Benign Prospective Fundamentals with Strong Contracted Sales, Reiterate "Buy"

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1 股 票 研 究 公 司 报 告 证 券 研 究 报 告 房 地 产 行 业 Equity Research Property Sector Equity Research Report : Longfor Properties (00960 HK) Van Liu 刘斐凡 公司报告 : 龙湖地产 (00960 HK) liufeifan@gtjas.com Benign Prospective Fundamentals with Strong Contracted Sales, Reiterate "Buy" 强劲合约销售下的良好基本面展望, 重申 买入 2016 underlying net profit missed our expectation. Top line increased by 15.6% YoY to RMB54,799 mn. Underlying net profit increased 7.0% YoY to RMB8,169 mn. The Company is expected to have sustainable revenue growth with stable margins. Contracted sales are likely to experience fast growth despite policy tightening. Rental income is expected to grow fast. In addition, a quality land bank, appropriate unit land cost (27.6% of ASP in 2016) and low funding costs could result in stable margins. The Company is expected to maintain a healthy financial position. We estimate net gearing ratios to gradually decline in and to maintain below 60.0%. We think that Longfor deserves a low NAV discount. We revise up our target price from HK$13.22 to HK$15.07, representing a 24% discount to its 2017E NAV, 7.0x 2017 underlying PER and 1.1x 2017 PBR. Therefore, we reiterate "Buy". Risk: lower-than-expected contracted sales and absent rental income growth 年核心净利低于预期 总收入同比增长 15.6% 到人民币 54,799 百万元 核心净利同比上升 7.0% 到人民币 8,169 百万元 公司预计获得在稳定利润率下的可持续收入增长 尽管政策收紧但合约销售很有可能快速增长 租金收入将快速增长 另外, 有质量的土储, 合适的单位土地成本 (2016 年销售单价的 27.6%) 以及低的财务成本能导致稳定的利润率 公司能够维持一个健康的财务状况 我们预测净资产负债率在 年逐渐降低并维持在 60.0% 以下 我们认为龙湖地产应适用一个较低的 NAV 折让 我们将目标价从 港元上调至 港元, 相当于较其 2017 年 NAV 有 24% 折让,7.0 倍 2017 年核心市盈率和 1.1 倍 2017 年市净率 我们重申 买入 风险: 低于预期的合约销售和强劲的租金收入无法实现 Rating: Buy Maintained 评级 : 买入 ( 维持 ) 6-18m TP 目标价 : HK$15.07 Revised from 原目标价 : HK$13.22 Share price 股价 : Stock performance 股价表现 Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to HS index 相对恒指变动 % Avg. share price(hk$) 平均股价 ( 港元 ) 1 M 1 个月 3 M 3 个月 HK$ Y 1 年 Source: Bloomberg, Guotai Junan International. 龙湖地产 Longfor Properties (00960 HK) Year End 年结 Turnover 收入 Net Profit 股东净利 EPS 每股净利 EPS 每股净利变动 PER 市盈率 BPS 每股净资产 PBR 市净率 DPS 每股股息 Yield 股息率 ROE 净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 2015A 47,423 7, A 54,799 8, F 72,714 11, F 82,486 12, F 88,465 13, Shares in issue (m) 总股数 (m) 5,841.8 Major shareholder 大股东 Charm Talent Int. Ltd. 44.3% Market cap. (HK$ m) 市值 (HK$ m) 76,678.9 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( 000) 6,301.3 FY17 Net gearing (%) FY17 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 / FY17 Est. NAV (HK$) FY17 每股估值 ( 港元 ) Source: the Company, Guotai Junan International. See the last page for disclaimer Page 1 of 10

2 Housing sales growth continued to slow down, but investment growth rebounded. During Jan.-Feb. 2017, the YoY increase in commodity house sales continued to decrease compared to that during Jan.-Dec In order to replenish inventories, growth in investment and land area sold rebounded in Jan.-Feb In addition, saleable areas extended downside momentum. Figure 1: Cumulative House Sales Amount in China 14,000 12,000 10,000 8,000 6,000 4,000 2, % 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% Figure 2: Cumulative House Sales GFA in China 1,800 1,600 1,400 1,200 1, % 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% Amount Sold of Commodity Houses (LHS)(RMB bn) GFA Sold of Commodity Houses (LHS)(sq.m. mn) Amount Sold of Residential Houses (LHS) (RMB bn) GFA Sold of Residential Houses (LHS) (sq.m. mn) Amount Sold YTD YoY of Commodity Houses (RHS) GFA Sold of Commodity Houses (RHS) Amount Sold YTD YoY of Residential Houses (RHS) GFA Sold of Residential Houses (RHS) Source: NBS, Guotai Junan International. Source: NBS, Guotai Junan