A Fast Growing Property Developer, Initiate with "Buy"

Transcription

1 Ronshine China (331 HK) Property Sector Equity Research 股票研究 Company Report: Ronshine China (331 HK) 公司报告 : 融信中国 (331 HK) A Fast Growing Property Developer, Initiate with "Buy" 一家快速增长的地产开发商, 首予 买入 Van Liu 刘斐凡 (86755) liufeifan@gtjas.com 公司报告证券研究报告 Equity Research Report Company Report Steady fundamentals for the property sector will remain. In 218, we conservatively estimate that the YoY growth range of commodity housing sales amount and GFA should be between -5% and %, and -1% and -5%, respectively. We also expect stable ASP, decreasing saleable areas and steady investment. Ronshine China Holdings Limited ("Ronshine China") is a fast growing property developer. Contracted sales is expected to extend fast growth and reach over RMB12. bn in 218. Abundant land bank in high-tier cities and strong M&A capacity will support the Company's scale expansion. Riding on proper unit land costs, gross margin will rebound to over 22.5% during The shares placement and senior notes issuance hint a steady financing channel. Despite the Company's high leverage ratio, we expect limited solvency risks because of strong contracted sales growth and steady financing channels. We estimate the Company s total revenue in to be RMB58,741 mn, RMB81,154 mn and RMB98,33 mn, respectively. Underlying net profit in is expected to reach RMB3,476 mn, RMB4,976 mn and RMB6,86 mn, representing a CAGR of 67.% in We set the Company's target price at HK$16.55, which implies a 45% discount to its 218F NAV of HK$3.9 per share, 6.2x underlying 218 PER and 1.5x 218 PBR. Initiate with "Buy" rating for Ronshine China. Risk factors: 1) property sales missing expectations and 2) solvency risks. Rating: Buy Initial 评级 : 买入 ( 首次覆盖 ) 6-18m TP 目标价 : HK$16.55 Share price 股价 : Stock performance 股价表现 HK$9. 房地产行业 房地产行业稳定的基本面将维持 在 218 年, 我们保守预计商品房销售额和销售面积的同比增长区间为 -5%- % 和 -1%- -5% 我们也预计稳定的房价, 减少的待售面积和稳健的投资 融信中国控股有限公司 ( 融信中国 ) 是一家快速增长的地产开发商 合约销售将延续快速增长并预计在 218 年达到人民币 1,2 亿元以上 在高线城市充足的土储以及强健的并购能力将支持公司的规模扩张 基于合适的单位土地成本, 毛利率将在 年反弹至 22.5% 以上 股票配售和优先票据的发行显示了稳定的融资渠道 尽管公司的净资产负债率高, 由于强劲的合约销售增长和稳定的融资渠道, 我们预计有限的偿付风险 我们估计 年的收入分别为人民币 亿元, 人民币 亿元和人民币 亿元 年核心净利为人民币 亿元, 人民币 亿元和人民币 6.86 亿元, 相当于 年有 67.% 的年复合增长率 [Table_PriceChange] Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to HS Index 相对恒指变动 % Avg. Share price(hk$) 平均股价 ( 港元 ) 1 M 1 个月 Source: Bloomberg, Guotai Junan International. 3 M 3 个月 1 Y 1 年 (11.4) (26.) 5.9 (7.1) (16.2) 融信中国 我们给予公司目标价 港元, 较 218 年每股净资产估值 3.9 港元有 45% 的折让, 相当于 6.2 倍 218 年核心市盈率以及 1.5 倍 218 年市净率 首予融信中国 买入 评级 风险因素 :1) 低于预期的物业销售 ;2) 偿付风险 [Table_ Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 216A 11,372 1, (31.9) A 3,341 1, F 58,741 3, F 81,154 5, F 98,33 6, [Table_BaseData] Shares in issue (m) 总股数 (m) 1,598.3 Major shareholder 大股东 Ou Zonghong 63.4% Market cap. (HK$ m) 市值 (HK$ m) 14,384.7 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( ) 6,38.1 FY18 Net gearing (%) FY18 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 (HK$) / 8. FY18 Est. NAV (HK$) FY18 每股估值 ( 港元 ) 3.1 See the last page for disclaimer Page 1 of 2

2 Contents INDUSTRY... 3 Policy and Monetary Environment... 3 Sector Fundamentals... 5 Sector Characteristics... 8 COMPANY OVERVIEW... 9 Company Profile... 9 Contracted Sales... 9 Land Bank... 1 Financing Capacity FINANCIAL ANALYSIS Revenue Analysis Gross Profit Analysis Operating Expenses Analysis Operating Profit Analysis Finance Costs Income Tax Net Profit Analysis ROA and ROE Net Gearing Cash Flow Analysis VALUATION See the last page for disclaimer Page 2 of 2

3 Feb-1 May-1 Aug-1 Nov-1 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 INDUSTRY Policy and Monetary Environment The tightening and targeted policy environment will be maintained but policy should be moderately loose if the macro economy starts to deteriorate due to the Sino-US trade war. In Jun. 218, shantytown redevelopment project approvals have been tightened by China Development Bank. Looking forward, ASP has become stable, stock levels stayed at a proper level and the land auction premium rate cooled down. Thus, there should be no trigger for policy changes. However, we think targeted policies should be maintained to promote the steady and sound development of the property sector. Alongside the hot market in some lower-tier cities, we expect tightening policies to extend to lower-tier cities but policies in higher-tier cities will be maintained. Table 1: Cities Experiencing Tightening Policies Region Province City Shanghai Shanghai Yangtze River Delta Jiangsu Yangzhou, Suzhou, Wuxi, Nanjing, Zhenjiang, Changzhou, Xuzhou and Nantong Zhejiang Hangzhou, Jiaxing, and Ningbo Guangdong Guangzhou, Shenzhen, Foshan, Dongguan, Zhuhai, Huizhou and Jiangmen Pearl River Delta Guangxi Nanning Fujian Pingtan, Minhou, Fuzhou, Quanzhou and Xiamen Hainan All Cities in Hainan Province Beijing Beijing Jing-Jin-Ji Tianjin Tianjin Hebei Cangzhou, Zhangjiakou, Langfang, Qinghuangdao, Tangshan, bazhou and baoding Shandong Shandong Jinan and Qingdao Shanxi Shanxi Taiyuan Henan Zhengzhou Central Hunan Changsha Hubei Wuhan Anhui Hefei and Chuzhou Chongqing Chongqing Western Sichuan Chengdu Gansu Lanzhou Shanxi Xian Source: China Real Estate Information Corp., Guotai Junan International. Figure 1: ASP of 7 Cities Figure 2: Inventory Turnover by City Tier in China 12.% 1 8.% 6.% 4.% 2.% -2.% -4.% -6.% -8.% ASP YoY of Newly Construction Houses ASP Mom of Newly Construction Houses ASP YoY of Second Houses ASP MoM of Second Houses Tier-1 avg. Inventory Turnover (mths) Tier-2 avg. Inventory Turnover (mths) Tier-3 avg. Inventory Turnover (mths) Source: National Bureau of Statistics of China, Wind, Guotai Junan International. Source: China Real Estate Information Corp., Guotai Junan International. See the last page for disclaimer Page 3 of 2

