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票

研 [Table_Title] Van Liu 刘斐凡 Company Report: China Aoyuan (03883 HK) 究 (86755) 2397 6672 EquityResearch 公司报告： 中国奥园 (03883 HK) [email protected]

21 March 2019 Quality[Table_Summary Growth] Prospects, Maintain "Buy"

有质量的增长预期，维持“买入”

 2018 underlying net profit was in line with our expectation. The Company’s Rating:[Table_Rank ] Buy

top line increased by 62.2% YoY to RMB31,006 mn in 2018. Underlying net Maintained 公 profit soared 80.3% YoY to RMB2,353 mn. 司 评级： 买入 (维持)  Contracted sales is likely to grow fairly fast. From Jan. to Feb. 2019, the 报 Company achieved RMB11.230 bn in contracted sales, up 39% YoY. Sales 6[Table_Price-18m TP 目标价] : HK$11.81 告 target and saleable resources in 2019 was RMB 114.1 bn and RMB190.0 bn (indicating 25.0% YoY increase and 67.0% target sale-through rate). Revised from 原目标价: HK$8.08

CompanyReport Share price 股价: HK$8.840  Abundant quality land bank with low unit land costs will drive gross margin to be above 28.8% during 2018-2021. 57% of the Company's land bank was in tier-1/ tier-2/ international cities, with over 33% of its land bank in Stock performance the Greater Bay Area. Its unit land cost amounted to RMB2,102 per sq.m., 股价表现 representing 20.4% of ASP in 2018. In addition, the leverage ratio will remain at

a healthy level alongside disciplined land replenishment initiatives. [Table_QuotePic]  Average funding costs will decrease slightly. With an improvement in fundamentals, the Company should justify a lower NAV discount. As we revise up underlying net profit, we revise up our target price from HK$8.08 to 证 HK$11.81, representing a 50% discount to 2019E NAV of HK$23.38 per share, 券 7.0x 2019 underlying PER and 2.3x 2019 PBR. We maintain "Buy". Risk

研 factors: lower-than-expected contracted sales, possible failure in operations

告 activities of overseas projects and redevelopment projects.

究 报

报  2018 年核心净利符合我们预期。2018 年总收入同比增长 62.2%到人民币 31,006 百万元。 究

核心净利同比上升 80.3%到人民币 2,353 百万元。 告 研

 合约销售将会较快增长。2019 年 1-2 月，公司录得人民币 112.30 亿元的合约销售，同比增

券 EquityResearch Report

长 39%。2019 年的销售目标及可售资源分别为人民币 1,141 亿元及人民币 1,900 亿元（预 证 [Tab 示了 25.0%的同比增长及 67.0%的目标去化率）。 Change[Table_PriceChange] in Share Price 1 M 3 M 1 Y 股价变动 1 个月 3 个月 1 年 le_I  丰富而有质量的土储且较低的单位土地成本将会使得毛利率在 2018-2021 年间达到 28.8%

Abs. %

nfo1 以上。公司 57%的土储位于一线/ 二线/ 国际城市且其 33%的土储位于大湾区。其单位地价 绝对变动 % 47.1 85.7 16.5 为人民币 元每平米，相当于 年销售均价的 。另外，杠杆比率将维持在健 Rel. % to HS Index 2,102 2018 20.4% 相对恒指变动 % 44.7 71.9 23.1

] 康水平，并伴随有纪律的土地收购举措。 Avg. Share price(HK$) 房 平均股价（港元） 5.6 5.8 5.4 地  平均融资成本将会轻微下降。基于基本面的改善，公司应适用更低的每股净资产折让。由于 Source: Bloomberg, Guotai Junan International. 我们上调了核心净利润，我们将我们的目标价从 8.08 港元上调至 11.81 港元，相当于较 23.38 产 行 港元的 2019 年每股净资产有 50%的折让，也分别相当于 7.0 倍 2019 年核心市盈率和 2.3 倍 2019 年市净率。我们维持“买入”。风险：低于预期的合约销售，海外项目和旧改项目可 业