International. Targeted policies will be maintained to promote the steady and sound development of the property sector. According to CRIC, the stocks-to-sales ratio decreased to 8.7 months in Feb. 2017, which means that stock levels are relatively low. As a result, the government's level of tolerance to soaring ASPs has decreased. We think that ASPs soaring, especially in the second-hand house market, triggered the recent round of policy tightening since Mar These related policies have mainly involved an increase in minimum down payment, HPR upgrading and mortgage restrictions. Policy tightening could curb investment demand and delay rigid demand, thus cooling the property market. With high ASPs and low stock levels in tier-1, tier-2 and select tier-3 cities, policy tightening measures in these related cities will be maintained. On the other hand, lower-tier cities with high stock levels will be under a policy easing environment. Figure 3 : Stocks-to-Sales Ratios by City Tier During Jan Jan Months Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 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 Tier-1 Cities Tier-2 Cities Tier-3 Cities Figure 4: Monthly Land Acquisition Amount in 100 Cities During Jan Feb Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 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 Monthly Land Acquisition GFA(LHS)(mn sq.m.) Monthly Land Acquisition GFA YoY(RHS) Land Acquisition Premium Rate(RHS) 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% -80.0% Source: CRIC, Guotai Junan International. Source: Wind, Guotai Junan International underlying net profit missed our expectation. Total revenue increased by 15.6% YoY to RMB54,799 mn in 2016 due to strong contracted sales growth. Gross profit amounted to RMB15,935 mn, up 22.4% YoY. With more land appreciation tax paid, net profit increased 1.8% YoY to RMB9,153 mn, which missed our expectation. Underlying net profit increased 20.8% YoY to RMB658 mn, also missing our expectation riding on lower-than-expected total revenue. GPM increased 1.6 ppts YoY to 29.1%. Net profit margin declined 1.2 ppts YoY to 14.9%. Net gearing ratio rose slightly by 3.7 ppts YoY. Cash balance rose by 9.7% YoY to RMB18,940 mn. See the last page for disclaimer Page 2 of 10

3 Table 1: Comparison of the Company s Balance Sheet and Income Statement in 2015 and 2016 RMB mn Change Total revenue 47,423 54, % Gross profit 13,015 15, % GPM 27.4% 29.1% 1.6 ppts NP (Inc. after-tax fair value gains on IP and exchange losses) 8,988 9, % NP (Ex. after-tax fair value gains on IP and exchange losses) 7,633 8, % NPM (Inc. after-tax fair value gains on IP and exchange losses) 19.0% 16.7% -2.3 ppts NPM (Ex. after-tax fair value gains on IP and exchange losses) 16.1% 14.9% -1.2 ppts DPS (RMB cent) % Underlying EPS (HKD cent) % Land appreciation tax 1,844 2, % Cash and cash equivalents 17,258 18, % Total asset 184, , % Properties under development 70,830 89, % Total debt 52,266 57, % Shareholders' equity 55,125 61, % ROE 17.5% 15.7% ppts Net gearing ratio 61.9% 65.6% 3.7 ppts Source: the Company, Guotai Junan International. Contracted sales are expected to fast grow. In 2016, contracted sales reached RMB88.14 bn, up by 61.6% YoY, achieving 117.5% of its 2016 sales target. Sales target and saleable resources for 2017 are RMB110.0 bn (indicating 24.8% YoY growth) and RMB170.0 bn (indicating 64.7% target sale-through rate), respectively. As per the Company's plan, saleable resources in tier-1 cities, leading tier-2 cities, other tier-2 cities and tier-3 cities will account for 26%, 43%, 25% and 6% of total saleable resources, respectively. Moreover, the Company's future pipeline is mostly focused on improving demand, which could be favorable in higher-tier cities. Despite policy