[Sino Land Company Limited]

23 May, 2017 Company Visit SINO LAND COMPANY LIMITED [0083.HK; HK$13.34; NOT RATED] - STEADY THE BUFFS IN THE NEW CHALLENGING ENVIRONMENT. SOLID DEFENSIVE BUSINESS AND EYE ON KWUN TONG RESIDENTIAL DEVELOPMENT. Market Cap: US$10.8bn; Free Float: 40%; 3-months Average Daily Turnover: US$8.9m Analyst: Rachel Chui Tel: 3698 6391 Email: rachelchui@chinastock.com.hk With abundant net cash of HK$23bn (27% of market cap), Sino Land is well -positioned to replenish its land bank for future growth, in particular, after the recent tightening measures regarding loan to value ratios launched by the HKMA. On the back of a good track record of dividend payments, management targets maintaining a stable DPS of HK$0.51, implying a 3.8% dividend yield, slightly below its 5-year average of. As the low-end of the range is about 3.6% since 2013, we believe HK$12.30 is a better entry point, which offers 15% upside if we set 3.6% dividend yield as the target. Business strategy Management has adopted a steady and conservative approach to property development. Sino Land has been active in land bidding within the range of its gross profit margin target of 20%. As can be seen from its bidding record, Sino Land is comfortable cooperating with other developers, including PRC ones, as long as the investment concept and expected return are consistent. Successful urban residential redevelopment projects In general, 3 types of development approaches are commonly seen in the HK residential market: 1. tenders and auctions of government and MTRC lots; 2. changing the use of agricultural land; and 3. urban redevelopment. In the current circumstances, PRC developers have been aggressive in the first approach. Therefore, in order to remain competitive, local HK property developers focus on the latter two approaches. The entry barrier for urban redevelopment projects for PRC developers is relatively high, as local knowledge and practices are essential in project planning and sales to secure an attractive profit margin. Sino Land has partnered well with the Urban Renewal Authority (URA) on many urban redevelopment projects, including The Avenue in Wan Chai (attributable plot ratio area: 0.61m sq.ft), a very successful large-scale project launched in recent years, demonstrating sustainability. The upcoming Kwun Tong project to be the key growth driver An upcoming project Kwun Tong Town Center Development Areas 2 & 3 (attributable plot ratio area: 1.35m sq.ft, land cost HK$~ 5,000/sq ft) is going to be the highlight of Sino Land s future sales. The project is expected to be launched in 2018. Conservatively assuming an ASP of HK$15,000, with land cost of ~HK$5,000 and construction cost of ~HK$4,500, the unit gross profit will be HK$ 5,500 (not yet deducting profit sharing with URA). Sino Land acquired another two small-scale URA projects during FY2017: NKIL 6558 Sham Shui Po (attributable plot ratio area: 0.05m sq.ft) and the Peel Street/Graham Street Project in Central (attributable plot ratio area: 0.08m sq.ft). On top of these urban redevelopment projects, another new lot from government tender was added in FY17 TPTL 228, Pak She Kok (attributable plot ratio area: 0.41m sq.ft, land cost HK$ 3,931/sq ft) Strong defensive business Sino Land s rental business has experienced moderate growth in recent [Sino Land Company Limited] 16 14 12 10 8 6 4 2 0 Trading value (HK$ 000) - RHS Price (HK$) years, providing strong operating cash flow to further facilitate the Company s property development business. Consequently, Sino Land is able to maintain its DPS regardless of the fluctuation of profit booked from property sales (Figure 2 and 5). As shown in Figure 4, Sino Land s rental portfolio is dominated mainly by retail (mass and local market), but also includes office, industrial, carpark and residential. As its malls are located mainly in local residential development areas, they are less dependent on tourist spending. As for office leasing, most of its offices are in non-central areas. Therefore, it is expected to see single-digit growth in rental rates this year. Apart from the rental business, income from hotels has performed steadily. In FY17, non-residential land replenishment includes AIL 462, Wong Chuk Hang (commercial, attributable plot ratio area: 0.17m sq.ft, land cost HK$ 10,313/sq ft), Kwai Chung Town Lot No. 524 (industrial, attributable plot ratio area: 0.18m sq.ft, land cost HK$ 2,543/sq ft), and The Fullerton Hotel Ocean Park Hong Kong (hotel, attributable plot ratio area: 0.26m sq.ft). Future outlook depends on land bank replenishment progress We estimate Sino Land's residential saleable resources in Hong Kong should be enough for about 3 years of development. Since the Company is not very active in accumulating agricultural land, its future outlook will depend on whether it can use its strong balance sheet (net cash of HK$23bn) to replenish land bank. Risk factors: Rate hikes, residential price drop, and policy risks. 300,000 250,000 200,000 150,000 100,000 50,000 Key Financials FY15 FY16 FY17E FY18E Revenue (HK$ m) 21,839 10,804 14,929 13,614 Underlying net profit (HK$ m) 5,301 5,351 5,216 5,150 PER (x) 15.89 15.74 16.15 16.36 PBR (x) 0.68 0.67 0.65 0.64 Dividend yield 3.75% 3.82% 3.82% 3.82% Note: financial year end June Source: Bloomberg, Company Data, CGIS Research 0 1

