Property empire DALIAN WANDA COMMERCIAL PROPERTIES (3699:HK)

Transcription

1 Real Estate Company Research Bringing China to the World 15 December 214 N-R Source: Bloomberg Analyst Kris Li A ARG379 (+86) x7223 IThe company does not hold any equities or derivatives of the listed company mentioned in this report ( target ), but then we shall provide financial advisory services subject to the relevant laws and regulations. Any affiliates of the company may hold equities of the target, which may exceed 1 percent of issued shares subject to the relevant laws and regulations. The company may also provide investment banking services to the target. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for relevant disclosure materials or log into under disclosure column for further information. The clients shall have a comprehensive understanding of the disclosure and disclaimer upon the last page. Property empire DALIAN WANDA COMMERCIAL PROPERTIES (3699:HK) China s largest landlord. Dalian Wanda Commercial Properties is the flagship real estate platform under Dalian Wanda Group. As the largest commercial property operator in China, Wanda operates large-scale commercial complexes across c.11 cities in most Chinese provinces. Wanda sells residential properties and office buildings for instant cash proceeds and operates shopping malls and hotels as long-term investments. Its controlling shareholder, Wang Jianlin, holds a 59% interest in the company (c.51% after the company completes its IPO). Wang also runs private businesses such as Wanda Cinema (A-share IPO recently approved) and Wanda Department Stores. This year, Wang set up a JV with Baidu (BIDU:US) and Tencent (7:HK) in an effort to explore e-commerce opportunities. Sizeable landbank at low cost. The company operates 175 projects with a total size of c.85mm 2 (at an average cost of Rmb1,12/m 2 ). Of these, 159 are commercial complexes (also known as Wanda Plazas) across 19 cities, 1 further commercial projects under the Wanda Plaza brand, and six tourism projects (Wanda Cities) in seven cities. In total, the company operates 158 shopping malls and 92 hotels integrated into these projects. The company s pipeline of projects under construction amounts to 45mm 2, of which residential properties accounted for 45%, offices 29%, car parks 14% and retail shops 12%. Approximately 6% are located in third- and fourth-tier cities. The company generated Rmb126bn in contract sales in 213, making it the third-ranked company among all property firms, behind China Vanke (222:HK, Rmb17bn) and Greenland Hong Kong Holdings (337:HK, Rmb16bn). Due to worsening market conditions and a weak full-year sales performance, Wanda s sales momentum has slowed and is likely to reach just c.rmb12-13bn by year-end (Rmb13bn in the first eleven months). Average selling price was Rmb11,5/m 2 in 213 and Rmb1,137/m 2 in 1H14. Growing portfolios. By mid-214, c.8 malls were available to lease with total gross floor area (GFA) of c.15mm 2 (leasable GFA of c.8mm 2 ). The remaining 78 malls are expected to be ready in (the locations will be situated in low-tier cities) and may exceed c.25mm 2 GFA by 217. In 1H14, the average occupancy ratio stood at c.98% and the rental reached Rmb75/m 2. We forecast a rise in rental income from c.rmb1bn in 214 to Rmb2bn in 217 (a three-year Cagr of 24%). Of the 48 hotels in operation (with 14,854 rooms or total GFA of c.2mm 2 ), 28 are managed by leading hotel management groups and 2 are run under Wanda s own brand. The average occupancy ratio was 58% in 1H14 and the average room rate per night was Rmb718 during the same period. We expect an additional c.4 hotels to be completed by end-217, total revenue is therefore likely to rise from Rmb4bn in 214 to Rmb6bn in 217 (a three-year Cagr of 16%). Heavy Capex ahead. In mid-214, net gearing rose to 88% (vs 39% in 11A, 49% in 12A and 53% in 13A). Meanwhile, total interest-bearing debt grew to Rmb18bn. The company requires Rmb43bn to complete its projects under construction, with Rmb8bn to be invested in 2H14, Rmb124bn in 15E and Rmb226bn in 16E. Wanda s IPO may reduce its net gearing by c.3ppts. However, providing that no equity financing is made, we forecast gearing to rise to c.7% in 15E and to c.9% in 16E. The company s current average borrowing cost is c.8%. Since offshore bonds accounted for just c.4% of total borrowing and will play an important role in future debt financing, we expect room for a further decrease. Earnings forecast. In 217, we expect revenue to reach Rmb173bn (a three-year Cagr of 16%) and core earnings of Rmb25bn (a three-year Cagr of 21%). Gross margin reached 48% in 11A, 51% in 12A and 43% in 13A. We believe improving cost controls and rising leasing income will make up for the declining gross margin of property sales. In 214, we forecast core earnings of Rmb14.3bn (+1% YoY), a three-year Cagr of 15% from Valuation. The company disclosed a pricing range of HK$ /share and a base offering size of 6m shares (c.13% of enlarged share capital). The pricing implies a post- IPO market cap of HK$ bn and a valuation of 9.2x 14E PE,.84x PB, 55% discount to NAV at the low-end or 1.9x 14E PE, 1.x PB, 47% discount to NAV at the high-end. This compares with the valuation of 9.6x 14E PE, 1.x PB, 28% discount to NAV of China Resources Land (119:HK), the closest comparable peer listed on the Hong Kong market. Applying a target NAV discount range of 35-45%, we believe a reasonable price range for the company s stock would be HK$