tightening, we still expect contracted sales to maintain fast growth. During Jan. to Feb. 2017, Longfor Property recorded RMB24.45 bn in contracted sales, dramatically increasing 269.3% YoY. Accumulated contracted sales in terms of GFA amounted to 1.7 mn sq.m, up 266.4% YoY. The Company has achieved 22.2% of its 2017 annual sales target. Figure 5: Longfor s Saleable Sources in 2017 By Region Other Tier-2 Cities, 25% Tier-3 Cities, 6% Tier-1 Cities, 26% Figure 6: Longfor s Saleable Sources in 2017 By Type Others, 3% SOHO, 7% Middle-rise apartment, 1 2% Low-rise apartment, 1 4% Commercial, 10% Leading Tier-2 Cities, 43% High-rise apartment, 5 4% See the last page for disclaimer Page 3 of 10

4 Figure 7: The Company's Contracted Sales Longfor's rental income will maintain strong growth. In 2016, gross rental revenue recorded 35.2% YoY growth with 95.1% occupancy rate. In 2017, the Company plans to open five Paradise Walk complexes in Chongqing, Suzhou, Hangzhou and Shanghai, and one "U City" mall in Chongqing. Over the next three years, there will be a 1.29 mn sq.m. increase in terms of rental GFA. With recently opened malls gradually turning into mature ones and new malls being added to their investment property portfolio, we expect rental income to increase by around double from RMB1,913 mn in 2016 to RMB3,826 mn in 2019, or at a CAGR of 26.0% in As a result of the high gross margins of rental income (amounting to over 70.0% during ), the fast growth of rental income will also help stabilize Longfor's gross margins. Figure 8: Key Investment Properties in the Pipeline Numerous quality land bank replenishments with low average land costs will support contracted sales growth with stable gross margins. In 2016, the Company acquired 43 new projects with total GFA of 12.5 mn sq.m, up 115.5% YoY. Attributable GFA was 7.7 mn sq.m, up 140.6% YoY. Total consideration amounted to RMB24.0 bn, up 104.2%. Despite a hot land auction market in 2016, the average land cost of these new land acquisitions reached RMB6,329 per sq.m, down by 15.3%. Almost all projects were in tier-1 and tier-2 cities. See the last page for disclaimer Page 4 of 10

5 Figure 9: Breakdown of New Land in 2017 By GFA Figure 10: Breakdown of New Land in 2017 By Amount Other Tier-2 Cities, 33% Tier-1 Cities, 13% Other Tier-2 Cities, 24% Tier-1 Cities, 23% Leading Tier-2 Cities, 54% Leading Tier-2 Cities, 53% A quality land bank can stabilize Longfor s margins. As at the end of 2016, the Company had a total land bank of mn sq.m, up 19.0%. Land banks in tier-1 and tier-2 cities accounted for approximately 76% of the total land bank. According to the Company, its unit land cost amounted to RMB4,039 per sq.m, 27.6% of ASP in We think that this quality land bank and proper unit land cost could result in stable gross margins in the next three years. Figure 11: Breakdown of Total Land Bank By GFA as at the end of 2017 Figure 12: Breakdown of Total Land Bank By Amount as at the end of 2017 Tier-3 Cities, 24% Tier-1 Cities, 10% Tier-3 Cities, 15% Tier-1 Cities, 21% Other Tier-2 Cities, 24% Leading Tier-2 Cities, 42% Other Tier-2 Cities, 21% Leading Tier-2 Cities, 43% The Company s funding costs are expected to remain at a low level in a healthy financial position. In 2016, Longfor's funding costs declined by 0.82 ppts to 4.92%. Moreover, foreign currency borrowings only accounted for 15.0% of Longfor's total borrowings at the end of 2016 and around two thirds of foreign currency borrowings were hedged. Therefore, there is limited exchange rate risk exposure for the Company. As at 31 Dec. 2016, the Company's net gearing ratio was 59.2%, which was still a healthy level. Contracted sales is expected to record double-digit growth with stable gross margins, which could result in more cash collection from contracted sales. As a result, we estimate net gearing ratios to gradually decline. The Company should maintain a healthy financial position. See the last page for disclaimer Page 5 of 10