4 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Sep-15 Dec-15 Mar-16 Sep-16 Dec-16 Mar-17 Sep-17 Dec-17 Mar-18 Company Report Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Oct-15 Feb-16 Oct-16 Feb-17 Oct-17 Feb-18 Jun-18 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Oct-15 Feb-16 Oct-16 Feb-17 Oct-17 Feb-18 Jun-18 Figure 3: Monthly Land Acquisition Amount in 1 Cities Monthly Land Acquisition GFA(LHS)(mn sq.m.) Monthly Land Acquisition GFA YoY(RHS) Land Acquisition Premium Rate(RHS) Source: Wind, Guotai Junan International. Despite recent marginal loosening, the credit environment will follow a tightening trend in the long run. The decrease in M2 YoY growth is likely to remain due to declining leverage in the financial system according to the PBOC. Since 217, refinancing in the capital market and bond issuing tightened up for property developers. In addition, offshore financing channels will tighten for the property sector. However, the SHIBOR rate and bond issuing rate moderately decreased alongside marginal loosening for the credit environment in Jul For the global market, the US has entered into an interest rate hike cycle, therefore, we expect that the PBOC will continue to reduce leverage and shrink its balance sheet in the long run. Monetary policy will be prudent and neutral, with the keynote of deleveraging. Liquidity should be tightened alongside weighted funding costs increasing. Costs of liabilities of banking systems have increased and will be at least maintained, ultimately spreading to assets within banking systems. Therefore, we expect the weighted personal mortgage rate to increase, which will exert negative effects on housing sales. Figure 4: M2 in China Figure 5: SHIBOR 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, 18.% 16.% 14.% 12.% 1 8.% 6.% 4.% 2.% 13.5% 11.5% 9.5% 7.5% 5.5% 3.5% 1.5% M2(LHS)(RMB bn) M2(RHS)(%) -.5% Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 SHIBOR:overnight SHIBOR:1 month SHIBOR:1 year Source: the People's Bank of China, Wind, Guotai Junan International. Source: Wind, Guotai Junan International. Figure 6: Bond Issuing Rate in China Figure 7: Weighted Personal Mortgage Loan Rate in China % % 5.42 Corporate Bond Enterprise Bond Midium Term Note Source: China Bond, Wind, Guotai Junan International. Mortgage Loan Rate Minimum Max Source: the People's Bank of China, Wind, Guotai Junan International. See the last page for disclaimer Page 4 of 2

5 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Oct-14 Dec-14 Feb-15 Apr-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Sep-15 Dec-15 Mar-16 Sep-16 Dec-16 Mar-17 Sep-17 Dec-17 Mar-18 Jun-18 The property sector should act as a stabilizer for China s economy, thus, the keynote of policy should support steady and sustainable development in the long run. Currently, investment in real estate occupies a large proportion of GDP. With deep structural adjustments in the China economy, the proportion of real estate investment in GDP will decline; the property sector should not be the main economy engine for China. Nevertheless, the property sector will still play a critical role in the economy and could drive other sectors, such as steel, coal, machinery, cement, furniture, household electrical appliances sectors, and so on. Therefore, we think that the property sector should act as a stabilizer for China s economy. Policy tightening could be maintained in 218 and a contraction in demand could drive sales to slow down. We think that the keynote of policy should be stability and sustainability of the property market. For the monetary environment, loans from the property sector account to over 22.% of total loans from financial institutions; the government's focus should be financial market stability. Therefore, we argue that monetary policy will focus on the best tradeoff between deleverage and financial market stability. Moreover, if the property market starts to slump, the policy and credit environment related to the property sector should ease again to stabilize the property market as per the last round of policy easing measures which started on 3 Sep Figure 8: GDP and GDP from The Property Sector in China Figure 9: Proportion of Property Related Loans and Total Loans in China 25, RMB bn 8.% 19.% 7.% 2, 15, 1, 5, 7.% 6.% 5.% 4.% 3.% 2.% 1.% 18.% 17.% 16.% 15.% 14.% 13.% 12.% 11.% 1 6.5% 6.% 5.5% 5.% 4.5% 4.% 3.5% 3.% Quarterly GDP (LHS) Quartly GDP from The Property Sector (LHS) Quartly GDP from The Property Sector/Quarterly GDP (RHS) Personal Housing Loans from Main Financial Institutions/Total Loans from Financial Institutions(LHS) Property Development Loans from Main Financial Institutions/Total Loans from Financial Institutions(RHS) Source: National Bureau of Statistics of China, Wind, Guotai Junan International. Source: National Bureau of Statistics of China, Wind, Guotai Junan International. Sector Fundamentals We conservatively expect commodity housing sales to slow down in 218. In 217, commodity housing sales amount and GFA hit a historical high. During 1H18, the YoY increase in commodity house sales expanded compared to that during Jan.-May 218. However, policy and credit environment will tighten up. With the high base in 217, we conservatively expect commodity housing sales amount and GFA to decrease in 218. Figure 1: Cumulative House Sales Amount in China Figure 11: Cumulative House Sales GFA in China 16, 14, 12, 1, 8, 6, 4, 2, ,8 1,6 1,4 1,2 1, Amount Sold of Commodity Houses (LHS)(RMB bn) Amount Sold of Residential Houses (LHS) (RMB bn) Amount Sold YTD YoY of Commodity Houses (RHS) Amount Sold YTD YoY of Residential Houses (RHS) Source: National Bureau of Statistics of China, Guotai Junan International. GFA Sold of Commodity Houses (LHS)(sq.m. mn) GFA Sold of Residential Houses (LHS) (sq.m. mn) GFA Sold of Commodity Houses (RHS) GFA Sold of Residential Houses (RHS) Source: National Bureau of Statistics of China, Guotai Junan International. We think that commodity housing sales will only experience limited decline. Since Jun. 2, the property market in China experienced five rounds of policy tightening. Commodity housing sales recorded YoY decrease during the period 28-29, 212 and 214. Between 25-27, commodity housing sales still recorded strong growth within a tightening policy environment. Therefore, the macroeconomic environment could exert key effects on the China property market. Looking forward, See the last page for disclaimer Page 5 of 2