2 History and background Dalian Wanda Commercial Properties is the flagship real estate platform under Dalian Wanda Group. As the largest commercial property operator in China, Wanda primarily engages in large-scale commercial complex projects across c.3 provinces (c.11 cities). Wanda sells residential properties and office buildings for instant cash proceeds and operates shopping malls and hotels under long-term investments. In this Oct, the shell company it acquired with controlling interest in Wanda Hotel Development (169: HK) was re-named and re-positioned as a platform focusing on overseas hotel business. Its controlling shareholder, Wang Jianlin, holds a c.59% interest in the company (c.51% after its IPO). Wang also runs private businesses such as Wanda Cinema (A-share IPO recently approved) and Wanda Department Stores. This year, Wang set up a JV with Baidu (BIDU:US) and Tencent (7:HK) in an effort to explore e-commerce opportunities. Fig 1: Shareholding structure prior to IPO Mr Wang wang Jianlin Mr Wang Sicong (Ultimate controlling Dalian Hexing Group Ms Lin Ning (Son (Son of Mr of Mr wang Wang) Jianlin) shareholder) Wanda (Spouse of Mr Wang) 2% 98% 1% Department 3.2% Store Dalian Hexing Group Senior 1% Management Wanda Kidsland 99.76%.24% 3.6% Independent Shareholders Wanda Group Shareholders prior to IPO 1% 7% 44.2% 6.9% 28.7% Shareholders to be introduced through IPO 13.4% Hua Xia Times (newspaper) Wanda Cultural Group 68% Beijing Wanda Dagexing Cinema (karaoke) 79% Changbaisha n Int'l Tourism Resorts Development Co., Ltd Wanda E-commerce Dalian Wanda Commercial Dalian Wanda Commercial Properties Co., Ltd Properties Co., Ltd 65% Wanda Hotel Wanda Hotel C.4 subsidiaries Development Co., Ltd Development Co., Ltd engaging in property Four JVs established (169:HK) (169:HK) development, between them to shell company A shell company property leasing, primarily carry acquired in 213 to hotel mgmt mainly in forward overseas acquired in 213 to run hotels with with projects in UK, Spain, run hotels overseas Wanda China mainland brand Wanda overseas brand US, Australia under Wanda brand overseas Note: Here above we only assumed 6mn shares would be offered through IPO but haven t taken an additional of up to 9mn shares allowed by Greenshoe scheme (up to 15% of base offering size) into account. Please refer to the last page for important disclosures Page 1

