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Company Report Yuexiu Property Rating BUY Snapshot on this Guangzhou residential market leader 26 April 2012

Philip Tse, CFA Yuexiu Property (“Yuexiu”) has achieved 31% sales target run-rate in (852) 2683 3211 1Q12, the highest among peers, we believe. Further, it has also [email protected] captured the highest residential market shares of 15.3% in Sector Property Guangzhou during the period. Given the strong sales performance, we estimate unrecognized sales have reached Rmb10.4bn (including Key Data Rmb7.3bn brought forward from FY11) which have fully locked-in our Ticker 123.HK Price (25 Apr) HK$1.71 estimated FY12 revenue and provide strong foundation for revenue Target price HK$2.12 growth. We reiterate BUY rating on the counter with target price at HK$2.12 (old: HK1.87), based on 55% discount. 52W High HK$1.73 52W Low HK$0.94 Mkt. Cap. (HK$mn) 15,877 Highest run-rate among peers and highest Guangzhou market share. Mkt. Cap. (US$mn) 2,036 Yuexiu has achieved the highest sales target run-rate among peers that we Total Issued Share (mn) 9,285 Avg. 3mths t/o (HK$mn) 42 monitor for 1Q12 with total contracted sales amounted to Rmb3.1bn, representing 31% of its full year sales target of Rmb10bn. In addition to its Shareholdings Structure Guangzhou Yue Xiu Holdings Limited 49.88% impressive sales performance, Yuexiu is the residential market leader in Free float 50.12% Guangzhou with residential contracted area reached 167k sqm, a market share of 15.3%. Price performance HK$ mn Landbank diversifying to 11.2mn sqm. As at end-11, the company had 2.0 240 1.5 180 29 projects under different stages of development located in 9 cities including 1.0 120 Guangzhou, Foshan, Zhongshan, Jiangmen, , Hangzhou, Wuhan, 0.5 60

Shenyang and Yantai with a total attributable GFA of 11.2mn sqm which we 0.0 0 04/11 06/11 08/11 10/11 12/11 02/12 04/12 believe is sufficient for development in next 8 years. Moreover, the company Volume (RHS) Yuexiu property (LHS) has diversified about 50% of its landbank out of Guangzhou. HSI (rebased) (LHS) % 1m 3m 6m Unrecognized sales reached Rmb10.4bn. Strong sales momentum and 123.HK 10.3 32.6 48.7 HSI (0.1) 1.0 8.3 highest run-rate among peers in 1Q12 also provides high earnings visibility and high revenue lock-in ratio. The total unrecognized contracted sales amounted to Next year forward PER x about Rmb7.3bn as at end-11. Including the Rmb3.12bn achieved in 1Q12, the 9 8 M+1SD 7 total unrecognized sales reached Rmb10.4bn which have fully locked-in our 6 Mean 5 estimated FY12 revenue for the property development segment. 4 M-1SD 3 2 1 Valuation and recommendation. Taking into account the landbank acquired 0 in 2011 as well as a faster than expected sales pipeline, we adjusted our 03/10 05/10 07/10 09/10 11/10 01/11 03/11 05/11 07/11 09/11 11/11 01/12 03/12 Source: HKEx, Bloomberg, Company data & ICBCI estimate on the company’s NAV to HK$43.8bn or HK$4.72 (old: HK$4.16) per estimates share. We believe the reputable brand in Guangzhou helps Yuexiu to capture more market share under current market consolidation as well as remaining purchase quota after the execution of home-purchase restriction for a whole year. We reiterate our BUY rating on Yuexiu with target price at HK$2.12 (old: HK$1.87), representing 55% discount to NAV compared with peers’ average at 54%. Valuation Statistics Core Core Core Net debt/ YE Turnover Net profit profit EPS CEPS CPER PBR Yield ROE equity 31 Dec HK$ mn HK$ mn HK$ mn HK$ chg % x x % % % 2009A 4,671 (607) 439 0.06 1.525.0 0.9 5.4 3.5 53.2 2010A 5,634 919 725 0.10 57.3 15.4 0.7 0.0 5.2 64.7 2011A 9,569 5,137 1,420 0.15 57.9 9.1 0.6 5.0 7.9 77.2 2012F 10,534 1,780 1,780 0.19 25.3 7.3 0.6 5.5 8.5 76.4 2013F 14,225 2,094 2,094 0.23 17.7 6.2 0.5 6.5 9.5 71.2 Source: Company, ICBCI estimates