6 Dec- Jun-1 Dec-1 Jun-2 Dec-2 Jun-3 Dec-3 Jun-4 Dec-4 Jun-5 Dec-5 Jun-6 Dec-6 Jun-7 Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Dec-15 Dec-16 Dec-17 Jun-18 Mar-7 Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 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 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Sep-15 Dec-15 Mar-16 Sep-16 Dec-16 Mar-17 Sep-17 Dec-17 Mar-18 Jun-18 the US has entered into an interest rate hike cycle. However, the PMI in the eurozone has moved down somewhat and China s economy is likely to fuel uncertainty due to the Sino-US trade war. Moreover, tightening of shantytown redevelopment approvals will curb housing demands, especially in lower-tier cities. Nevertheless, urbanization and housing replacement should still the main drivers for housing demand and will lead to sustainable housing demand in Considering that commodity housing sales hit historical highs and the "Silver Era" for the property market, we estimate that commodity housing sales YoY growth range and GFA YoY growth range in 218 should be -5% to % and -1% to -5%, respectively. Figure 12: China Commodity House Sales and GDP Figure 13: PMI of Major Economies % 1 5.% -5.% GFA Sold YTD YoY of Commodity Houses (LHS) YoY of Chinese GDP (RHS) YoY of Euro Zone GDP (RHS) Amount Sold YTD YoY of Commodity Houses (LHS) YoY of American GDP (RHS) PMI:China Manufacturing PMI: America Manufacturing PMI: Japan Manufacturing PMI: Euro Zone The Threshold of 5 That Separate Expansion from Contraction Source: National Bureau of Statistics of China, Guotai Junan International. Source: Government statistics from respective nations, Guotai Junan International. ASP is likely to remain stable in 218 despite limited decline of commodity housing sales. There were 3 periods of ASP decline from 26-1H18. Stock augmentation and investment enlargement in the previous year led to capital pressures on property developers. This made property developers decease ASP to promote sales. Thus, we see ASP declining. However, in 217, we did not see sound YoY increase of GFA newly started or for investment, attributing to the cooling down of the property sector by the tightening policy environment. Even saleable GFA still recorded YoY decrease. Therefore, we expect moderate capital pressure for property developers in 218, thus, no concern about ASP slump in 218. Table 2: Critical Property Development and Sales Data Related to ASP YoY: Commodity Houses Sold GFA YoY: GFA Newly Started YoY: Investment YoY: Saleable GFA YoY: ASP % 15.1% 22.1% -.9% 6.3% % 19.4% 3.2% -7.5% 11.4% % 2.3% 23.4% 38.3% -.8% % 12.5% 16.1% 7.1% 9.1% % 4.7% 33.2% 7.6% % 16.2% 27.9% 26.1% 1.6% % -7.3% 16.2% 27.% -.1% % 13.5% 19.8% 35.2% 9.2% % -1.7% 1.5% 26.1% -4.3% % -14.% 1.% 15.6%.2% % 8.1% 6.9% -3.2% 1.5% % 7.% 7.% -15.3% 5.6% 1H18 3.3% 11.8% 9.7% -14.7% 5.8% Source: National Bureau of Statistics of China, Wind, Guotai Junan International. Land area sold will slightly decrease in 218. Saleable GFA consistently decreased, in line with relatively low stock-to-sales ratios for the property sector. Local governments enlarged land supplies in areas where there were extensive stock shortages. Thus, land area sold rebounded in 217. However, the stock-to-sales ratio still remains at a proper level and may increase in 2H18, with forecasted slight decrease in commodity housing sales in 218. Moreover, expected tightening up of the monetary environment will also restrict leverage enlargement for property developers. Therefore, we project that land area sold in 218 may slightly decrease. See the last page for disclaimer Page 6 of 2

7 Oct-14 Dec-14 Feb-15 Apr-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Oct-14 Dec-14 Feb-15 Apr-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Oct-14 Dec-14 Feb-15 Apr-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Oct-14 Dec-14 Feb-15 Apr-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Figure 14: Land Area Sold and Saleable GFA in China Accumulated Land Area Acquisition (LHS) (sq.m. mn) Saleable GFA (LHS) (sq.m. mn) Accumulated Land Area Acquisition YTD YoY (RHS) Saleable GFA YTD YoY (RHS) (%) Figure 15: Stock-to-Sales Ratios in China 25. Months Proper Leverl Mar-1 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Source: National Bureau of Statistics of China, Guotai Junan International. Source: China Real Estate Information Corp., Guotai Junan International. We estimate GFA newly started to record flat YoY increase in 218. We project a slight decrease of land area sold in 218. However, the gap between GFA newly started and commodity house sold GFA remained low as at May 218. Therefore, we think that the YoY growth of GFA newly started will record flat YoY in 218. Figure 16: GFA Newly Started in China 2, 1,8 1,6 1,4 1,2 1, % 2 15.% 1 5.% -5.% % % Figure 17: Gap Between GFA Newly Started and Commodity House Sales GFA in China 2, 1,8 1,6 1,4 1,2 1, GFA Newly Started (LHS) (sq.m. mn) GFA Newly Started YTD YoY (RHS) (%) Source: National Bureau of Statistics of China, Guotai Junan International. GFA Sold of Commodity Houses (sq.m. mn) GFA Newly Started(sq.m. mn) Gap Betweem GFA Sold and GFA Newly Started (sq.m. mn) Source: National Bureau of Statistics of China, Guotai Junan International. We expect investment to record 2.% YoY increase in 218. Monetary policy will be based around prudent and neutral targets. Liquidity should tighten up. Funds of property companies will face pressure, which will exert negative effects on investment. However, we estimate that GFA newly started will record flat YoY increase in 218. This could drive investment to increase approximately 2.% YoY in 218, which is still a considerable absolute amount. Figure 18: Property Development Investment in China 12, 1, 8, 6, 4, 2, Investment(LHS)(RMB bn) Investment in Residential Houses(LHS)(RMB bn) Investment YTD YoY (RHS) Investment in Residential Houses YTD YoY (RHS) 16.% 14.% 12.% 1 8.% 6.% 4.% 2.% Source: National Bureau of Statistics of China, Guotai Junan International. Figure 19: Main Sources of Funds for Property Companies in China Cumulative YoY Growth: Domestic Loans Cumulative YoY Growth: Self-raising Funds Cumulative YoY Growth: Deposits and Advance Payments Cumulative YoY Growth: Personal Mortgage Source: National Bureau of Statistics of China, Guotai Junan International. See the last page for disclaimer Page 7 of 2