3 Fig 2: Milestone of the company Year 1988 Events Our business commenced by participating in the redevelopment of urban areas in the PRC, which laid down a solid foundation for our business in the future 1993 One of the earliest real estate companies engaged in cross-region operations in China 22 The first generation Wanda Plaza opened, a single commercial building Our predecessor was established, which provided a clear and independent platform for the future development of our business 23 The second generation of Wanda Plaza opened, which was a mixed-use commercial complex which typically comprises three to five buildings connected via an outdoor pedestrian street 26 The third generation of Wanda Plaza opened, which was a large-scale, mixed-use integrated complex which typically comprises a shopping center with indoor walkways, office buildings and residential buildings, and often includes hotels Our business expanded into development and operation of luxury hotels 28 Our headquarters were relocated to Beijing, the capital city 29 Our company was incorporated 212 We opened six self-operated hotels under our own brand 213 We acquired 65% interest in the HK Listed Subsidiary We acquired a property in London, our first overseas property project, which will be developed into a complex featuring a luxury hotel with residential and commercial components Construction of the first "Wanda City" commenced in Harbin We first tapped into the international financial markets by issuance of US$6 million bonds due 218 Fig 3: The basic structure of a typical Wanda Plaza Please refer to the last page for important disclosures Page 2

4 Sufficient pipelines at low cost The company operates 175 projects held with a total size of c.85m m 2 (at an average cost of Rmb1,12/ m 2 ). Of which, 159 are commercial complexes (also known as Wanda Plazas) across 19 cities and six tourism projects (Wanda Cities) in seven cities. In total, there re 158 shopping malls and 92 hotels integrated into these projects. Of which, 8 malls and 48 hotels have already been basically completed for operation, while the majority of the rest of the projects would be accomplished in the next three years. Aside from 11m m 2 in reserves under planning, develop-for-sale pipelines under construction amount to 45m m 2. Of which, residential properties accounted for 45% of the total, offices (29%), car parks (14%) and retail shops (12%), Fig 4: Sizeable pipelines Number of buildings Vanda Plaza Vanda City Hotel Completed Under Construction Fig 5: Land bank breakdown Land Banks GFA (' sq.m.) (%) of total Completed Properties 19,25 22% Investment Portfolios 14,693 17% Shopping Malls 1,2 12% Office Buildings 2 % Car parks 4,293 5% Hotels 2,112 2% Develope-for-sale properties 2,4 3% Retail Shops 541 1% SOHO & Office 874 1% Residential 659 1% Others 326 % Properties under construction 55,638 65% Investment Portfolios 1,729 13% Hotels 1,99 2% Develope-for-sale properties 43, 5% Retail Shops 4,912 6% SOHO & Office 12,396 14% Residential 19,744 23% Others 5,949 7% Reserves held for future development 1,7 13% Total 85,544 1% Please refer to the last page for important disclosures Page 3

5 Fig 6: Relatively stable land acquisitions 14 Rmb bn % 8% 6% 4% 2% H214 % Land Acquisitions (LHS) Acqusitions as % of Sales (RHS) Contracted Sales (LHS) Fig 7: Well-controlled land cost 2, Rmb per sqm. 1,8 1,6 1,4 1,2 1, H214 Average Land Cost of the existing land banks Fig 8: 6% of existing land reserves are in third and lower-tier of cities 8% 43% 34% 15% First-tier cities Second-tier cites Third-tier cities Lower-tier cities Please refer to the last page for important disclosures Page 4