Property Sector 能的运营失败。

[Table_ Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE [Tab 年结Profit ] 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) (%) (%) le_I 2017A 19,115 1,640 0.613 89.8 12.0 3.795 1.9 0.250 3.4 17.2 nfo2 2018A 31,006 2,409 0.899 46.7 8.6 4.431 1.8 0.360 4.6 21.9 中] 2019F 49,781 4,085 1.524 69.5 4.9 5.881 1.3 0.432 5.7 29.6 中外 2020F 81,420 6,313 2.356 54.6 3.2 8.138 0.9 0.688 9.2 33.6 2021F 108,783 8,085 3.017 28.1 2.5 11.050 0.7 0.907 12.1 31.4 国运 奥 [Table_BaseData]Shares in issue (m) 总股数 (m) 2,678.0 Major shareholder 大股东 Asia Square Holdings Ltd. 55.3% 输 园 Market cap. (HK$ m) 市值 (HK$ m) 23,673.5 Free float (%) 自由流通比率(%) 44.7 3 month average vol. 3 个月平均成交股数(‘000) 11,298.4 FY19 Net gearing (%) FY19 净负债/股东资金 (%) 66.3 52 Weeks high/low (HK$) 52 周高/低 (HK$) 8.900 / 4.090 FY19 Est. NAV (HK$) FY19 每股估值（港元） 23.4

Source: the Company, Guotai Junan International. China Aoyuan (03883 HK) China (03883 Aoyuan

See the last page for disclaimer Page 1 of 9

[Table_PageHeader]China Aoyuan (03883 HK)

The property sector will face headwinds in sales and investment in 2019. During Jan.-Feb. 2019, YoY increase in

commodity house sales increased 0.1 ppts compared to that during Jan.-Nov. 2018. Investment] 1 r maintaineda M t h ag steadyi R _ YoYe growthl b a T [

rate. Moreover, land area sold recorded rapid YoY growth of 14.2% during the same period. Sources of funds for real estate

development enterprises recorded moderate YoY growth of 6.4%. However, sales and investment in 2019 is expected to be lower riding on still tightening external environment and high leverage ratio of residents accompanied with escalating downside pressure on the economy.

Figure 1: Cumulative House Sales Amount in China Figure 2: Cumulative House Sales GFA in China 21 March2019

16,000 70.0% 1,800 45.0% 14,000 60.0% 1,600 40.0% 35.0% 12,000 50.0% 1,400 30.0% 10,000 40.0% 1,200 25.0% 1,000 8,000 30.0% 20.0% 800 15.0% 6,000 20.0% 600 10.0% 5.0% 4,000 10.0% 400 0.0% 2,000 0.0% 200 -5.0%

0 -10.0% 0 -10.0%

15 15 16 16 17 17 18 18

15 15 16 16 17 17 18

15 16 17 18

16 17 18

------

- - -

- - - -

- - - -

- - -

Apr Oct Apr Oct Apr Oct Apr Oct

Jun Jun Jun Jun

Feb Feb Feb

Aug Dec Aug Dec Aug Dec Aug 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)

] 2 r a M t h g i R _ e l b a T [ 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: National Bureau of Statistics of China, Guotai Junan International. Source: National Bureau of Statistics of China, Guotai Junan International.

Figure 3: Key Property Development and Sales Data

30.0% 15.8% 20.0% 1.0% 22.5% 7.0% 12.0% 6.5% 8.1% 13.0% 1.0%

10.0% 7.7% 6.0%

10.5% 6.9% 7.0% 0.0% -7.6% 2014 2015 2016 2017 2018F 2019F -10.0% -4.4% -2.0% -10.7% -14.0% -14.0% -7.8% -8.7% (03883 HK) -20.0% -3.4% -31.7% -30.0%

-40.0% 中国奥园

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.

China Aoyuan China Aoyuan’s (the "Company") 2018 underlying net profit was in line with our expectation. The Company’s top line soared by 62.2% YoY to RMB31,006 mn in 2018 due to strong contracted sales growth and more GFA delivered. Gross profit amounted to RMB9,634 mn, up 88.5% YoY. With exchange loss of RMB605 mn, net profit increased 45.5% YoY to RMB2,390 mn, which was in line with our expectation. If excluding fair value gains on investment properties and exchange loss, underlying net profit rose sharply 80.3% YoY to RMB2,353 mn, in line with our expectation. GPM improved 4.3 ppts YoY to 31.1%. Net profit margin decreased 0.7 ppts YoY to 9.5%. Net gearing ratio was up 7.9 ppts comparing with the end of 2017.