8 We argue that steady fundamentals will remain. Despite the tightening environment, we still think that the policy and credit environment will focus on the steady and sound development of the property sector. Commodity housing sales should still remain at a considerable level in absolute terms due to urbanization and housing replacement. We also expect stable ASP and decreasing trend of saleable areas. In addition, investment will remain at a considerable absolute amount. Figure 2: Key Property Developments and Sales Data % 13.5% 8.1% 15.8% 7.7% 22.5% 8.8% 6.5% 19.8% 7.% 7.% 2.% 17.3% 1.% 6.9% F -1.7% -7.6% -2.% -14.% -14.% -7.% -3.4% -31.7% GFA Newly Started YTD YoY Land Area Sold YTD YoY Investment YTD YoY GFA Sold of Commodity Houses Source: National Bureau of Statistics of China, Guotai Junan International. Sector Characteristics Property leaders with four core competitive advantages could maintain sustainable growth prospects in the second half of the sliver era. We argue that four core advantages for property leaders: (1) brand and pipeline, (2) project development ability, (3) financing ability, and (4) land replenishment ability. For example, quality brand and favorable pipeline will result in positive sales record with higher ASP, thus, higher top line and gross margin; strong development ability could result in lower construction costs and timely profit recognition; positive financing ability will decrease financial costs and decrease operating risks; and powerful land replenishment ability can support scale expansion with low unit land costs. Therefore, property leaders with these four core competitive advantages are likely to gain more market share with higher profitability amidst market consolidation, thus, obtaining sustainable growth prospects in the second half of the sliver era. Figure 21: Core Competitive Powers for Property Developers Brand and Pipeline Financing Ability Affect Top Line and Margins Quality brand lead to higher ASP; Favorable and standardized pipelines could result in a larger scale; Quality brand and favorable pipelines also means less advertising costs. Affect Financial Costs, Operating Risk and Potential Expand Ability Strong financing ability could help decrease financial costs; Strong financing ability leads to less capital pressures and decrease the operating risks; Strong financing ability makes an advantage on land replenishment and represent a expand ability. Project Development Ability Affect Construction Costs, Profit Recognition and Operating Process Strong project development ability will decrease construction and SG&A costs; Weak project development ability could delay the house delivering, which could delay the profit recognition and balance sheet recovery; Weak project development ability will bring delay in operating process leading to higher construction costs and presale delaying. Core Competitive Powers Land replenishment Ability Affect Gross Margin, Operating Risk and Potential Expand Ability. Strong land replenishment ability will bring sufficient lands for future development; Strong land replenishment ability could decrease unit land cost and protect margins; Strong land replenishment will decrease the probability of losses in some specific projects, thus declining operating risk. Source: Guotai Junan International. See the last page for disclaimer Page 8 of 2

9 COMPANY OVERVIEW Company Profile Ronshine China Holdings Limited ("Ronshine China" or "the Company") is principally engaged in property development, targeting customers from middle to upper-middle income households. Ronshine China was funded in 23 and has been listed on the main board of the stock exchange of Hong Kong since 215. The Company s revenue is mainly derived from property sales, construction contracts and rental income. According to CRIC, Ronshine China ranked 25 th in terms of contracted sales amount during 1H18. Figure 22: Shareholder Structure Mr. Ou Public Shareholders 63.44% 36.56% s The Company Notes: Shareholder structure based on the outstanding share number of 1,598,3,5 after completion of the placing and completion of the subscription on 6 Jun. 218; Mr. Ou, an executive Director, a controlling Shareholder, the chief executive officer and the chairman of the Company. Contracted Sales Riding on sufficient saleable resources and favorable pipeline, contracted sales will fast grow. Contracted sales increased from RMB11,917 mn in 215 to RMB5,235 mn in 217 or at a CAGR of 15.3% during Contracted sales target in 218 was set at RMB12. bn, indicating 138.9% YoY increase. Saleable resources is abundant, amounting to RMB18. bn in 218 and hinting a target sale-through rate of 66.7%. In addition, the Company owns a quality brand and favorable pipeline, with focus on middle to high-end housing demand. That is, we think that the Company's 218 sales target is achievable. Ronshine China extended fast contracted sales expansion during Jan.-Jul Contracted sales amounted to RMB65,6 mn, up 244.3% YoY. Contracted GFA increased to 3,9, sq.m., up 283.8% YoY. ASP reached RMB21,81 per sq.m. So far, the Company achieved 54.7% of its sales target in 218. Figure 23: The Company s Contracted Sales Amount Figure 24: The Company s Monthly Contracted Sales 7, 6, 5, 4, 3, 2, RMB mn 16.8% 13.9% 5, % 65,6 3.% 25.% 2.% 15.% 1.% , 2, 15, 1, 5, 1, 11,917 24,639 5.% Jan.-Jul. 218 Contracted Sales YoY Increase.% Contracted Sales (RMB )(LHS) ASP (RMB/sqm.)(RHS) See the last page for disclaimer Page 9 of 2