6 Rapid growing investment portfolios By mid-214, c.8 malls were available to lease with total gross floor area (GFA) of c.15m m 2 (leasable GFA of c.8m m 2 ) and rental income increased from Rmb8.5bn in 213 to Rmb5.2bn in 1H14 (or Rmb1.5bn in 214 by estimates). According to the company s development schedule, the remaining 78 malls are expected to ready in (the locations will be situated in low-tier cities) and may exceed c.25m m 2 GFA by 217. In 1H14, the average occupancy ratio stood at c.98% and the rental per m 2 reached Rmb75/m. We forecast a rise in rental income from c.rmb1bn in 214 to Rmb2bn in 217 (a three-year Cagr of 24%). Fig 9: Operating data of existing investment portfolios H214 Total leasable GFA (' sq.m.) 4,425 6,52 7,76 8,88 Average Occupancy Ratio 99% 99.2% 99.2% 97.8% Monthly Rental Per sqm (Rmb) Rental Income (Rmbm) 3,27 4,575 6,473 3,639 Mgmt Revenue (Rmbm) 742 1,268 2,1 1,538 Total Leasing & Mgmt Income (Rmbm) 3,769 5,843 8,483 5,177 Fig 1: Leasing space continues to expand rapidly ' sqm 25, 2, 15, 1, 5, E 215E 216E 217E Total GFA completed for leasing Please refer to the last page for important disclosures Page 5

7 Fig 11: To further penetrate into lower-tier of cities First-tier cities Second-tier cites Third-tier cities Lower-tier cities Completed Vanda Plaza Shopping Malls Vanda Plaza Shopping Malls under construction Fig 12: Recurring rental income is promising to beat c.rmb2bn by 217 Rmb mn 2, 17,5 15, 12,5 1, 7,5 5, 2, E 215E 216E 217E Property Leasing & Mgmt Income Fig 13: Biggest landlord in China Rmb mn 1, 8, 6, 4, 2, - Estimated Rental Income in 214 Please refer to the last page for important disclosures Page 6

8 More self-operated hotels Of the 48 hotels in operation (with total rooms of 14,854 or total GFA of c.2m m 2 ), 28 are managed by leading hotel management groups and 2 are run under Wanda s own brand. Wanda has launched three different hotel brand names in 212, namely, Ruihua, Wenhua, Jiahua with Ruihua targeting top-end customers, and Jiahua targeting mid-end customers. To date, the company has one Wanda Ruihua hotel, five Wanda Wenhua hotels and 14 Wanda Jiahua hotels in operation. The average occupancy rate was 58% in 1H14 and the average room rate per night was Rmb718 during the same period. We expect an additional c.4 hotels to be completed by end-217, total revenue is therefore expected to rise from Rmb4bn in 214 to Rmb6bn in 217 (a threeyear Cagr of 16%). In particular, we note that Wanda subsidiary Wanda Hotel Development (169:HK) focused on running hotels primarily in the overseas market. We see a possibility for a split of the large-scale hotel assets currently held by the company at a later point. Fig 14: Operating data of existing hotels H214 No of hotels in operation above 1 year Occupancy Ratio 55% 55% 6% 58% Room Rates Per Night No of hotels commencing operation before Occupancy Ratio 55% 62% 64% 62% Room Rates Per Night No of total hotel rooms 4,642 7,118 1,522 14,854 Fig 15: Hotel rooms continues to expand rapidly 3, 25, 2, 15, 1, 5, E 215E 216E 217E Actual and Estimated total number of hotel rooms Please refer to the last page for important disclosures Page 7

9 Fig 16: Currently self-operated hotels account for c.3% of total revenue 3,5 Rmb mn 3, 2,5 2, 1,5 1, H214 Mgmt revenue from global-brand Hotels Mgmt revenue from self-operated Hotels Fig 17: More self-operated hotels in the pipelines Completed Hotels Number of Self-operated Hotels Hotels under construction Number of Global brand Hotels Fig 18: Hotel mgmt revenue may reach c.rmb6bn by 217 Rmb mn 6,4 4,8 3,2 1, E 215E 216E 217E Hotel Mgmt Revenue Please refer to the last page for important disclosures Page 8