For further product information please contact ICBC International Research Limited at (852) 2683 3888 Please read the important notice on last page Yuexiu Property - 26 April 2012 1

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Market leader in Guangzhou

Though a number of developers missed their sales target in 2011, Yuexiu Contracted sales target at successfully completed its sales target plan for three consecutive years from Rmb10bn 2009 to 2011. In 2011, Yuexiu achieved a contracted sales amount of Rmb9.054bn with contracted area of 608.8k sqm, representing an ASP of Rmb14,900 psm.

Contracted sales breakdown in FY11 Contracted sales amount Contracted GFA Contracted ASP Project (Rmb mn) (k sqm) (Rmb psm) Guangzhou Projects Jiang Nan New Mansion 26,100 1,052 40,300 Springland Garden 30,200 722 23,900 Ling Nan Riverside 38,200 796 20,800 Starry Winking 3,600 134 37,800 Huadu Glade Greenland 12,500 95 7,600 Paradiso Homeland 9,600 237 24,600 Rayon Jadin 12,800 272 21,200 Cong Hua Glade Village 26,300 231 8,800 Southern Le Sand 113,700 994 8,700 Fortune Century Square 36,800 1,048 28,500 Starry Wenhua 29,700 597 20,100 Starry Golden Sands 18,000 245 13,600

Projects out of Guangzhou Jiangmen Starry Regal Court 23,700 174 7,300 Yantai Starry Phoenix 23,000 156 6,800 Shenyang Yuexiu Hill Lake 8,500 91 10,700

Other Projects 15,600 351 22,500 Investment Properties 63,000 875 13,900 Sub-total 491,300 8,070 16,400

Popark Plaza 117,200 984 8,400

Total 608,500 9,054 14,900 Source: Company data and ICBCI estimates

Yuexiu has set its FY12 contracted sales target at Rmb10bn, about 10% growth from the amount achieved in FY11 (Rmb9.1bn). The company plans to launch 8 new projects in 2012 with 4 in Shanghai, 2 in Zhongshan, 1 in Yuhan and 1 in Hangzhou. This will bring the number of projects on sale in 2012 to 16.

Contracted sales achieved and target in FY09 – FY12 Sales target Sales achieved Year (Rmb bn) (Rmb bn) 2009 6.1 6.1 2010 7.9 8.9 2011 9.0 9.1 2012 10.0 - Source: Company data and ICBCI estimates

The total estimated saleable resources for FY12 will reach 1.9mn sqm (or about Saleable resources reached Rmb24bn assuming ASP of about Rmb12,500 psm). Together with other Rmb27bn non-core investment properties available for sales of approximately Rmb3bn, the total available for sales resources will reach Rmb27bn. With reference to historical sale-through rate of about 60%, we believe Yuexiu can easily achieve its full year sales target.

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Saleable resources available for 2012 Launch Available for sale Estimated sales Project Location Type* time (k sqm) GFA (k sqm) Fortune Apartment Liwan, Guangzhou S/C 1Q 2012 79,000 73,500 Southern Le Sand Nansha, Guangzhou R 2011 263,000 142,400 Huadu Glade Greenland Huadu, Guangzhou R 2011 60,000 35,700 Jiangmen Starry Regal Beixin, Jiangmen R 2011 114,000 56,900 Zhongshan Starry Winking Nanqu, Zhongshan R 1Q 2012 115,000 62,100 Zhongshan Starry Junting Shiqi, Zhongshan R 1Q 2012 109,000 38,300 Shenyang Yuexiu Hill Lake Xinqu, Shenyang R 2011 74,000 33,300 Fortune Century Square Tianhe, Guangzhou O/S 2011 71,000 36,300 Yantai Starry Phoenix Zhifu, Yantai R 2011 95,000 57,200 Starry Golden Sands Baiyun, Guangzhou R 2011 114,000 52,900 Starry Wenhua Panyu, Guangzhou R 2011 104,000 26,100 Starry Wenyu Panyu, Guangzhou R May 2012 89,000 22,300 Starry Wenhan Panyu, Guangzhou R May 2012 109,000 27,300 Panyu Southern District Panyu, Guangzhou R Q3/Q4 2012 190,000 51,700 Wuhan Qiankou Project Qiaokou, Wuhan R Q3/Q4 2012 80,000 32,000 Hangzhou Lin’an Land Linan, Hangzhou R Q4 2012 128,000 110,100 Others - - 79,100 74,000 Investment Properties C - 81,000 29,100