10 Figure 25: The Company s Contracted Sales Amount Breakdown by City in 217 Figure 26: The Company s Contracted Sales GFA Breakdown by City in 217 Others, 11% Hangzhou, 16% Others, 21% Suzhou, 2% Zhengzhou, 3% Hangzhou, 33% Xian, 3% Zhangzhou, 3% Xiamen, 4% Fuyang, 7% Shanghai, 11% Fuzhou, 23% Suzhou, 1% Zhengzhou, 3% Xian, 4% Zhangzhou, 5% Xiamen, 3% Shanghai, 6% Fuyang, 18% Fuzhou, 23% Land Bank Abundant land bank in high-tier cities will support the Company s scale expansion. As at 31 Dec. 217, the Company covered 33 cities with 133 projects. Total GFA and attributable GFA reached mn sq.m. and mn sq.m., respectively. In addition, around 6.2% of its total land bank exposed in the prime area of the tier-1 and tier-2 cities. We estimate the total saleable resources based on this land bank to be around RMB bn. Alongside mn sq.m. of its land bank under construction, sufficient future saleable resources will translate into fast scale expansion of the Company. Figure 27: The Company s Land Bank Breakdown by Region as at 31 Dec.217 Figure 28: The Company s Land Bank Breakdown by Development Phase as at 31 Dec.217 Jing-Jin-Ji, 1% Greater Bay Area, % Cheng-Yu, 2% Central, 5% Western, 11% Western Taiwan, 28% Yangtze River Delta, 53% Held for Future Development, 29% Completed Properties Held for Sale, 7% Under Consturction, 64% Proper unit land costs could protect the Company s gross margin. As at 31 Dec. 217, the cost per sq.m. of the Company s land bank was RMB6,568, only 3.6% of ASP in 1H18. We expect gross margin to bottom out in Figure 29: Unit Land Cost for Land Bank Acquired 16, RMB per Sq.m. 14, 12, 1, 8, 14,999 6, 4, 1,98 9,413 7,893 2, 4,444 Greater Bay Jing-Jin-Ji Yangtze Chengyu Area River Delta Western Taiwan 1,527 1,315 Western Central See the last page for disclaimer Page 1 of 2

11 Strong M&A capacity protect sustainable development for the Company. On 27 Jul. 217, the Company acquired 55% interest of Ningbo Hailiang and Anhui Hailiang ("Hailiang") for total consideration of RMB2,897 mn. As at 3 Jun. 217, Hailiang's GFA under construction and GFA for future development was 4,974,495 sq.m. and 1,17,498 sq.m., respectively. Moreover, the Company acquired land parcels in Zhengzhou with total GFA of 295,335 sq,m. at a consideration of RMB82 mn on 9 Feb Ronshine China revealed strong land replenishment capacity through M&As. That is, we expect sustainable development for the Company. Financing Capacity Shares placing and senior notes issuing hint a steady financing channel, which could help alleviate financing pressure. The Company implemented placement of shares on 3 Oct. 217 and 6 Jun. 218, respectively, with total gross proceeds of HK$2.3 bn. This could help decrease the Company's net gearing ratio. During Mar.-Jul. 218, the Company issued 3-year senior notes amounting to USD.65 bn with a coupon rate of 8.25%. Alongside strong cash inflow from contracted sales, the steady financing channel could help the Company to alleviate financing pressure. Ronshine China's solvency risks should be limited, riding on fast contracted sales growth and steady financing channel. The market expressed large concerns about high net gearing ratio for players in the property sector because of solvency risks, especially amidst the credit crunch. Sources of funds for property developers mainly include cash collections from contracted sales and cash stemming from financing channels. We, therefore, argue that fast contracted sales with steady financing channel will provide enough funds and alleviate solvency risks despite high net gearing ratio. For Ronshine China, we expect fast contracted sales growth. The Company also maintained a steady financing channel due to the issuing of senior notes and shares placing. Moreover, trust loans only accounted for 7.% of the Company's total loans. Therefore, the new asset management rules should exert slightly negative effects on Ronshine China. We also forecast the Company s net gearing ratio to gradually fall to 17.2% in 22. Overall, fast contracted sales and steady financing channels hint abundant funds sources and alleviate solvency risks, that is, limited solvency risks for Ronshine China. See the last page for disclaimer Page 11 of 2

12 FINANCIAL ANALYSIS Revenue Analysis Ronshine China derives its revenue principally from sales of properties. The Company also cooperated with local governments in constructing resettlement housing units adjacent to certain projects of the Company. In addition, Ronshine China generates rental income from leasing of investment properties and others. The Company derived over 97.5% of its revenue from sales of properties during We expect revenue derived from sales of properties to increase from RMB29,589 mn in 217 to RMB96,423 mn in 22, or at a CAGR of 48.3% during Firstly, the Company s sizable land bank in prime sites in higher-tier cities and proven land acquisition capability will provide sufficient saleable resources to support future contracted sales, thus indicating high growth potential. Secondly, Ronshine China focuses on developing quality and customized products, targeting demand for home upgrades along with strong brand recognition. The Company s pipeline should be favorable and competitive. Moreover, we still expect fast contracted sales growth with forecasted 138.9% YoY increase in 218. In addition, the Company s pre-sale proceeds received from customers amounted to approximately RMB41,244.1 mn as at 31 Dec Advance payments from customers represent sales proceeds received from buyers in connection with the Company s pre-sale of properties and typically takes 18 to 24 months before the Company recognizes revenue, the time it takes from commencement of pre-sale to construction completion. Finally, we think the Company has remarkable expansion potential from revenue from sales of properties due to its sizable land bank, favourable and competitive pipeline, fast contracted sales expansion and abundant advance payments from pre-sales of properties. We expect revenue from construction contracts to increase from RMB56 mn in 217 to RMB1,316 mn in 22, and revenue from rental income and others to increase from RMB193 mn in 217 to RMB294 mn in 22. Revenue from construction contracts with local PRC governments was generated from the construction of resettlement housing adjacent to certain land replenishments of the Company. As the Company will maintain steady land replenishment initiatives in the future, we expect stable growth for revenue from construction contracts. We project Ronshine China s construction contracts income to increase to RMB761 mn, RMB1,12 mn and RMB1,316 mn in , respectively. Rental income mainly includes recurring revenue from a shopping mall in Fuzhou and an office building in Shanghai and hotel operations. With completed investment properties gradually turning into mature ones, we estimate the Company s rental income to steadily grow at a CAGR of 15.% from 217 to 22. We expect total revenue to increase from RMB3,341 mn in 217 to RMB98,33 mn in 22, or at a CAGR of 47.8% during In , we expect revenue from sales of properties to increase YoY by 95.2%, 38.3% and 2.7%, respectively, revenue from construction contracts to increase at a CAGR of 33.% from 217 to 22, and revenue from rental income and others to increase at a CAGR of 15.% during the same period. Overall, we expect the Company s total revenue to grow YoY by 93.6%, 38.2% and 2.8% in , respectively. Table 3: Ronshine China s Segmental Revenue Segment (RMB mn) 215A 216A 217A 218F 219F 22F CAGR (217-22) - Sale of Properties 7,327 11,114 29,589 57,758 79,886 96, % - Construction Contracts ,12 1, % - Rental Income and Others % Total 7,415 11,372 3,341 58,741 81,154 98, % YoY 53.4% 166.8% 93.6% 38.2% 2.8% Table 4: Ronshine China s Segmental Revenue by Proportion Segment 214A 215A 216A 217F 218F 219F - Sale of Properties 98.8% 97.7% 97.5% 98.3% 98.4% 98.4% - Construction Contracts 1.2% 1.6% 1.8% 1.3% 1.2% 1.3% - Rental Income and Others.7%.6%.4%.3%.3% Total See the last page for disclaimer Page 12 of 2