10 Sizeable contracted sales The company generated Rmb126bn in contract sales in 213, making it the thirdranked company among all property firms, behind China Vanke (222:HK, Rmb17bn) and Greenland Hong Kong Holdings (337:HK, Rmb16bn). Due to worsening market conditions and a weak full-year sales performance, Wanda s sales momentum has slowed and is likely to reach just c.rmb12-13bn by yearend (Rmb13bn in the first eleven months). Of the total existing c.45mm 2 saleable resources (2.4mm 2 inventories and 43bn sqm under construction), residential properties accounted for 45%, offices 29%, car parks 14% and retail shops 12%. Sales revenue booked was Rmb75bn in 213 and Rmb 16.3bn in 1H214, while the average selling prices booked was Rmb11,5/m 2 in 213 and Rmb1,137/m 2 1H14. For the next three years, based upon the current pipelines and moderately recovering market sentiment, we see a high likelihood that contracted sales of Wanda to return to a two-digit growth on the annual basis. Fig 19: Contracted Sales ranked No3 in 213 Developer Ranking Market Share Sales (Rmb bn) % Chg YoY Ranking Market Share Sales (Rmb bn) % Chg YoY Ranking Market Share Sales (Rmb bn) Vanke 1 2.1% % % % 1 2.8% % Greenland 2 2.% % % 15 38% 4 1.3% 76 17% Wanda % % % 11 12% % 9 39% A-share Poly % % % 12 39% % 73 11% COLI % % % 89 28% % 7 3% Country Garden 6 1.3% % 9.74% 48 1% 7.74% 43 32% Evergrande % 1 9% % 92 15% % 8 59% Shimao 8.82% 67 46% 1.72% 46 5% 13.52% 31 1% CR Land 9.81% 66 27% 7.81% 52 45% 9.61% 36 62% Greentown 1.76% 62 22% 8.79% 51 55% 1.56% 33-39% Sunac 11.62% 51 61% 16.49% 32 78% 2.3% % Longfor 12.59% 48 2% 11.62% 4 5% 8.65% 38 15% Gemdale 13.55% 45 32% 13.53% 34 1% 12.53% 31 9% China Merchant 14.53% 43 19% 12.56% 36 73% 17.36% 21 47% R&F 15.52% 42 27% 14.52% 33 13% 14.5% 29-11% % Chg YoY Fig 2: Jan-Nov 214 contracted sales slightly retreated to No7 2 Rmb bn Jan-Nov 214 Contracted Sales Please refer to the last page for important disclosures Page 9

11 Fig 21: Property Sales Revenue Booking during 211-1H214 Rmb mn H214 Commercial properties 27,129 36,2 41,828 1,923 -Office buildings 6,673 6,97 14,71 4,74 --SOHO 6,459 8,62 6,676 2,18 --Retail shops 13,997 2,97 2,451 4,669 Residential properties 16,945 13,31 3,457 4,673 Car parks 1,431 1,539 2, Total 44,74 49,33 72,285 15,596 GFA (' sq.m.) H214 Commercial properties 2,16 2,142 2, Office buildings , SOHO Retail shops Residential properties 2,47 1,336 3, Total 4,63 3,479 6,286 1,539 ASP (Rmb per sq.m.) H214 Commercial properties 13,455 16,85 14,596 11,551 -Office buildings 9,953 12,376 11,226 9,472 --SOHO 8,441 9,119 7,816 6,455 --Retail shops 24,16 3,166 29,135 26,261 Residential properties 8,277 9,751 8,96 7,881 Total 1,847 14,95 11,5 1,137 Fig 22: Breakdown of saleable resources Please refer to the last page for important disclosures Page 1