Figure 1: Company financials (June year-end) Figure 2: Dividend per share and payout ratio 0.60 Dividend per share (HK$) 70% Payout ratio based on Underlying profit 0.50 0.40 0.30 0.36 0.36 0.36 0.41 0.46 0.50 0.50 0.50 0.51 0.51 60% 50% 40% 30% 57% 5 56% 52% 5 45% 59% 57% 58% 0.20 20% 0.10 10% 0.00 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E 0% FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 2

1/7/2012 1/9/2012 1/11/2012 1/1/2013 1/3/2013 1/5/2013 1/7/2013 1/9/2013 1/11/2013 1/1/2014 1/3/2014 1/5/2014 1/7/2014 1/9/2014 1/11/2014 1/1/2015 1/3/2015 1/5/2015 1/7/2015 1/9/2015 1/11/2015 1/1/2016 1/3/2016 1/5/2016 1/7/2016 1/9/2016 1/11/2016 1/1/2017 1/3/2017 1/5/2017 Figure 3: Dividend yield Dividend yield since 1 July 2012 (%) 5.6 5.4 5.2 5 4.8 4.6 4.4 4.2 4 3.8 3.6 3.4 3.2 3 2.8 2.6 Dividend yield (%) Average since 1 July 2012 (4.03%) Figure 4: Rental business portfolio HK$m 4,000 3,500 3,000 2,500 2,642 Gross rental income 3,451 3,185 2,936 3,684 3,834 HK$m 4,000 3,500 3,000 2,500 Rental business segment result 3,235 3,312 3,055 2,791 2,558 2,254 2,000 2,000 1,500 1,500 1,000 1,000 500 500 - FY11 FY12 FY13 FY14 FY15 FY16 - FY11 FY12 FY13 FY14 FY15 FY16 Breakdown by rental revenue 7% 8% Breakdown by floor area 1 58% 3% 2 Carpark Industrial Residential Office Retail 39% 16% 2% Carpark Industrial Residential Office Retail 29% 3

Figure 5: Segment results breakdown 271,987,755 6% 145,601,063 3% 62,891,240 2,427,687,477 53% Segment Result 1HFY17 (HK$) 268,207,691 7% 133,601,129 32,622,576 1,790,904,011 46% Segment Result 1HFY16 (HK$) 1,704,329,298 37% 1,633,733,268 42% 525,722,447 8% 279,962,836 68,705,370 2,629,029,772 38% Segment Result FY16 (HK$) 258,278,445 473,323,731 6% 62,186,394 3,236,746,052 45% Segment Result FY15 (HK$) 3,311,631,337 49% 3,234,544,559 4 495,412,051 9% 230,395,986 3,054,537,524 53% 108,229,835 2% 1,854,571,445 32% Segment Result FY14 (HK$) 490,565,929 6% 221,696,639 3% 2,790,520,018 3 63,034,628 4,511,334,260 56% Segment Result FY13 (HK$) Figure 6: Projects launched and to be booked in 2017/2018 Project Name/Site Location Usage Stake (%) Attributable Plot Ratio Area (Sq ft) The Mediterranean Sai Kung Residential 100 249,133 The Spectra Long Ping (North) Residential 40 209,575 Commune Modern Fanling Residential 100 209,907 Park Mediterranean Sai Kung Residential 100 173,796 4