13 Gross Profit Analysis We expect overall gross margin to bottom out and remain at over 22.5% during The Company's cost of sales mainly includes cost of construction, land use rights, interest capitalized and tax surcharge. The Company s gross margin decreased from 2.2% in 216 to 16.6% in 217, primarily because the gross margin of some properties (from the acquisition of Hailiang) delivered in 2H17 amounted to approximately. With Ronshine China's quality brand, favorable pipeline and cost controlling of construction process, we expect gross margin improvement of these projects. In addition, the Company's unit land cost was only 3.6% of ASP in Jan.-Jun We also expect steady ASP due to the steady fundamentals of property markets during Therefore, the Company's gross margin is likely to bottom out. Ronshine China s gross profit is expected to grow along with fast revenue expansion during Based on our revenue and gross margin forecasts, the Company s gross profit is expected to be RMB13,219 mn/ RMB19,459 mn/ RMB24,368 mn in 218/ 219/ 22, respectively, representing a CAGR of 69.3% during 217 to 22. Figure 3: Ronshine China s Gross Profit and Gross Margin 3, 25, 2, 15, 1, 5, RMB mn 36.6% 24.% 24.9% 22.5% 2.2% 16.6% 24,368 19,459 13,219 2,714 2,32 5,25 215A 216A 217A 218F 219F 22F Gross Profit Gross Margin 4 35.% 3 25.% 2 15.% 1 5.% Operating Expenses Analysis Ronshine China s administrative expenses are forecasted to be RMB1,714 mn/ RMB2,391 mn/ RMB2,917 mn in 218/ 219/ 22, respectively. Administrative expenses primarily consist of staff costs for administrative personnel, other taxes, office and travel expenses related to administrative departments, entertainment expenses, audit fees, office lease expenses, depreciation and amortisation, and others. The increase in administrative expenses should be in line with contracted sales expansion. Therefore, we anticipate that the administrative expenses ratio will remain at around 2.9% in We expect selling and marketing costs to amount to RMB1,6 mn/ RMB2,233 mn/ RMB2,725 mn in 218/ 219/ 22, respectively. Selling and marketing costs mainly include staff costs for sales personnel, advertisement expenses, office and travel expenses related to marketing departments, property management fees, and others. For the same reason, we expect selling and marketing costs ratio to remain at around 2.8% in 218/ 219/ 22, respectively. See the last page for disclaimer Page 13 of 2

14 Figure 31: Ronshine China s Administrative Expenses Ratios and Selling and Marketing Costs Ratios 6% 5.3% 5% 4% 3% 4.2% 3.7% 4.2% 2.9% 2.9% 2.9% 3.% 2% 2.7% 2.7% 2.8% 2.8% 1% % 215A 216A 217A 218F 219F 22F Selling and Marketing Costs Ratio Administrative Ratio Notes: the administrative ratio is calculated as administrative expenses divided by total revenue; the selling and marketing costs ratio is calculated as selling and marketing costs expenses divided by total revenue. Operating Profit Analysis CAGR of operating profit is expected to be 64.7% during We estimate that the Company s gross profit will record fast growth during Furthermore, administrative expenses ratio and selling and marketing costs ratio are projected to remain at a stable level in Therefore, we expect operating profit to increase from RMB4,484 mn in 217 to RMB2,37 mn in 22. Figure 32: Ronshine China s Operating Profit and Operating Margin 25, RMB mn 3 2, 15, 27.7% 17.6% 14.8% 18.5% 19.7% 2.4% 25.% 2 15.% 1, 15,952 2,37 1 5, 1,854 4,484 2,53 2,1 215A 216A 217A 218F 219F 22F 5.% Operating Profit Operating margin Finance Costs We expect finance (costs)/income to be (RMB18 mn)/ RMB64 mn/ RMB65 mn in , respectively. The Company's average financing cost amounted to 6.9% in 217. Amid the tightening monetary environment, we expect the Company's average financial costs to increase in 218. In addition, we expect that the scale of the Company's total debts will increase due to continuous investment in its existing projects. Thus, we project increasing financial costs during With forecasted high capitalization rate of interest, financial costs will be RMB39 mn/ RMB45 mn/ RMB51 mn during In addition, RMB depreciation against the USD during Jun. 218 will lead to net foreign exchange losses in 218. However, we expect increasing financial income due to cash equivalents increasing and rate hikes. Income Tax Effective tax rate is expected to be 44.8%/ 46.1%/ 46.9% in , respectively. In 217, some projects from the acquisition of Hailiang recorded losses. PRC corporate income tax is calculated based on each project. Therefore, some losses from those projects should not be deductible for the Company, thus, leading to higher effective tax compared to 216 of 47.% in 217. Because forecasted gross margin improvement of the projects from the acquisition of Hailiang, we expect effective tax rate to decrease in 218. Given expected gross margin improvement in , we project more LAT to be incurred in , therefore, resulting in higher effective tax in 219 and 22. We expect Ronshine China s income tax expense to be See the last page for disclaimer Page 14 of 2