12 Two years of large Capex In mid-214, net gearing rose to 88% (vs 39% in 11A, 49% in 12A and 53% in 13A). Meanwhile, total interest-bearing debt grew to Rmb18bn. The company requires Rmb43bn to complete its projects under construction. Of which, Rmb8bn will be generated in 2H14, Rmb124bn in 15E and Rmb226bn in 16E. Wanda s IPO may lead to a net gearing decline of c.3ppts. However, providing that no equity financing is made, we forecast the gearing to rise to c.7% in 15E and surge to c.9% in 16E. Wanda s IPO may lead to a net gearing decline of c.3ppts. However, providing that no equity financing is made, we forecast the gearing to rise to c.7% in 15E and surge to c.9% in 16E. The current average borrowing cost is c.8%. Since off-shore bonds accounted for just c.4% of total borrowing and will play an important role in future debt financing, we expect room for a further decrease. Fig 23: Net gearing surged to c.88% in 1H14 and IPO may lead to c.3ppts decrease 2, Rmb mn 1% 18, 9% 16, 8% 14, 7% 12, 6% 1, 5% 8, 4% 6, 3% 4, 2% 2, 1% % H14 Cash (LHS) Interest bearing debt (RHS) Net gearing ratio (RHS) Fig 24: But construction Capex in 215 and 216 stays high Rmb mn 25, 2, 15, 1, 5, 2H or after Construction Cost scheduled to be paid Please refer to the last page for important disclosures Page 11

13 Fig 25: Wanda has just started to issue offshore bonds since late last year Issue Date Tenure Yield Currency Amount (mn) Type 23-Jan % US$ 6 Senior Notes 15-Nov % US$ 6 Senior Notes Fig 26: Wanda has been assigned the same credit rating as COLI and Vanke Code Company S&P Credit Rating Outlook Code Company Moody's Credit Rating 688 HK COLI BBB+ Stable 119 HK CR Land Baa1 222 HK Vanke BBB+ Stable 688 HK COLI Baa2 648 SS A-share Poly BBB+ Stable 222 HK Vanke Baa2 3699:HK Wanda BBB+ Stable 648 SS A-share Poly Baa2 119 HK CR Land BBB+ Stable 3699:HK Wanda Baa2 337 HK Greenland HK BBB Stable 817 HK Franshion Baa3 817 HK Franshion BBB- Stable 337 HK Greenland HK Baa HK Sino-ocean land BBB- Stable 3377 HK Sino-ocean land Baa3 123 HK Yuexiu BBB- Stable 123 HK Yuexiu Baa3 96 HK Longfor BB+ Stable 96 HK Longfor Ba1 27 HK Country Garden BB+ Positive 27 HK Country Garden Ba2 813 HK Shimao BB Stable 813 HK Shimao Ba3 832 HK Central China BB- Stable 832 HK Central China Ba HK Sunac BB- Stable 1638 HK Kaisa Ba HK Kaisa BB- Stable 1813 HK KWG Ba3 39 HK Greentown BB- Stable 1918 HK Sunac Ba HK Agile BB- Negative 3383 HK Agile Ba HK R&F BB- Negative 2777 HK R&F Ba HK Evergrande BB- Negative 3333 HK Evergrande B HK KWG BB- Negative 39 HK Greentown B HK Renhe B- Negative 754 HK Hopson B3 754 HK Hopson B- Negative 845 HK Glorious Caa1 845 HK Glorious B- Negative 1387 HK Renhe Caa3 Fig 27: Offshore bonds only account for c.4$ of total borrowing 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, Rmb mn H14 Short-term loans Long-term loans Offshore bonds Please refer to the last page for important disclosures Page 12

14 Earnings forecast Revenue of was Rmb51bn, 59bn (+16% YoY), 87bn (+47% YoY) and core earnings reached 9.3bn, 1.9bn (+17% YoY), 13bn (+19% YoY). In 214, we forecast core earnings of Rmb14.3bn (+1% YoY), a three-year Cagr of 15% from Gross margin reached 48% in 11A, 51% in 12A and 43% in 13A. During the same period, property sales reached 47%, 51% and 41%; property leasing reached 62%, 65%, 66%, and hotel management reached 31%, 34%, 33%. In 217, we expect revenue to reach Rmb173bn (a three-year Cagr of 16%) and core earnings of Rmb25bn (a three-year Cagr of 21%). We believe improving cost controls and rising leasing income will make up for the declining gross margin of property sales. Fig 28: Actual and estimated growth of sales revenue and core earnings 5% 45% 4% 35% 3% 25% 2% 15% 1% 5% % E 215E 216E 217E Revenue Growth Core Earnings Growth Fig 29: Actual and estimated revenue breakdown 2, 18, 16, 14, 12, 1, 8, 6, 4, 2, Rmb mn E 215E 216E 217E Property Sales Property Leasing and Mgmt Hotel mgmt Please refer to the last page for important disclosures Page 13