6 Figure 13: Longfor's Average Borrowing Cost and Debt Period Figure 14: Longfor's Debt Structure by Currency 7.00% % 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% % 6.40% 5.74% 4.92% % 80% 60% 40% 20% 0% 31% 30% 29% 69% 70% 71% 15% 85% Average Borrowing Cost Average Debt period RMB Foreign Currency Source: The Company, Guotai Junan International. Source: The Company, Guotai Junan International. We revise up underlying profit estimations. We expect that the Company's contracted sales will grow rapidly due to sufficient saleable resources in higher-tier cities and a favorable pipeline. With strong contracted sales in 2017 and sufficient cash on hand, we expect more GFA to be delivered in We revise up 2017F and 2018F total revenue by 2.1% and 7.4% to RMB72,714 mn and RMB82,486 mn, respectively. We expect stable gross margins. We slightly revise up GPM in 2017F and 2018F. With higher gross margins, we expect more land appreciation taxes than our previous assumptions, which partially offsets the effects of revising up total revenue and gross margins in 2017F and 2018F. Overall, we slightly revise up 2017F and 2018F underlying net profit by 0.6% and 1.7% to RMB11,194 mn and RMB12,303 mn, respectively. Due to necessary land replenishment activities to support contracted sales, net gearing ratios should be higher than our previous assumptions, and we revise up net gearing ratio in 2017 and 2018 by 5.5 ppts and 2.7 ppts, respectively. Table 2: Revisions to Profit Estimations New estimation Old estimation Change 2017F 2018F 2019F 2017F 2018F 2019F 2017F 2018F 2019F Total revenue 72,714 82,486 88,465 71,220 76,797 n.a. 2.1% 7.4% n.a. Gross profit 21,918 23,942 26,305 19,885 21,595 n.a. 10.2% 10.9% n.a. Operating profit 20,202 21,950 24,506 21,309 23,717 n.a. -5.2% -7.5% n.a. Net profit 12,537 13,744 15,725 13,844 15,384 n.a. -9.4% -10.7% n.a. Underlying profit 11,194 12,303 13,927 11,123 12,099 n.a. 0.6% 1.7% n.a. Gross margin 30.1% 29.0% 29.7% 27.9% 28.1% n.a. 2.2 ppts 0.9 ppts n.a. Operating profit margin 27.8% 26.6% 27.7% 29.9% 30.9% n.a ppts -4.3 ppts n.a. Net profit margin 17.2% 16.7% 17.8% 19.4% 20.0% n.a ppts -3.4 ppts n.a. Underlying net profit margin 15.4% 14.9% 15.7% 15.6% 15.8% n.a ppts -0.8 ppts n.a. ROE 18.9% 18.2% 18.3% 19.9% 19.0% n.a ppts -0.8 ppts n.a. ROCE 16.7% 16.6% 16.8% 18.1% 17.9% n.a ppts -1.3 ppts n.a. ROA 8.1% 8.1% 8.3% 9.2% 9.6% n.a ppts -1.5 ppts n.a. Net gearing ratio 59.2% 52.6% 49.8% 53.8% 49.9% n.a. 5.5 ppts 2.7 ppts n.a. Source: Guotai Junan International. Reiterate "Buy". Despite policy tightening measures, Longfor's contracted sales will maintain fast growth. Its rental income is likely to grow fast. Therefore, we expect Longfor to maintain sustainable revenue growth. A quality land bank, reasonable proper unit land cost and low financial costs will drive Longfor's margins to stability. Longfor will be in a healthy financial position, therefore, we think that the positive factors justify a low NAV discount. We revise up our target price from HK$13.22 to HK$15.07, representing a 24% discount to its 2017E NAV, 7.0x 2017 underlying PER and 1.1x 2017 PBR. Therefore, we reiterate "Buy". Risk factors include lower-than-expected contracted sales and absent strong rental income growth. See the last page for disclaimer Page 6 of 10