15 RMB4,997 mn/ RMB7,544 mn/ RMB9,65 mn in , respectively. Figure 33: Ronshine China s Income Tax Expense and Effective Tax Rate 12, RMB mn 47.% 46.1% 46.9% 44.8% 42.9% 1, 33.7% 8, 6, 9,65 4, 7,544 4,997 2, 2,343 1, A 216A 217A 218F 219F 22F Income tax expense Effective tax rate 5 45.% 4 35.% 3 25.% 2 15.% 1 5.% Net Profit Analysis We expect CAGR of underlying net profit to be 67.% during Projected quick operating profit expansion will drive fast growth of shareholders net profit. We estimate shareholders net profit to increase to RMB3,778 mn, RMB5,312 mn and RMB6,478 mn in , respectively. If we exclude fair value gains on investment properties, underlying net profit is expected to increase to RMB3,476 mn, RMB4,976 mn and RMB6,86 mn in Figure 34: Ronshine China s Shareholders Net Profit and Shareholders' Net Profit Margin 7, 6, 5, RMB mn 19.3% 25.% 2 Figure 35: Ronshine China s Underlying Net Profit and Underlying Net Profit Margin 7, 6, 5, RMB mn 19.3% 25.% 2 4, 3, 2, 1, 11.4% 6, % 6.4% 6.6% 5.5% 3,778 5,312 1,433 1,292 1,68 215A 216A 217A 218F 219F 22F Shareholders' net profit Net Margin 15.% 1 5.% 4, 3, 2, 1, 8.5% 6,86 5.9% 6.1% 6.2% 4.3% 3,476 4,976 1, ,37 215A 216A 217A 218F 219F 22F Underlying net profit Net Margin 15.% 1 5.% ROA and ROE Ronshine China s ROE is expected to rebound to 31.% in 218 due to improvement in profitability, and then remain at around 31.5% in 219 and 22. The Company s ROA is expected to gradually increase during With total revenue expansion and profitability recovering in 218, we expect ROE to increase by 11.1 ppts to 31.% in 218. Due to projected stable profitability in 219 and 22, we expect stable ROE in 219 and 22. Figure 36: Ronshine China s ROA and ROE 6% 53.8% 5% 4% 3% 2% 22.% 19.% 31.% 32.7% 3.9% 1% % 4.2% 2.% 3.% 3.3% 3.3% 2.5% 215A 216A 217A 218F 219F 22F ROE ROA See the last page for disclaimer Page 15 of 2

16 Net Gearing We expect the Company s leverage ratio to remain high during , consistent with its scale expansion. With fast contracted sales expansion, increasing pre-sales proceeds received from customers will result in total liabilities to total assets gradually increasing from 81.9% in 217 to 85.5% in 22, representing a high leverage ratio level. With increasing cash collections from contracted sales, we expect net gearing ratio to fall from 159.4% in 217 to 17.2% in 22. However, to enlarge business scale, the Company is projected to maintain high leverage ratio to bring more saleable resources. Therefore, we expect net gearing ratios to remain at a high level. Table 5: Roshine China s Leverage Ratios 215A 216A 217A 218F 219F 22F Net gearing ratio (%) Total liabilities to total assets (%) Cash Flow Analysis We expect net operating cash inflow in 218 and 22 but net operating cash outflow in 219. Due to strong property sales and gross margin improvement in 218, we expect higher cash collection in 218, thus leading to net operating cash inflow. However, to bring more saleable resources for business scale expansion, more capital is projected to be invested in 219, which will generate net operating cash outflow in 219. More saleable resources are estimated to ultimately translate into contracted sales, which will generate net operating cash inflow in 22. Riding on the development of investment properties, we expect net investing cash outflow during In order to support the Company's scale expansion, we still expect net financing cash inflow during Overall, cash and cash equivalents are still expected to increase from RMB18,473 mn in 217 to RMB31,642 mn in 22, which could support the normal operation of the Company. Thus, we still think that the Company will operate smoothly and expand its business scale under the high leverage ratio level. See the last page for disclaimer Page 16 of 2

17 VALUATION We Initiate Ronshine China with "Buy" investment rating. Contracted sales is likely to extend fast growth on the grounds of sufficient saleable resources and favorable pipeline. Abundant land bank in high-tier cities as well as strong M&A capacity will support the Company s scale expansion. Riding on proper unit land costs, we think that gross margins will bottom out during Shares placement and senior notes issuance indicate a steady financing channel, which could help alleviate financing pressures. Despite a high leverage ratio, we expect limited solvency risk because of strong contracted sales growth and steady financing channel. We set the Company's target price at HK$16.55, which implies a 45% discount to its 218F NAV of HK$3.9 per share, 6.2x underlying 218 PER and 1.5x 218 PBR. Therefore, we rate Ronshine China "Buy". The 45% discount on NAV reflects risks, for instance, 1) property sales might miss our expectations or 2) the Company may face solvency risks. Table 6: Breakdown of Ronshine China s 218F NAV NAV/share (RMB m) (HK$) % of NAV % of GAV Development properties 73,186 9, % 85.3% Investment properties 12,612 15, % 14.7% Gross asset value 85,799 15, % 1 Net debt -46,84-57, % NAV 38,959 48,97 1 NAV/Share Figure 37: Ronshine China's 3-Year Historical P/B Figure 38: Ronshine China's 3-Year Historical P/E Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International. See the last page for disclaimer Page 17 of 2

18 Table 7: Peers Comparison Company Stock Code Mkt Cap (HK$ m) Last Price HK$ PE PB D/Y% ROE EV/EBITDA 218F 219F 22F 218F 219F 22F 218F 218F 218F HK listed large developers with major revenue from mainland China Overseas Land & Invest 688 HK 258, China Evergrande Group 3333 HK 265, China Resources Land Ltd 119 HK 187, Country Garden Holdings Co 27 HK 239, Longfor Group Holdings Ltd 96 HK 127, China Vanke Co Ltd-H 222 HK 269, Sunac China Holdings Ltd 1918 HK 99, Agile Group Holdings Ltd 3383 HK 44, Shimao Property Holdings Ltd 813 HK 7, Guangzhou R&F Properties - H 2777 HK 43, Bbmg Corp-H 29 HK 41, Sino-Ocean Group Holding Ltd 3377 HK 32, China Jinmao Holdings Group 817 HK 39, Ronshine China Holdings Ltd 331 HK 14, n.a. Zhenro Properties Group Ltd 6158 HK 18, n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Kwg Property Holding Ltd 1813 HK 25, Yuexiu Property Co Ltd 123 HK 17, Shenzhen Investment Ltd 64 HK 22, Yuexiu Real Estate Investmen 45 HK 16, Yuzhou Properties Co 1628 HK 16, Greentown China Holdings 39 HK 18, Powerlong Real Estate Holdin 1238 HK 16, n.a. Soho China Ltd 41 HK 18, Median Simple Average Weighted Average HK listed mid-small developers with major revenue from mainland China Overseas Grand Oceans 81 HK 8, Poly Property Group Co Ltd 119 HK 1, Shanghai Industrial Urban De 563 HK 6, n.a. Modern Land China Co Ltd 117 HK 3, n.a. China Aoyuan Property Group 3883 HK 13, C C Land Holdings Ltd 1224 HK 6, n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fantasia Holdings Group Co 1777 HK 6, n.a. Hopson Development Holdings 754 HK 14, n.a. n.a. n.a. n.a. 3. n.a. n.a. Central China Real Estate 832 HK 9, China Sce Property Holdings 1966 HK 12, Top Spring International Hld 3688 HK 3, n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Beijing Capital Land Ltd-H 2868 HK 9, n.a. n.a. n.a. n.a. n.a. n.a. 9.6 n.a. n.a. Zhong An Real Estate Ltd 672 HK 2, n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Beijing North Star Co Ltd-H 588 HK 12, n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China South City Holdings 1668 HK 11, Shui On Land Ltd 272 hk 14, Glorious Property Holdings 845 HK 3, n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Median Simple Average Weighted Average See the last page for disclaimer Page 18 of 2