15 SG&A as % of revenue October 15 December 12, Building Materials Real Estate Company Research Fig 3: Actual and estimated core earnings breakdown 3, Rmb mn 25, 2, 15, 1, 5, E 215E 216E 217E Property Sales Property Leasing and Mgmt Hotel mgmt Fig 31: Room for continuous improvement of cost control 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% E 215E 216E 217E Distribution Expenses As % of Revenue Adminstrative Expenses As % of Revenue Finance Cost As % of Revenue Fig 32: Expense ratio is the highest among the sector 1% Vanda 8% 6% 4% R&F 2% Sunac Vanke Sino-Ocean KWG Country Garden % COLI Shimao CR Land Agile Longfor Evergrande % 2% 3% 5% 6% 8% 9% 11% 12% -2% Finance cost as % of revenue -4% Please refer to the last page for important disclosures Page 14

16 Valuations The company disclosed a fair pricing range of HK$ /share and a base offering size of 6m shares (c.13% of enlarged capital shares). The pricing represents a post-ipo market cap of HK$ bn and implies a valuation of 9.2x 14E PE,.84x PB, 55% discount to NAV at the low-end or 1.9x 14E PE, 1.x PB, 47% discount to NAV at the high-end. This compares with the valuation of 9.6x 14E PE, 1.x PB, 28% discount to NAV of the comparable peer China Resources Land (119:HK). Applying a target NAV discount range at 35-45%, we arrive at a reasonable price range of HK$ Fig 33: NAV of Wanda Commercial Properties (Rmb mn) After IPO (low-end) After IPO (high-end) Total GAV 461, ,931 Cash 1,873 14,617 Debt 179, ,688 Payables 52,739 52,739 NAV 33, ,121 NAV per share (RMB) NAV per share (HK$) NAV disc implied by Offering Price -55% -47% Fig 34: Calculation of reasonable price NAV 92.8 Target discount Reasonable Price (HK$) Upside potential vs low-end price Upside potential vs mid-end price Upside potential vs high-end price -3% % 42% 31% -35% % 32% 22% -4% % 22% 12% -45% % 12% 3% -5% % 2% -6% Fig 35: Valuation comparison Company Code Target Market Cap +/- Rating price PE (x) PB (x) NAV Disc (HK$bn) (HK$) (%) 13E 14E 15E 13E 14E 15E Vanke 222 HK 21.5 Not Rated % COLI 688 HK 188. O-PF % % CR land 119 HK O-PF % % Country Garden 27 HK 55.1 Neutral 3.2 7% % Shimao 813 HK 59.1 BUY % % Longfor 96HK 51.9 O-PF % % Evergrande 3333 HK 49.7 U-PF 3.1 % % R&F 2777 HK 29.5 U-PF 9.1-2% % Sino-ocean 3377 HK 31.8 BUY % % Agile 3383 HK 14. U-PF % % Sunac 1918HK 22.7 BUY % % Poly Ppty 119 HK 1.9 U-PF 3.2 7% % KWG 1813 HK 15. O-PF % % Average % Source: Bloomberg, Company data, SWS Research Please refer to the last page for important disclosures Page 15