TOTAL - 1,954,100 961,200 Source: Company data and ICBCI estimates * S: Serviced Apartments C: Commercial O: Office R: Residential

1Q12 update - Highest run-rate among peers

In 1Q12, the company has newly launched two projects located in Zhongshan, Contracted sales amount of namely Zhongshan Starry Winking and Zhongshan Starry Junting as well as 1 Rmb3.12bn project in Guangzhou, namely, Guangzhou Fortune Apartment. Up to 1Q12, including sales of non-residential products including commercial, non-core investment properties and other serviced apartments, the total contracted sales amount of Yuexiu has reached Rmb3.12bn, up 118% yoy.

Contracted sales breakdown in 1Q12 Contracted sales amount Contracted GFA Contracted ASP Project (Rmb mn) (k sqm) (Rmb psm) Guangzhou projects Lingnan Riverside 61.93 2,999 20,650 Conghua Glade Village 0.72 110 6,545 Starry Winking 60.13 1,301 46,218 Starry Golden Sands 170.11 13,564 12,541 Starry Wenhua 112.15 5,394 20,792 Huadu Glade Greenland 59.7 9,433 6,329 Southern Le Sand 443.03 66,498 6,662 Fortune Apartment 873.37 49,442 17,665 Fortune Century Square 211.87 7,956 26,630 Investment Properties 648.79 38,608 16,805 Others 3.03 326 9,294 Sub-total (Guangzhou ) 2,644.83 195,631 13,519

Other Guangdong projects Jiangmen Starry Regal Court 204.65 32,728 6,253 Zhongshan Starry Winking 217.46 43,013 5,056 Sub-total (Guangdong Province) 3,066.94 271,372 11,302

Projects out of Guangdong Province Shenyang Yuexiu Hill Lake 7.5 973 7,708 Yantai Starry Phoenix 26.04 4,070 6,398 Sub-total (Out of Guangdong) 33.54 5,043 6,651

TOTAL 3,100.48 276,415 11,217 Source: Company data and ICBCI estimates

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Further, the company has also achieved the highest sales target run-rate for Run-rate of 31%, highest in 1Q12. Up to 1Q12, the total contracted sales amounted to Rmb3.1bn, 1Q12 representing 31% of its full year sales target. Due to more contribution from non-core area projects in Guangzhou as well as non-Guangzhou projects, the average selling price has decreased about 30% from Rmb16,100psm 1Q11 to Rmb11,200psm in 1Q12. We believe the company’s prime-located Guangzhou projects will continue to be the key drivers for contracted sales in the coming years.

Peers comparison – contracted sales in 1Q12-YTD Completion 2012 vs 2011 1Q12-YTD of full-year 2012 sales target sales yoy growth target company target growth Ticker Name (Rmb mn) (%) (%) (Rmb mn) (%) 000002 CH 31,070 (11) 22.2 140,000 0 688 HK China Overseas 21,721 32 22.0 66,560 0 2777 HK R&F Properties 6,631 1 20.1 33,000 3 2007 HK 6,120 (34) 14.2 43,000 0 1109 HK CR Land 8,190 44 20.5 40,000 21 3383 HK Agile 6,390 (31) 19.6 32,550 (12) 813 HK Shimao 7,304 15 21.7 33,700 (6) 3900 HK Greentown 6,700 (40) 16.8 40,000 0 1813 HK KWG Property 2,034 (38) 17.0 12,000 (20) 3377 HK Sino-Ocean 3,266 (45) 12.1 27,000 (10) 845 HK Glorious Property 1,603 (45) 12.3 13,000 (14) 119 HK Poly Hong Kong 1,950 (9) 12.2 16,000 (11) 3333 HK Evergrande 8,260 (58) 10.3 80,000 14 123 HK Yuexiu Property 3,118 118 31.2 10,000 11 1224 HK CC Land 1,003 (42) 14.8 6,800 (9) 960 HK Longfor 6,530 (34) 16.7 39,000 (3) 832 HK Central China 2,450 35 27.2 9,000 23 1777 HK Fantasia 1,013 (3) 14.1 7,200 20 1638 HK Kaisa 2,709 124 16.4 16,500 10 1918 HK 3,440 70 16.8 20,500 24 1628 HK Yuzhou Properties 1,495 59 29.9 5,000 (23) 272 HK - - 0.0 12,000 20