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Company

See the last page for disclaimer Page 2 of 9 [Table_PageHeader]China Aoyuan (03883 HK)

Table 1: Comparison of the Company’s Balance Sheet and Income Statement in 2017 and 2018

] 1 r a M t h g i R _ e l b a T [

RMB mn 2017A 2018A Change

Total revenue 19,115 31,006 62.2%

Gross Profit 5,111 9,634 88.5%

GPM 26.7% 31.1% 4.3 ppts

Net Profit (Inc. after-tax fair value gains on IP) 1,642 2,390 45.5%

Net Profit (Ex. after-tax fair value gains on IP) 1,305 2,353 80.3% 21 March2019

NPM (Inc. after-tax fair value gains on IP) 10.2% 9.5% -0.7 ppts NPM (Ex. after-tax fair value gains on IP) 6.8% 7.6% 0.8 ppts DPS (RMB cent) 0.250 0.360 44.0% Underlying EPS (RMB cent) 0.488 0.878 80.0% Land Appreciation Tax 728 1,925 164.5%

Total Cash on Hand 26,540 38,294 44.3%

Total Asset 125,806 188,858 50.1%

Properties for Sale 77,207 114,961] 2 r a M t h g i R _ 48.9%e l b a T [

Total Debt 40,370 57,722 43.0%

Shareholders' equity 10,155 11,872 16.9%

ROE 17.2% 21.9% 4.7 ppts

Net Gearing Ratio 51.0% 58.9% 7.9 ppts Source: the Company, Guotai Junan International.

Contracted sales is likely to trend up alongside sufficient saleable resources. During 2018, contracted sales reached

RMB91.28 bn, up by 85% YoY, achieving 125% of the Company’s 2018 sales target. Contracted GFA amounted to 8.863 mn sq.m., up by 98% YoY. The ASP in 2018 was RMB10,300 per sq.m., up by 1% YoY. In addition, contracted sales attributable to

shareholders accounted for around 85% of total contracted sales. Sales target and saleable resources in 2019 was RMB 114.1

(03883 HK) and RMB190.0 bn (indicating 25.0% YoY increase and 67.0% target sale-through rate). With competitive products, favorable location and low target sale-through rate, we believe that contracted sales will drift up at a fairly fast growth rate. During Jan.-Feb.

2019, China Aoyuan recorded RMB11.230 bn in contracted sales, up 39% YoY. The Company has already achieved 10% of its 中国奥园 2019 annual sales target.

Figure 4: Aoyuan Contracted Sales Comparison from 2016-2018 China Aoyuan

20,000 18,000 17,390 16,000 14,000 11,971 12,000 11,200 10,000 7,501 7,876 8,000 7,209 6,853 6,020 6,491 6,356 5,505 5,320 6,000 4,733 4,080 4,050 4,055 2,630 4,280 4,322 2,511 3,631 3,393 2,967 2,886 4,000 2,287 2,531 2,655 2,505 2,104 1,730 2,073 1,5041,688 1,550 1,225

2,000 707 Contracted sales (RMB million) Contracted million) sales (RMB 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2016 2017 2018

Source: the Company.

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Company

See the last page for disclaimer Page 3 of 9 [Table_PageHeader]China Aoyuan (03883 HK)

Figure 5: China Aoyuan’s Contracted Sales Amount Figure 6: China Aoyuan’s Contracted Sales Amount Breakdown by Region in 2017 Breakdown by Region in 2018

] 1 r a M t h g i R _ e l b a T [

Bohai Rim, 3% Offshore, 3% Bohai Rim, 5%

Offshore, 4%

East China, 11%

East China, Core Region of 22% Central and West South China, 49%

China, 12% 21 March2019

South China, 71% Core Region of Central and West China, 20%

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

The Company will strictly fulfill disciplined land replenishment initiatives with strong project redevelopment capacity, which will drive the leverage ratio to remain at a healthy level. The Company will invest around 40.0% of contracted sales amount in land replenishment in 2019. This will provide enough saleable resources of above RMB100.0 bn to support contracted

] 2 r a M t h g i R _ e l b a T [ sales growth, as well as limit the Company’s leverage expansion. China Aoyuan owns 16 redevelopment projects with total GFA and saleable resources of 9.8 mn sq.m. and amounting RMB145.2 bn. In addition, the Company plans to transfer around 9 redevelopment projects into its land bank and has formed saleable resources amounting to approximately RMB66.0 bn.

Abundant land bank alongside low unit land costs will support contracted sales growth and protect gross margins, but land bank quality has declined somewhat. In 2018, the Company acquired 64 land parcels. Total acquired GFA recorded 12.58 mn sq.m. with a total consideration of RMB25,494 mn, hinting at unit land cost of RMB2,418 per sq.m. As at 31 Dec. 2018, the Company had a total GFA of approximately 34.10 million sq.m. (attributable: 80%). Its unit land cost amounted to RMB2,102 per sq.m., 20.4% of ASP in 2018.

