respective associate(s) (as defined in the Code of Conduct issued by the Hong Kong Securities and Futures Commission) has dealt in or traded in the securities covered in this research report within 30 calendar days prior to the date of issue of the report; (ii) neither they nor their respective associate(s) serves as an officer of any of the Hong Kong listed companies covered in this report; and (iii) neither they nor their respective associate(s) has any financial interests in the securities covered in this report. Disclaimers: This report is prepared by CCB International Securities Limited. CCB International Securities Limited is a wholly owned subsidiary of CCB International (Holdings) Limited ( CCBIH ) and China Construction Bank Corporation ( CCB ). Information herein has been obtained from sources believed to be reliable but CCB International Securities Limited, its affiliates and/or subsidiaries (collectively CCBIS ) do not warrant its completeness or accuracy or appropriateness for any purpose or any person whatsoever. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Investment involves risk and past performance is not indicative of future results. Information in this report is not intended to constitute or be construed as legal, financial, business, tax or any professional advice for any prospective investors and should not be relied upon in that regard. This report is for informational purposes only and should not be treated as an offer or solicitation for the purchase or sale of any products, investments, securities, trading strategies or financial instruments of any kind. 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