Average 5 17.6 2 Source: Company data and ICBCI estimates

15% market shares in Guangzhou residential market in 1Q12.

In addition to its impressive contracted sales performance in 1Q12, for Market share leader in 1Q12 residential portion only, Yuexiu has been the market leader in Guangzhou. The company’s market share in terms of residential properties contracted sales GFA ranked no. 1 in Guangzhou in 1Q12. The total residential contracted area has reached 167k sqm during the period with a market share as high as 15.3%. Further, the total contracted sales amount for residential properties also reached Rmb2,185mn, ranked no. 2 in Guangzhou for the period.

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Top 10 developers’ residential GFA sales in Guangzhou in 1Q12 GFA Market Share Rank Developers (k sqm) (%) 1 Yuexiu Property(越秀地产 ) 167.0 15.3 2 R&F(富力地产) 132.2 12.2 3 Country Garden(碧桂园) 131.6 12.1 4 (保利地产) 126.8 11.7 5 Vanke (万科地产) 103.8 9.5 6 Heungkong Estate (香江控股) 94.6 8.7 7 Agile(雅居乐 ) 64.3 5.9 8 Aoyuan(中国奥园 ) 38.0 3.5 9 New World China(新世界中国 ) 34.5 3.2 10 COFCO Property(中粮地产) 34.5 3.2

Total residential GFA sold in Guangzhou 1,088.0 Source: fangchan.com, Hopefluent

Top 10 developers’ residential sales amount in Guangzhou in 1Q12 Sales amount Rank Developers (Rmb mn) 1 R&F(富力地产) 2,852 2 Yuexiu(越秀地产 ) 2,185 3 Poly Real Estate (保利地产) 1,627 4 Vanke(万科地产 ) 1,288 5 Country Garden(碧桂园) 1,029 6 Heungkong Estate(香江控股 ) 930 7 New World China(新世界中国 ) 740 8 KWG(合景泰富 ) 726 9 Agile (雅居乐) 720 10 COFCO Property(中粮地产) 540 Source: fangchan.com

Landbank of 11.2mn sqm

As at end-11, the company had 29 projects under different stages of Landbank diversifying with development located in 9 cities including Guangzhou, Foshan, Zhongshan, 50% out of Guangzhou Jiangmen, Hong Kong, Hangzhou, Wuhan, Shenyang and Yantai with a total attributable GFA of 11.2mn sqm which we believe is sufficient for development in next 8 years. Moreover, the company has diversified its geographical location of its landbank from Guangdong Province. Among the 11.2mn sqm landbank, about 50% is located outside Guangzhou which significantly lowers the policy risk and specific risk to any single market.

For details, please refer to appendix I – Landbank breakdown by projects.

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Landbank geographical distribution GFA % of Total City (sqm) (%) Guangzhou 5,499,500 49.3

Other projects in Pearl River Delta Zhongshan 1647,000 14.8 Jiangmen 583,900 5.2 Foshan 291,100 2.6 Hong Kong 58,800 0.5

Projects out of Pearl River Delta Hangzhou 1,174,500 10.5 Shenyang 1,036,600 9.3 Wuhan 643,900 5.8 Yantai 219,800 2.0

TOTAL 11,155,100 100.0 Source: Company data

The company had about 4.0mn sqm under development as at end-11. Looking ahead, we expect there will be another new commencement of 1.9mn sqm with about 1mn sqm to be completed in 2012. This will bring the total under development construction scale up to 5.0mn sqm by the end of 2012.