Figure 7: Projects to be launched in 2017/2018 Project Name/Site Location Usage Stake (%) Attributable Plot Ratio Area (Sq ft) NKIL 6313 Kowloon Bay Commercial 30 147,058 Lot 1181 in DD 215 Sai Kung Residential 100 51,592 TPTL 228 Pak Shek Kok Residential 100 412,530 Kwun Tong Town Center Development Areas 2 & 3 Kwun Tong Residential 90 1,346,383 Figure 8: Projects acquired during FY17 Project Name/Site Location Usage Stake (%) Attributable Plot Ratio Area (Sq ft) TPTL 228 Pak Shek Kok Residential 100 412,530 AIL 462 Wong Chuk Hang Commercial 60 170,967 NKIL 6558 Sham Shui Po Residential/Retail JV with URA 52,571 The Fullerton Hotel Ocean Park Hong Kong Ocean Park Hotel 60 262,017 Peel Street/Graham Street Project (Site A) Central Residential JV with URA 84,260 Kwai Chung Town Lot No. 524 Kwai Chung Industrial 100% 176,905 Figure 9: Peers comparison Ticker Company Price Market cap PE (x) PB (x) EV/EBITDA (x) Dividend yield (%) (local currency) (US$ m) 2016A 2017E 2018E 2016A 2017E2018E 2016A 2017E 2018E 2016A 2017E 16 HK Equity SHK Properties 113.80 42,327 8.5 12.9 11.9 0.7 0.7 0.7 8.3 11.9 10.7 3.4 3.5 17 HK Equity New World Development 9.66 12,163 9.3 12.4 11.8 0.5 0.5 0.4 10.5 16.7 15.0 4.6 4.5 12 HK Equity Henderson Land 49.20 22,985 8.2 14.9 15.2 0.7 0.7 0.7 12.9 22.3 22.9 3.2 3.2 101 HK Equity Hang Lung Properties 19.50 11,264 14.2 16.2 18.0 0.7 0.7 0.7 11.6 12.8 13.8 3.8 3.9 14 HK Equity Hysan Development 36.25 4,867 31.2 14.7 15.6 0.6 0.6 0.5 15.4 15.4 14.9 3.7 3.8 1113 HK Equity Cheung Kong Property 57.60 27,622 11.4 11.7 10.7 0.8 0.8 0.8 8.5 8.0 7.5 4.0 2.9 1972 HK Equity Swire Properties 25.80 19,385 10.0 18.2 20.1 0.7 0.7 0.6 10.7 17.2 19.4 2.8 2.8 41 HK Equity Great Eagle 38.15 3,335 9.3 12.1 12.6 0.5 0.4 0.4 18.6 29.2 28.7 2.0 2.5 83 HK Equity Sino Land 13.34 10,821 12.3 15.9 16.0 0.7 0.7 0.6 10.2 12.2 14.0 3.8 3.8 Note: Year end June for Sino Land, SHK Properties and New World Development. Year end Dec for others 5

Figure 10: Hong Kong residential projects presale area over the year Presale area over the year Presale since launched till Sino Land's financial year stake end Project Total GFA (Sq ft) GFA Attributable to Sino Land (Sq ft) GFA sold during FY (Sq ft) FY16 The Mediterranean 逸瓏園 5 100% 249,133 249,133 134,532 Commune Modern 囍逸 98% 100% 135,894 135,894 133,176 The Spectra 朗屏 8 號 * 30% 40% 523,938 209,575 62,873 FY16 Total 330,581 FY15 Corinthia By The Sea 帝景灣 97% 60% 417,047 250,228 242,721 Dragons Range 玖瓏山 8 40% 1,031,470 412,588 334,196 FY15 Total 576,918 FY14 The Graces Providence Bay 海鑽. 天賦海灣 7 50% 323,824 161,912 114,958 Park Metropolitan 觀月. 樺峯 79% 100% 232,825 232,825 183,932 The Avenue 囍匯 ** 92% 50% 731,393 365,697 336,441 Mayfair by the Sea I 逸瓏灣 I 73% 85% 675,710 574,354 419,278 Mayfair by the Sea II 逸瓏灣 II 65% 100% 675,710 675,710 439,212 FY14 Total 1,493,820 * K. Wah [hk.173] was in charge of this project's development and sales. Sino Land holds 40% stake. ** Joint venture with Hopewell, assume 50-50 structure. Note: Some small-scale luxury projects like Cluny Park, Botanica Bay are not included. Figure 11: Saleable resources of Hong Kong residential projects Saleable resources Sino Land's stake GFA Attributable to Sino Land (Sq ft) Lot 1181 in DD215 100% 51,592 TPTL 228, Pak Shek Kok 100% 412,530 Kwun Tong Town Center Development Areas 2&3 *** 90% 1,346,383 NKIL 6558, Sham Shui Po *** 100% 52,571 Peel Street/Graham Street Project (Site A), Central *** 100% 84,260 Residual units from project launched and completed (approximate) 800,000 Total: 2,747,336 *** URA projects. 6

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