Figure 7: China Aoyuan’s Land Exposure by Land Cost as Figure 8: China Aoyuan’s Land Exposure by Saleable (03883 HK) at 2018 Resources as at 2018

Overseas Bohai Rim, 5% 中国奥园 Offshore, 4% 9%

Bohai Rim 9% East China, 22%

South China, China Aoyuan 49% South China East China 45% 13%

Core Region of Central and Core Region West China, of Centre and 20% West China 24% Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

The Company is likely to maintain a healthy leverage ratio with a decline in average funding costs. Average financial costs increased by 0.2 ppts to 7.4% in 2018 on tightening credit environment. With expected easing measures related to the monetary environment, we expect average funding costs to slightly decrease. With forecasted faster growth in contracted sales and disciplined land replenishment initiatives, we believe that net gearing ratios will remain at healthy levels.

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Company

See the last page for disclaimer Page 4 of 9 [Table_PageHeader]China Aoyuan (03883 HK)

Figure 9: China Aoyuan’s Average Funding Costs Figure 10: China Aoyuan’s Debt Structure in 2017

] 1 r a M t h g i R _ e l b a T [

10.0% Off-shore 9.5% Bank Loan 9.0% 15% 8.0% 8.1% 7.4% 7.0% 7.2%

6.0%

Off-shore 21 March2019 Bond 5.0% 20% Domestic Bank Loan 4.0% 50% 3.0%

Domestic

2017 2018 2016 2015 Bond Trust 10% 5% Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

We revise up underlying profit estimations. We expect that China Aoyuan's contracted sales will maintain fairly fast growth. Due to the strategic layout in the Big Bay Area with proper unit land cost, we expect the Company to continue trending up. As

] 2 r a M t h g i R _ e l b a T [ contracted sales in 2018 was higher than our previous assumptions, we revise up the 2019F and 2020F total revenue by 24.8% and 67.0% to RMB49,781 mn and RMB81,420 mn, respectively. We expect stable GPM but gross margin in 2018 was higher than our previous estimations. We revise up GPM in 2019F and 2020F. The Company acquired a large number of projects by M&A, which could lead to higher land appreciation tax than our previous expectations. Overall, we revise up 2019F and 2020F underlying net profit by 29.5% and 74.8% to RMB3,829 mn and RMB6,061 mn, respectively. We expect gearing ratio to increase in 2019 on the grounds of sale-through rate increasing with elevated saleable resources. With rising cash collection from inching up contracted sales, we estimate net gearing ratio to decrease gradually in 2020 and 2021. Thus, we adjust net gearing ratio in 2019F and 2020F by 14.0 ppts and -5.4 ppts, respectively.

Table 2: Revisions to 2019-2021 Profit Estimations

RMB mn New estimation Old estimation Change (03883 HK)

2019F 2020F 2021F 2019F 2020F 2021F 2019F 2020F 2021F

Total revenue 49,781 81,420 108,783 39,873 48,768 n.a. 24.8% 67.0% n.a.

Gross profit 14,852 23,955 31,348 10,712 12,826 n.a. 38.6% 86.8% n.a. 中国奥园 Operating profit 11,430 17,570 22,491 7,666 9,041 n.a. 49.1% 94.3% n.a. Net profit 4,085 6,313 8,085 3,949 4,781 n.a. 3.5% 32.0% n.a. Underlying profit 3,829 6,061 7,830 2,956 3,468 n.a. 29.5% 74.8% n.a.

Gross margin 29.8% 29.4% 28.8% 26.9% 26.3% n.a. 3.0 ppts 3.1 ppts n.a. China Aoyuan Operating profit margin 23.0% 21.6% 20.7% 19.2% 18.5% n.a. 3.7 ppts 3.0 ppts n.a. Net profit margin 8.2% 7.8% 7.4% 9.9% 9.8% n.a. -1.7 ppts -2.0 ppts n.a. Underlying net profit margin 7.7% 7.4% 7.2% 7.4% 7.1% n.a. 0.3 ppts 0.3 ppts n.a. ROE 29.6% 33.6% 31.4% 22.9% 21.5% n.a. 6.7 ppts 12.1 ppts n.a. ROCE 4.3% 5.7% 6.5% 4.2% 4.4% n.a. 0.1 ppts 1.3 ppts n.a. ROA 1.8% 2.2% 2.3% 1.9% 2.1% n.a. -0.1 ppts 0.1 ppts n.a. Net gearing ratio 66.3% 51.2% 50.0% 52.3% 56.6% n.a. 14.0 ppts -5.4 ppts n.a. Source: Guotai Junan International.