19 Financial Statements and Ratios Income Statement [Table_BalanceSheet] Balance Sheet Year end 31 Dec (RMB m) 216A 217A 218F 219F 22F Total Revenue 11,372 3,341 58,741 81,154 98,33 - Sales of Properties 11,114 29,589 57,758 79,886 96,423 - Other Income ,268 1,61 Cost of Sales (9,7) (25,317) (45,523) (61,695) (73,665) Gross Profit 2,32 5,25 13,219 19,459 24,368 - Change in Fair Value of IPs 639 1, ,34 1,241 - SG&A (951) (1,695) (3,314) (4,624) (5,642) - Other Gains, Net Operating Profit 2,1 4,484 1,854 15,952 2,37 - Finance income/(costs), net (18) Share of Profits Profit before Tax 2,57 4,99 11,148 16,359 2,479 Income Tax (867) (2,343) (4,997) (7,544) (9,65) Profit after Tax 1,73 2,646 6,151 8,815 1,874 Non-controlling Interest (411) (967) (2,374) (3,52) (4,395) Shareholders' Profit / Loss 1,292 1,68 3,778 5,312 6,478 Adjusted Net Profit 971 1,37 3,476 4,976 6,86 Basic EPS Underlying EPS (RMB) Cash Flow Statement Year end 31 Dec (RMB m) 216A 217A 218F 219F 22F Operating Activities Profit before Taxation 2,57 4,99 11,148 16,359 2,479 Interest Income (6) (85) (12) (118) (124) D&A Others (1,154) (1,328) (1,12) (1,369) (1,61) Changes in Working Capital: (17,561) (12,111) 521 (8,384) (6,938) Net Cash from Operations (16,188) (8,46) 1,525 6,577 11,97 Income Tax Paid (38) (1,35) (2,487) (3,672) (4,67) LAT Paid (593) (878) (1,452) (2,972) (4,862) Cash from Operating Activities (17,161) (1,372) 6,586 (67) 2,439 Investing Activities Additions to PPE and IPs (45) (4,716) (739) (79) (845) Other Investing Cash Flow (7,44) (2,64) (114) (116) (128) Cash from Investing Activities (7,846) (6,78) (853) (96) (972) Financing Activities Debt Raised/(Repaid) 21,811 25,82 1,576 11,976 12,38 Interests Paid (1,75) (3,934) (6,356) (7,49) (8,388) Dividends Paid (756) (1,62) (1,296) Proceeds from Issuing Shares 1,55 1,2 89 Capital Injection from Non-controlling Interests 8,468 1,891 Other Financing Cash Flow 3,689 (615) (1,354) (1,152) (1,123) Cash from Financing Activities 33,724 24,165 3,1 2,352 1,52 Net Changes in Cash 8,718 7,13 8,733 1,379 2,968 Cash at Beg of Year 2,742 11,526 18,473 27,239 28,648 Exchange Losses 65 (65) Cash at End of Year 11,526 18,473 27,239 28,648 31,642 Year end 31 Dec (RMB m) 216A 217A 218F 219F 22F PPE 1,321 1,518 1,732 1,965 2,219 Investment Using Equity Method 2,696 6,744 6,99 7,253 7,533 Land Use Rights Investment Property 4,58 1,465 12,612 14,951 17,545 Other Non-current Assets ,19 1,198 Total Non-current Assets 9,492 19,848 22,626 25,623 28,916 Cash & Cash Equivalents 11,526 18,473 27,239 28,648 31,642 Properties under Development 31,615 9,9 132,56 177, ,853 Completed Properties 7,573 9,477 1,425 11,467 12,614 Restricted Cash 97 1,934 2,32 2,9 3,335 Trade and Other Receivables 32,13 23,72 31,98 4,997 47,754 Other Current Assets 5,692 5,845 6,246 6,588 6,643 Total Current Assets 89,415 15,349 21, , ,842 Total Assets 98,97 17, , ,81 37,758 Advanced Proceeds Received 2,968 41,244 72,684 14, ,254 Trade and Other Payables 1,947 21,595 34,697 42,231 44,17 Bank Borrowings 7,734 21,844 25,217 28,511 31,362 Other Current Liabilities 3,5 4,11 4,858 5,58 5,661 Total Current Liabilities 42,654 88, , ,42 238,448 Long-term Borrowings 31,684 47,61 55,73 64,16 73,736 Deferred Income Tax Liabilities 1,48 3,41 3,954 4,745 4,982 Total Non-current Liabilities 33,163 5,651 59,27 68,761 78,718 Total Liabilities 75, , , ,83 317,166 Total Shareholders' Equity 7,471 1,224 14,137 18,386 23,569 Minority Interest 15,619 2,537 22,65 25,891 3,23 Total Equity 23,89 3,761 36,787 44,277 53,592 [Table_FinancialRatio] Financial Ratios 216A 217A 218F 219F 22F Revenue Growth (%) Gross Profit Growth (%) Reported Net Profit Growth (%) Underlying Net Profit Growth (%) Gross Margin (%) Operating Profit Margin (%) Adjusted Net Margin (%) ROE (%) ROCE (%) ROA (%) Net Gearing Ratio Debt to Equity Ratio Underlying P/E (x) P/E (Basic) (x) P/E (Diluted) (x) P/B (x) Dividend Yield (%) See the last page for disclaimer Page 19 of 2