7 Table 3: Breakdown of the Company s 2017 NAV NAV/share (RMB m) (HK$ m) (HK$) % of NAV % of GAV Development Property 121, , % 84.0% Investment Property 23,161 26, % 16.0% Gross Asset Value 144, , % 100.0% (Net Debt)/Net Cash (41,785) -46,950 (8.04) -41% NAV 103, , % NAV/Share Source: the Company, Guotai Junan International. Figure 15: Longfor Properties 3-Year Historical P/B Figure 16: Longfor Properties 3-Year Historical P/E Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International. See the last page for disclaimer Page 7 of 10

8 Table 4: Peers Comparison Company Stock Code Mkt Cap (HK$ m) HK listed large developers with major revenue from mainland Last Price HK$ PE PB D/Y% ROE EV/EBITDA 2017F 2018F 2019F 2017F 2018F 2019F 2017F 2017F 2017F China Overseas Land & Invest HK 248, Evergrande Real Estate Group HK 84, n.a China Resources Land Ltd HK 151, Bbmg Corporation-H HK 52, Country Garden Holdings Co HK 146, Longfor Properties HK 76, Agile Property Holdings Ltd HK 26, Soho China Ltd HK 21, Shimao Property Holdings Ltd HK 42, n.a n.a Guangzhou R&F Properties - H HK 39, Sino-Ocean Land Holdings HK 29, n.a Franshion Properties HK 27, n.a n.a Shui On Land Ltd HK 14, Kwg Property Holding Ltd HK 17, Yuexiu Property Co Ltd HK 16, Shenzhen Investment Ltd HK 26, n.a n.a Hopson Development Holdings HK 15, n.a. n.a. n.a. n.a. 1.4 n.a. n.a. Beijing North Star Co Ltd-H HK 18, n.a. n.a. 0.5 n.a. n.a n.a. Yuexiu Real Estate Investmen HK 13, Greentown China Holdings HK 16, n.a n.a China Vanke Co Ltd-H HK 261, n.a Median Simple Average Weighted Average HK listed mid-small developers with major revenue from mainland China Overseas Grand Oceans HK 7, Poly Property Group Co Ltd HK 12, ShInd Urban HK 9, n.a n.a n.a. Modern Land China Co Ltd HK 3, n.a n.a n.a. Powerlong Real Estate Holdin HK 11, n.a n.a n.a. China Aoyuan Property Group HK 6, n.a. C C Land Holdings Ltd HK 7, n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fantasia Holdings Group Co HK 7, n.a. Yuzhou Properties Co HK 12, Central China Real Estate HK 4, n.a n.a China Sce Property Holdings HK 10, Top Spring International Hld HK 2, n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Beijing Capital Land Ltd-H HK 11, n.a n.a Zhong An Real Estate Ltd HK 1, n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Kaisa Group Holdings Ltd HK 12, n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Glorious Property Holdings HK 6, n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Median Simple Average Weighted Average Source: Bloomberg, Guotai Junan International. See the last page for disclaimer Page 8 of 10

9 Financial Statements and Ratios Income Statement Cash Flow Statement Year End Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Year End Dec (RMB m) 2015A 2016A 2017F 2018F 2019F Total revenue 47,423 54,799 72,714 82,486 88,465 Profit before income tax 13,938 15,956 21,732 23,634 26,360 - Sales of properties 44,993 51,441 68,296 77,228 84,639 - Adjustments for: yoy (%) -8.7% 14.3% 32.8% 13.1% 9.6% Finance costs Property management 1,015 1,445 1,969 2,198 0 D&A Property investment 1,415 1,913 2,449 3,061 3,826 Increase in fair value of IP (2,440) (1,971) (2,426) (2,584) (3,030) Cost of Sales (34,408) (38,864) (50,796) (58,544) (62,160) Interest income (238) (141) (142) (143) (143) Gross Profit 13,015 15,935 21,918 23,942 26,305 Others (682) (1,094) (1,392) (1,540) (1,802) yoy (%) 17.1% -3.7% 22.4% 37.5% 9.2% After above adjustments: 10,655 12,840 17,860 19,463 21,488 - FV gains on investment prop. 2,874 2,018 2,540 2,627 3,118 Changes in working capital: 6,509 (2,304) 11,178 4,504 3,991 - Selling and marketing costs (1,018) (1,428) (1,819) (1,981) (2,039) Net cash from operations 17,164 10,536 29,038 23,967 25,479 - Administrative expenses (1,435) (2,022) (2,603) (2,864) (2,980) - Other Expense PRC income tax paid (3,083) (4,125) (5,473) (6,208) (6,658) Operating profit 13,733 14,575 20,202 21,950 24,506 Net cash from operating activities 14,081 6,412 23,565 17,759 18,821 - Finance income/(costs), net (43) (53) (48) (51) (55) - Others 248 1,434 1,578 1,735 1,909 Additions to IPs (3,281) (646) (8,323) (1,918) (5,905) Profit before income tax 13,938 15,956 21,732 23,634 26,360 Payment for land use right (14,460) (13,738) (13,103) (12,546) (12,059) - Income tax expense (4,574) (6,021) (8,669) (9,316) (9,977) Purchases of PPE (60) 10 (10) (10) (11) Profit for the period 9,364 9,935 13,063 14,318 16,382 Other investing cash flow 169 2,388 1,350 1,483 1,630 Profit attributable to Cash flow from investments (17,632) (11,986) (20,085) (12,992) (16,346) - Shareholders (Net income) 8,988 9,153 12,537 13,744 15,725 yoy (%) 7.6% 1.8% 37.0% 9.6% 14.4% Debt raised/(repaid) 3,320 5,606 2,941 2,652 2,818 - Shareholders (Underlying Profit) 7,633 8,169 11,194 12,303 13,927 Dividends paid (1,654) (2,178) (2,983) (3,270) (3,741) - Minority interest Interests paid (2,717) (2,421) (2,182) (2,339) (2,510) Other financing cash flow 3,727 3, Diluted EPS (RMB) Cash flow from financing 2,676 4,912 (1,798) (2,491) (2,924) yoy (%) 0.6% 2.3% 36.8% 9.6% 22.4% Underlying EPS (RMB) Total cash flow (875) (662) 1,682 2,276 (449) yoy (%) 3.3% 7.5% 36.8% 9.9% 21.1% Beginning cash balance 18,794 17,920 17,258 18,940 21,215 DPS (RMB) Ending cash balance 17,920 17,258 18,940 21,215 20,767 Dividend payout ratio 23.1% 29.7% 29.7% 29.7% 29.7% Ratios 2015A 2016A 2017F 2018F 2019F Balance Sheet Year End Dec (RMB m) 2015A 2016A 2017F 2018F 2019F ROE 17.5% 15.7% 18.9% 18.2% 18.3% ROCE 15.6% 13.7% 16.7% 16.6% 16.8% Property and equipment ROA 7.5% 6.5% 8.1% 8.1% 8.3% Prepaid lease payments 11,775 17,422 21,418 23,939 26,006 Net Gearing Ratio 61.9% 65.6% 59.2% 52.6% 49.8% Investment properties 43,385 49,031 60,353 66,271 76,177 Debt to Equity Ratio 94.8% 93.7% 86.2% 79.1% 72.6% Other non-current assets 8,543 19,691 17,915 17,132 17,592 Total non-current assets 63,911 86,342 99, , ,005 Valuations Properties under development 70,830 89,426 94, , , A 2016A 2017F 2018F 2019F Trade and other receivables 9,920 10,324 13,425 15,534 16,327 Cash and cash equivalents 17,920 17,258 18,940 21,215 20,767 Underlying P/E (Diluted) Other current assets 21,508 21,480 23,030 24,284 25,006 P/E (Basic) Total current assets 120, , , , ,527 P/E (Diluted) Total assets 184, , , , ,532 P/B Accounts payable 52,942 66,726 75,449 83,507 91,396 Dividend Yield (%) Short-term borrowings 6,178 5,333 5,067 4,813 4,573 Other current liabilities 11,927 19,404 20,573 21,393 22,048 Margins Total current liabilities 71,047 91, , , , A 2016A 2017F 2018F 2019F Long-term borrowings 38,158 47,027 49,849 52,341 54,958 Other long-term liabilities 12,416 11,226 13,479 14,691 15,364 Gross Margin 27.4% 29.1% 30.1% 29.0% 29.7% Total non-current liabilities 50,574 58,253 63,328 67,032 70,323 Operating Profit Margin 29.0% 26.6% 27.8% 26.6% 27.7% Total liabilities 121, , , , ,339 Net Profit Margin 19.0% 16.7% 17.2% 16.7% 17.8% Total common equity 55,125 61,765 70,574 80,231 91,280 Underlying Net Profit Margin 16.1% 14.9% 15.4% 14.9% 15.7% Minority interest 7,343 13,350 14,431 15,605 16,912 EBITDA Margin 29.6% 29.3% 30.0% 28.8% 29.9% Total equity & liabilities 184, , , , ,532 Source: the Company, Guotai Junan International. See the last page for disclaimer Page 9 of 10

10 Company Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable. Accumulate Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. Sector Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for SMI Holdings Group Limited (00198 HK), GFI MSCI A I-R (CNY) (83156 HK), Guotai Junan International Holdings Limited (01788 HK), GFI MSCI A I (03156 HK), Binhai Investment Company Limited (02886 HK), CAM SCSMALLCAP (03157 HK) and Link Holdings Limited (08237 HK), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 10 of 10