Maintain "Buy". The Company's contracted sales is expected to maintain fairly fast growth. Disciplined land replenishment initiatives with strong M&A and redevelopment capacity could limit leverage expansion. Abundant land bank alongside low unit land costs will drive the Company’s gross margin to be above 28.8%. The improvement in fundamentals will help to justify a lower NAV discount for the Company. As we revise up underlying net profit, we revise up our target price from HK$8.08 to

HK$11.81, representing a 50% discount to 2019E NAV of HK$23.38 per share, 7.0x 2019 underlying PER and 2.3x 2019 PBR. Report We maintain China Aoyuan's investment rating as "Buy". Risk factors include lower-than-expected contracted sales and possible

failure in operations activities of overseas projects and redevelopment projects.

Company

See the last page for disclaimer Page 5 of 9 [Table_PageHeader]China Aoyuan (03883 HK)

Table 3: Breakdown of China Aoyuan’s 2019 NAV

] 1 r a M t h g i R _ e l b a T [

NAV summary results 2019F Development properties (RMB mn) 70,305

Investment properties (RMB mn) 6,533 Total gross asset value (RMB mn) 76,838 (Net debt)/net cash(RMB mn) (23,591) NAV (RMB mn) 53,247

NAV/share (RMB) 19.87 21 March2019 NAV/share (HK$) 23.38 TP discount to NAV 50% Target price (HK$) 11.81 Source: the Company, Guotai Junan International.

Figure 11: China Aoyuan 3-Year Historical P/B Figure 12: China Aoyuan 3-Year Historical P/E

] 2 r a M t h g i R _ e l b a T [

Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International.

(03883 HK)

中国奥园 China Aoyuan

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Company

See the last page for disclaimer Page 6 of 9 [Table_PageHeader]China Aoyuan (03883 HK)

Table 4: Peers Comparison PE PB Company Stock Code Mkt Cap (HK$ m) Last Price HK$ ] 1 r a M t h g D/Y%i R _ ROEe l EV/EBITDAb a T [

2019F 2020F 2021F 2019F 2020F 2021F 2018F 2018F 2018F

HK listed large developers with major revenue from mainland

China Overseas Land & 00688 HK 328,138.2 29.950 7.1 6.2 5.2 1.0 0.9 0.8 3.8 15.0 3.8 InvestChina Evergrande 03333 HK 382,553.1 29.150 6.2 5.8 6.8 1.9 1.6 1.4 8.0 33.9 8.0 GroupChina Resources Land 01109 HK 230,453.7 33.250 8.0 7.0 5.8 1.3 1.1 0.9 4.2 16.9 4.2 LtdCountry Garden 02007 HK 262,370.0 12.120 5.3 4.6 4.1 1.4 1.2 1.0 5.9 30.1 5.9 Longfor Group Holdings 00960 HK 147,398.4 24.800 7.8 6.4 7.2 1.4 1.3 1.0 5.3 19.1 5.3

Holdings Co 21 March2019 LtdChina Vanke Co Ltd-H 02202 HK 379,681.7 32.700 7.5 6.7 6.4 1.7 1.5 1.3 4.7 23.5 4.7 Sunac China Holdings 01918 HK 169,798.1 38.450 6.3 5.0 n.a. 2.0 1.4 n.a. 3.0 30.6 3.0 LtdAgile Group Holdings 03383 HK 48,493.0 12.380 5.0 4.4 3.8 0.8 0.7 0.6 9.1 18.0 9.1 LtdShimao Property 00813 HK 69,991.7 21.200 5.3 4.3 3.4 0.8 0.7 0.6 7.3 16.7 7.3 HoldingsGuangzhou Ltd R&F 02777 HK 54,522.5 16.920 3.7 3.1 2.5 0.6 0.5 0.5 11.0 17.7 11.0 PropertiesBbmg Corp -- H 02009 HK 47,883.0 2.790 5.9 5.6 n.a. 0.4 0.4 n.a. 3.2 8.4 3.2 Sino-Ocean Group 03377 HK 26,808.3 3.520 4.1 3.4 n.a. 0.4 0.4 0.3 10.5 9.8 10.5 HoldingChina Jinmao Ltd Holdings 00817 HK 55,350.0 4.790 7.0 5.7 4.6 1.1 1.0 0.9 5.7 15.1 5.7 GroupHopson Development 00754 HK 16,803.0 7.550 8.2 7.5 n.a. n.a. n.a. n.a. 3.6 n.a. 3.6 HoldingsZhenro Properties 06158 HK 20,779.9 5.040 6.1 4.3 n.a. 1.1 0.9 n.a. n.a. 20.2 n.a. GroupKwg Group Ltd Holdings Ltd 01813 HK 26,122.6 8.230 3.9 3.1 2.6 0.6 0.5 0.5 9.2 16.7 9.2 Yuexiu Property Co Ltd 00123 HK 22,942.4 1.850 6.7 6.0 6.0 0.5 0.5 0.5 6.0 8.1 6.0