Landbank geographical distribution (mn sqm) FY09A FY10A FY11A FY12E New construction starts 0.6 1.3 1.6 1.9 Properties Under Development 2.2 2.9 4.0 5.0 Properties for future development 4.4 7.1 7.2 na Total landbank 6.6 10.0 11.2 na Source: Company data

Planned Land Project Name Land Use GFA Premium Cost Location (sqm) (Rmb mn) (Rmb psm) Xinqu, Shenyang Linghai Mingzhu Residential 366,700 1,038 2,831 Shenyang Residential/ Dongling, Shenyang Nanta Street Plot 669,900 2,150 3,209 Commercial Shenyang Luogang, Guangzhou Science City Project Plot Residential 299,000 1,410 4,716 Guangzhou Residential/ Linan, Hangzhou Lin-an Land Phase II Plot 211,000 396 1,877 Commercial Hangzhou DongSheng, ZhongShan Dongsheng Plot Residential 427,300 259 606 Zhongshan Other Projects Residential 39,400 263 6,675 Total 2,013,300 5,516 2,740 Source: Company data

Healthy financials with manageable cash flow

As at end-11, the cash on hand of the company amounted to Rmb6.13bn, dropped 18% yoy comparing to Rmb7.47bn as at end-FY10. However, net gearing ratio maintained at manageable level of 77.2% as at end-11, in line with our estimated industry average of 74%. Looking forward, the company expects a cash inflow of Rmb10.0bn from contracted sales in 2012 and we also expect a cash inflow of about Rmb1bn from rental and other property related business which brings the total cash inflow to approximately Rmb11bn. On the other hand, major outflow will be the planned construction CAPEX, outstanding

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land premium and SG&A expenses which are estimated at Rmb7.6bn, Rmb1.1bn and Rmb2.5bn, respectively.

Cash, debt and net gearing as at end-2011, compared to end-2010 Cash (Rmb mn) Net debts (Rmb mn) Net gearing ratio (%) Ticker Company end-FY11 end-FY10 chg% end-FY11 end-FY10 chg% end-FY11 end-FY10 ppt chg 688 HK China Overseas 15,593 27,138 (42.5) 10,908 10,606 2.8 19.1% 22.9% (3.8) 1109 HK CR Land 12,495 10,146 23.2 30,572 21,894 39.6 62.3% 56.3% 6.1 3383 HK Agile 7,328 10,681 (31.4) 12,502 10,077 24.1 57.7% 53.9% 3.7 813 HK Shimao 13,994 13,729 1.9 28,567 20,344 40.4 93.4% 76.2% 17.2 2007 HK Country Garden 10,818 8,149 32.8 18,148 11,969 51.6 62.6% 48.2% 14.4 2777 HK R&F Properties 9,026 9,168 (1.6) 19,353 18,686 3.6 85.9% 94.4% (8.5) 3377 HK Sino-Ocean 12,417 15,034 (17.4) 21,171 14,162 49.5 60.0% 45.6% 14.4 123 HK Yuexiu Property 6,128 7,473 (18.0) 15,655 10,263 52.5 77.2% 64.7% 12.5 1238 HK Powerlong 1,819 4,002 (54.6) 7,537 2,219 239.7 53.8% 20.4% 33.4 754 HK Hopson 2,966 2,286 29.7 25,772 17,814 44.7 77.2% 55.0% 22.1 272 HK Shui On 6,370 6,790 (6.2) 20,261 13,024 55.6 68.4% 46.2% 22.2 3900 HK Greentown 5,884 14,973 (60.7) 26,042 19,074 36.5 218.1% 187.0% 31.1 817 HK Franshion Properties 10,238 11,285 (9.3) 10,250 4,168 145.9 48.2% 21.3% 26.9 1813 HK KWG Property 5,373 6,804 (21.0) 8,461 7,117 18.9 62.7% 61.4% 1.3 410 HK Soho China 14,489 17,725 (18.3) Net cash Net cash na Net cash Net cash Net cash 3333 HK Evergrande 28,204 19,952 41.4 23,522 11208 109.9 67.5% 54.3% 13.2 960 HK Longfor 14,527 10,362 40.2 9,440 6,962 35.6 43.0% 43.6% (0.5) 845 HK Glorious Property 3,166 5,835 (45.7) 11,720 7,951 47.4 68.7% 53.7% 15.0 119 HK Poly HK 10,262 13,452 (23.7) 20,600 11,823 74.2 102.7% 63.4% 39.3 832 HK Central China 3,908 3,906 0.1 1,471 1,109 32.7 31.7% 31.7% (0.0) 1777 HK Fantasia 1,336 2,456 (45.6) 4,157 3,106 33.8 71.4% 69.0% 2.4 337 HK SPG Land 2,952 3,500 (15.6) 4,531 2,382 90.2 86.7% 53.9% 32.8 1918 HK Sunac 3,867 4,249 (9.0) 7,707 1,444 433.9 109.3% 31.0% 78.4