17 Appendix Figure 1: Forecast Income Statement Rmb mn E 215E 216E 217E Revenue 5,772 59,91 86,774 11, , , ,715 Property Sales 45,55 5,573 74,981 96,456 11, , ,698 Property Leasing and Mgmt 3,769 5,843 8,483 1,476 12,475 16,52 19,737 Hotel mgmt 1,45 2,576 3,215 3,962 4,687 5,518 6,18 Others Cost of Sales (26,469) (28,87) (49,438) (65,28) (77,155) (9,553) (15,789) Gross Profit 24,33 3,284 37,336 45,967 51,32 58,682 66,926 Revaluation gains 13,992 21,898 15,443 12,967 21,247 38,386 15,732 Other Income 1,966 2,162 4,142 1,284 1,343 1,47 1,477 Interests Income Government Subsidy 1,358 1,742 3, Others Distribution expenses (2,829) (2,997) (4,298) (4,943) (5,437) (5,981) (6,579) Administrative expenses (3,226) (3,95) (4,914) (5,897) (6,486) (7,135) (7,849) Other expenses (39) (272) (353) (371) (389) (49) (429) EBIT 33,897 47,125 47,356 49,7 61,38 84,95 69,279 Profits of JCEs (9) Finance Costs (3,56) (3,861) (5,855) (7,277) (7,539) (7,794) (8,37) Profit before tax 3,841 43,264 41,492 41,73 53,769 77,156 61,242 Tax expense (11,66) (15,443) (16,61) (17,314) (2,686) (26,675) (23,621) Inc tax (3,916) (4,543) (5,444) (9,598) (12,367) (17,746) (14,86) LAT (4,743) (5,749) (7,196) (7,717) (8,319) (8,929) (9,535) Deferred (2,47) (5,151) (3,97) Profit for the year 19,775 27,821 24,882 24,416 33,83 5,481 37,621 Minority interests (4) Profit attr. to shareholders 19,779 27,31 24,581 24,28 32,557 49,679 37,23 Core earnings 9,285 1,887 12,999 14,33 16,622 2,889 25,224 Dividends paid 1,98 1,999 2,145 3,324 4,178 5,45 Please refer to the last page for important disclosures Page 16

18 Information Disclosure: The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). A group company(ies) of the Company confirm that they, whether individually or as a group (i) are not involved in any market making activities for any of the listed corporation reviewed; or (ii) do not have any individual employed by or associated with any group company(ies) of the Company serving as an officer of any of the listed corporation reviewed; or (iii) do not have any financial interest in relation to the listed corporation reviewed or (iv) do not, presently or within the last 12 months, have any investment banking relationship with the listed corporation reviewed. Undertakings of the Analyst I (We) am (are) conferred the Professional Quality of Securities Investment Consulting Industry by the Securities Association of China and have registered as the Securities Analyst. I hereby issue this report independently and objectively with due diligence, professional and prudent research methods and only legitimate information is used in this report. I am also responsible for the content and opinions of this report. I have never been, am not, and will not be compensated directly or indirectly in any form for the specific recommendations or opinions herein. Disclosure with respect to the Company The company is a qualified securities investment consulting institute approved by China Securities Regulatory Commission with the code number ZX65. Releasing securities research reports is the basic form of the securities investment consulting services. The company may analyze the values or market trends of securities and related products or other relevant affecting factors, provide investment analysis advice on securities valuation/ investment rating, etc. by issuing securities research reports solely to its clients. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for the relevant disclosure materials or log into for the analysts' qualifications,the arrangement of the quiet period and the affiliates shareholdings. Introduction of Share Investment Rating Security Investment Rating: When measuring the difference between the markup of the security and that of the market s benchmark within six months after the release of this report, we define the terms as follows: BUY: Share price performance is expected to generate more than 2% upside over a 12-month period. Trading BUY: Share price performance is expected to generate more than 2% upside over a 6-month period. Outperform: Share price performance is expected to generate between 1-2% upside over a 12-month period. Hold: Share price performance is expected to generate between 1% downside to 1% upside over a 12-month period. Underperform: Share price performance is expected to generate between 1-2% downside over a 12-month period. 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