Shenzhen Investment 00604 HK 25,489.0 3.020 8.0 7.6 n.a. 0.5 0.5 ] 2 r n.a.a M t h 5.6g i R _ 7.1e l b 5.6a T [

LtdRonshine China 03301 HK 21,970.5 13.640 4.6 3.4 n.a. 1.1 0.8 n.a. 4.8 26.8 4.8 HoldingsYuzhou Properties Ltd Co 01628 HK 21,313.5 4.440 3.8 3.2 2.6 0.8 0.6 0.6 9.3 21.6 9.3 Greentown China 03900 HK 14,496.7 6.680 4.7 4.9 n.a. 0.4 0.3 n.a. 4.3 7.1 4.3 HoldingsChina Aoyuan Group 03883 HK 23,672.5 8.840 5.5 3.9 2.9 1.4 1.1 0.9 7.6 27.6 7.6 LtdSoho China Ltd 00410 HK 17,054.4 3.280 32.9 29.4 n.a. 0.4 0.5 n.a. 3.4 1.2 3.4 Median 6.1 5.0 4.4 0.9 0.8 0.8 5.7 17.3 5.7

Simple Average 7.1 6.2 4.6 1.0 0.8 0.8 6.1 17.8 6.1

Weighted Average 6.7 5.9 5.5 1.4 1.2 1.0 5.5 22.6 5.5

HK listed mid-small developers with major revenue from mainlandChina Overseas Grand 00081 HK 13,008.8 3.800 5.5 4.4 3.0 0.6 0.5 n.a. 2.6 11.5 2.6 OceansPoly Property Group Co 00119 HK 11,350.8 3.100 4.1 3.8 n.a. 0.4 0.3 n.a. 7.4 10.1 7.4

LtdShanghai Industrial 00563 HK 8,130.5 1.690 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

(03883 HK)

UrbanModern De Land China Co 01107 HK 3,654.8 1.310 3.2 2.8 3.7 0.5 0.5 0.4 8.6 14.8 8.6 LtdPowerlong Real Estate 01238 HK 16,388.9 4.100 2.5 2.1 n.a. 0.4 0.3 n.a. 9.4 19.0 9.4

HoldinC C Land Holdings Ltd 01224 HK 6,988.2 1.800 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 中国奥园 Fantasia Holdings 01777 HK 8,644.4 1.500 5.6 5.1 n.a. 0.5 0.5 n.a. 5.1 7.0 5.1 GroupYuexiu CoReal Estate 00405 HK 16,877.1 5.410 18.8 18.5 n.a. 1.0 1.0 1.2 6.2 8.1 6.2 InvestmenCentral China Real 00832 HK 10,406.1 3.810 6.1 4.6 n.a. 0.9 0.8 n.a. 4.9 15.1 4.9 EstateChina Sce Group 01966 HK 15,968.1 3.870 3.8 3.0 n.a. 0.7 0.6 n.a. 8.0 20.8 8.0

HoldingsTop Spring Ltd International 03688 HK 3,395.0 2.450 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. China Aoyuan HldBeijing Capital Land 02868 HK 8,781.1 2.900 n.a. n.a. n.a. n.a. n.a. n.a. 8.5 n.a. 8.5 LtdZhong-H An Real Estate 00672 HK 1,801.2 0.310 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. LtdBeijing North Star Co 00588 HK 13,489.6 2.670 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. LtdChina-H South City 01668 HK 10,471.1 1.290 3.1 2.5 2.1 0.3 0.3 0.2 5.6 7.2 5.6 HoldingsShui On Land Ltd 00272 HK 16,285.7 2.020 7.3 4.9 19.1 0.3 0.3 0.3 5.4 4.2 5.4 Glorious Property 00845 HK 3,039.1 0.390 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

HoldingsMedian 4.8 4.1 3.4 0.5 0.5 0.4 6.2 10.8 6.2

Simple Average 6.0 5.2 7.0 0.6 0.5 0.5 6.5 11.8 6.5

Weighted Average 6.6 5.7 8.9 0.6 0.5 0.6 6.5 11.9 6.4 Source: the Company, Guotai Junan International.