Average (10.7) 75.6 74.0% 57.0% 16.9 Source: Company data and ICBCI estimates

FY12 Earnings outlook

We estimate the company’s revenue will increase 10% yoy to Rmb10.5bn for 2012, while its core net profit to rise by 25% yoy to Rmb17.8mn. Among the 10.5bn revenue to be booked, we expect about 85% are from property development, 8% from rental income and the remaining from property management and property decoration business. For property development, booked property sale is expected to remain at similar level as in FY11 of about 564k sqm with an expected ASP of Rmb15,900 psm, slightly higher than the Rmb15,600 psm achieved in FY11.

High locked-in ratio and unrecognized sales

Yuexiu has maintained strong sales momentum since 4Q11 and achieved the Unrecognized sales reached highest run-rate among peers in 1Q12 which provides high earnings visibility Rmb10.4bn and high revenue lock-in ratio. The total unrecognized contracted sales amounted to about Rmb7.3bn as at end-11. Including the Rmb3.12bn contracted sales achieved in 1Q12, the total unrecognized sales reached Rmb10.4bn which has fully locked-in our estimated FY12 revenue for the property development segment.

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Valuation and recommendation

We have adopted a sum-of-the-parts valuation approach and applied different valuation methodologies for different business segments for Yuexiu. The valuation is basically the summation of each segments plus the net cash held by the company.

 For property development, NAV is the total property sales profits discounted at 12% WACC plus the paid land and development costs as at end-2011. For existing property development for sales, we have generally assumed -3% to 5% price change on the projects booked in FY12 compared with FY11 as the tightening and austerity measures adversely dampened the purchasers’ sentiment in 2011. As we expect the tightening may be loosened by some local governments, we project a 3 – 5% price increase per annum in booked ASP starting from FY13.

 For investment properties, we have adopted a market capitalization approach by which we have estimated the rental income of the properties and capitalized it at an appropriate rate to produce the implied capital value. The adopted rates reflect the nature, location and tenancy profile of the properties together with market investment criteria.

Taking into account the landbank acquired in 2011 as well as a faster than Target price at 55% discount to expected sales pipeline, we adjusted our estimate on the company’s NAV to NAV HK$43.8bn or HK$4.72 (old:HK$4.16) per share. As one of the leading developers in Guangzhou, the product quality of Yuexiu is highly recognized by the local citizens in the district. We believe the reputable brand in Guangzhou helps Yuexiu to capture more market share under current market consolidation as well as remaining purchase quota after the execution of home-purchase restriction for a whole year. Although the company’s exposure is still highly concentrated in Guangdong Province, we believe the recent operational performance of the company including strong sales growth, highest sales run-rate among peers and high revenue locked-in can fully compensate any deficiencies from its highly concentrated landbank and provide confidence to investors. We reiterate our BUY rating on Yuexiu with target price at HK$2.12, representing 55% discount to NAV compared with peers’ average at 54%.

Yuexiu NAV details Total Per share NAV details HK$mn HK$ Land Bank and properties under development 38,692 4.17 Investment properties (including under development) 22,892 2.47 35.6% in GZI Reit (405.hk) 1,484 0.16 Net debt at end-11 (19,255) (2.07)

NAV 43,812 4.72 Source: ICBCI estimates

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Risks

1) Larger than expected drop in property price

Under persistent tightening policy, we have noted the turning point of property price since 3Q11. Although we believe the mild down trend of property price is aligned with the objectives of central government which reduce further policy risk, any faster than expected drop in property price will pose negative impact on purchase sentiment, which may slow down the current sales momentum of Yuexiu, hence affect NAV and cashflow.