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Company

See the last page for disclaimer Page 7 of 9 [Table_PageHeader]China Aoyuan (03883 HK)

Financial Statements and Ratios

[Table_IncomeStatement] [Table_BalanceSheet] ] 1 r a M t h g i R _ e l b a T [ Income Statement Balance Sheet

Year end 31 Dec (RMB m) 2017A 2018A 2019F 2020F 2021F Year end 31 Dec (RMB m) 2017A 2018A 2019F 2020F 2021F

Total Revenue 19,115 31,006 49,781 81,420 108,783 Investment Properties 6,360 8,833 9,404 10,002 10,631

Sales of Properties 17,960 29,740 48,172 79,376 106,191 Property, Plant and Equipment 719 2,057 2,230 2,421 2,632

Other Income 1,155 1,266 1,610 2,044 2,592 Other Non-current Assets 2,616 6,160 6,308 6,473 6,658

Cost of Sales (14,004) (21,372) (34,929) (57,465) (77,436) Total Non-current Assets 9,696 17,051 17,941 18,896 19,921

Gross Profit 5,111 9,634 14,852 23,955 31,348 Cash & Cash Equivalents 24,769 36,012 38,798 43,640 43,499 21 March2019 - Change in Fair Value of IPs 332 1,087 1,058 1,068 1,118 Properties for Sale 77,207 114,961 167,876 215,665 259,903

- SG&A (1,726) (3,168) (4,841) (7,838) (10,368) Trade and Other Receivables 7,407 12,274 18,863 29,276 37,825

- Other Gains, Net 292 (223) 361 385 393 Restricted Cash 1,771 2,281 3,695 6,089 8,146 Operating Profit 4,010 7,330 11,430 17,570 22,491 Other Current Assets 4,956 6,279 6,532 6,966 7,369 - Finance Income/(costs), Net (268) (411) (483) (588) (637) Total Current Assets 116,110 171,808 235,765 301,636 356,742

- Share Profits of JVs (116) 37 40 44 49 Total Assets 125,806 188,858 253,706 320,533 376,663

- Losses on Sales of a Subsidiary 0 (2) (2) (2) (2)

Profit before Tax 3,626 6,954 10,985 17,024 21,900 Trade and Other Payables 14,579 25,565 33,426 49,493 60,023

Income Tax (1,674) (4,015) (5,942) (9,133) (11,666) Contract liabilities 34,760 59,966 101,495 137,697 165,911

Profit after Tax 1,952 2,939 5,043 7,891 10,234 Short-term Bank Loans 13,371 19,261 21,188 23,306 25,637

Non-controlling Interest (312) (531) (958) (1,578) (2,149) Provision 1,103 898 853 810 770

Shareholders' Profit / Loss 1,640 2,409 4,085 6,313 8,085 Current Income Tax Liabilities 3,172 5,535 5,701 5,872 6,048

] 2 r a M t h g i R _ e l b a T [ Adjusted Net Profit 1,305 2,353 3,829 6,061 7,830 Other Current Liabilities 8,587 9,807 10,367 11,172 11,912

Basic EPS 0.613 0.899 1.524 2.356 3.017 Total Current Liabilities 75,573 121,033 173,029 228,350 270,300

Underlying EPS (RMB) 0.488 0.878 1.429 2.262 2.922 Current Assets Less Current Liabilities 40,537 50,775 62,736 73,286 86,442 Total Assets Less Current Liabilities 50,233 67,826 80,677 92,182 106,363

[Table_CashFlowStatement] Cash Flow Statement Bank and Other Borrowings 14,423 21,490 26,862 29,549 32,503

Year end 31 Dec (RMB m) 2017A 2018A 2019F 2020F 2021F Senior Notes 5,457 12,500 15,000 16,050 17,173

Operating activities Other Non-current Liabilities 3,226 3,102 3,237 3,379 3,529

Profit Before Taxation 3,626 6,954 10,985 17,024 21,900 Total Non-current Liabilities 23,106 37,092 45,099 48,977 53,205

Finance Costs 268 411 483 588 637 Total Liabilities 98,680 158,124 218,128 277,328 323,506

D&A 53 54 54 55 55

Changes in Fair Value of IPs (337) (766) (705) (680) (691) Total Shareholders' Equity 10,155 11,872 15,758 21,807 29,610

Others (127) 391 (197) (215) (217) Minority Interest 16,971 18,862 19,820 21,398 23,547 Total Equity 27,126 30,734 35,578 43,205 53,158 Changes in Working Capital: (6,926) (6,889) (9,686) (5,986) (14,100) (03883 HK)

Net Cash from Operations (3,443) 154 935 10,786 7,585 [Table_FinancialRatio] Income Taxes Paid (3,320) (4,486) (7,325) (9,849) (11,548) Financial Ratios

Cash from Operating Activities (6,763) (4,332) (6,390) 936 (3,964) 2017A 2018A 2019F 2020F 2021F 中国奥园

Investing Activities Revenue Growth (%) 61.6 62.2 60.6 63.6 33.6

Purchase of Investment Properties (1,597) (1,707) 135 82 62 Gross Profit Growth (%) 56.0 88.5 54.2 61.3 30.9

Increase in Restricted Bank Deposits (1,285) (1,838) (1,746) (2,726) (2,356) Reported Net Profit Growth (%) 86.2 46.9 69.6 54.5 28.1

Other Investing Cash Flow (7,061) 2,178 (124) (151) (181) Underlying EPS Growth (%) 37.5 80.3 62.7 58.3 29.2 China Aoyuan Cash from Investing Activities (9,944) (1,367) (1,734) (2,795) (2,475) Financing Activities Gross Margin (%) 26.7 31.1 29.8 29.4 28.8

Debt Raised/(Repaid) 20,726 20,000 9,799 5,855 6,409 Operating Profit Margin (%) 21.0 23.6 23.0 21.6 20.7

Dividend Paid (401) (670) (1,157) (1,843) (2,430) Adjusted Net Margin (%) 6.8 7.6 7.7 7.4 7.2

Other Financing Cash Flow 10,721 (2,367) 2,280 2,694 2,321 ROA (%) 1.7 1.5 1.8 2.2 2.3

Cash from Financing Activities 31,046 16,962 10,921 6,707 6,300 ROCE (%) 3.3 3.1 4.3 5.7 6.5

Net Changes in Cash 14,339 11,264 2,796 4,848 (139) ROE (%) 17.2 21.9 29.6 33.6 31.4

Cash at Beg of Year 10,471 24,769 36,012 38,798 43,640

Exchange Losses (41) (21) (10) (5) (3) Net Gearing Ratio 51.0 58.9 66.3 51.2 50.0

Cash at End of Year 24,769 36,012 38,798 43,640 43,499 Debt to Equity Ratio 148.8 187.8 190.4 170.9 151.4 Current Ratio 153.6 142.0 136.3 132.1 132.0

Cash / Total Assets 19.7 19.1 15.3 13.6 11.5

Underlying P/E (x) 15.1 8.8 5.3 3.3 2.6

P/E (Basic) (x) 12.0 8.6 4.9 3.2 2.5

P/E (Diluted) (x) 12.0 8.6 4.9 3.2 2.5

P/B (x) 1.9 1.8 1.3 0.9 0.7

Report

Dividend Yield (%) 3.4 4.6 5.7 9.2 12.1

Source: the Company, Guotai Junan International. Company

See the last page for disclaimer Page 8 of 9 [Table_PageHeader]China Aoyuan (03883 HK)

Company[Table_CompanyRatingDefinition] Rating Definition

The Benchmark: Hong Kong Hang Seng Index ] 1 r a M t h g i R _ e l b a T [

Time Horizon: 6 to 18 months

Rating Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable.

Neutral 中性 Relative Performance is -5% to 5%; 21 March2019 or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector[Table_ RatingIndustry DefinitionRatingDefinition] The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%;

] 2 r a M t h g i R _ e l b a T [ or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[DISCLOSURETable_DISCLOSUREOFINTERESTS 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 KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),BANK OF GANSU (02139 HK),BINHAI INVESTMENT (02886 HK),VALUE A SHARE (03095 HK),CAM SCSMALLCAP (03157 HK),HAITIANTIAN (08227 HK),CSOP MSCI-R (CNY) (83149 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. (03883 HK)

(4) Guotai Junan and its group companies have 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 中国奥园 Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

DISCLAIMER China Aoyuan 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.

© 2019 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. Report

27/F., Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong. Tel.: (852) 2509-9118 Fax: (852) 2509-7793 Website: www.gtja.com.hk

Company

See the last page for disclaimer Page 9 of 9