2) Lack of landbank diversification

The company is stepping out of Guangdong province and is accelerating the pace of landbank expansion. However, among the 11.2mn sqm landbank of the company, about 8.1mn sqm (or 74.2%) is still located within Guangdong Province and about 5.5mn sqm (or 49.3%) is in Guangzhou. Despite our positive view on the outlook of Guangzhou property market, the lack of diversification of landbank will render its revenue and profit highly dependent on the performance of Guangzhou property market and expose the company to local policy risk.

Peers comparison – valuation 25 Apr Target % Dvd ROE Price Price NAVPrem/ PER (x) EPS chg (%) PBR (x) yield (%)(%) Company Ticker HK$ HK$ Rating HK$ (Disc) Nxt. Y Nxt. 2Y Nxt. Y Nxt. 2Y Nxt. Y Nxt. 2Y Nxt. Y Nxt. Y Hopson 754.HK 4.60 n.a. n.a. 33.53 (86.3) 5.2 4.3 (21.8) 19.7 0.2 0.2 2.9 3.5 R&F Properties 2777.HK 10.06 n.a. n.a. 23.47 (57.1) 5.5 5.3 70.2 5.4 1.0 0.9 7.4 19.6 Country Garden 2007.HK 3.34 3.59 HOLD 5.99 (44.2) 6.1 5.5 0.3 0.1 1.9 1.6 6.2 23.7 3383.HK 9.72 12.08 BUY 20.13 (51.7) 5.8 4.8 22.6 21.8 1.1 1.0 4.2 20.0 813.HK 9.94 11.18 BUY 22.36 (55.5) 6.4 5.0 4.2 28.7 0.9 0.8 4.6 13.7 Shui On Land 272.HK 3.17 4.87 BUY 10.83 (70.7) 8.3 7.6 16.2 9.4 0.5 0.5 4.2 5.7 3900.HK 5.45 n.a. n.a. n.a. n.a. 2.4 2.3 217.8 4.3 0.5 0.4 4.4 20.8 Franshion Properties 817.HK 2.15 2.38 BUY 4.33 (50.3) 8.5 6.8 40.3 18.0 0.7 0.6 2.6 8.8 KWG Property 1813.HK 4.83 5.90 BUY 10.72 (54.9) 5.2 3.6 18.5 44.8 0.8 0.7 5.8 15.3 Soho China 410.HK 6.02 6.01 HOLD 10.01 (39.9) 6.4 5.1 216.1 25.6 1.1 1.0 5.9 17.3 Shenzhen Investment 604.HK 1.79 n.a. n.a. 4.76 (62.4) 5.4 4.9 65.2 9.0 0.4 0.4 7.4 8.2 China Overseas 688.HK 16.18 n.a. n.a. 20.14 (19.7) 8.9 7.8 86.0 14.7 1.6 1.4 2.2 19.6 1109.HK 14.70 n.a. n.a. 18.00 (18.3) 12.5 10.8 79.5 15.7 1.3 1.2 2.2 10.8 Sino-Ocean 3377.HK 3.59 4.01 HOLD8.91 (59.7) 8.2 6.5 3.0 24.0 0.5 0.4 4.7 7.8 Yuexiu Property 123.HK 1.71 2.12 BUY 4.72 (63.8) 7.3 6.2 25.3 17.7 0.6 0.5 5.5 8.5 Glorious Property 845.HK 1.16 n.a. n.a. n.a. n.a. 3.6 3.0 39.0 19.9 0.4 0.3 2.0 11.1 Evergrande 3333.HK 4.35 5.51 BUY8.48 (48.7) 4.8 4.2 34.7 14.0 1.3 0.8 7.0 29.1 Central China 832.HK 2.00 2.70 BUY 6.00 (66.7) 4.4 2.9 23.6 52.2 0.7 0.6 6.6 17.2 Fantasia 1777.HK 0.87 0.98 HOLD 2.44 (64.3) 3.7 2.9 (16.5) 27.1 0.5 0.5 6.6 16.8 Poly HK 119.HK 3.88 4.79 BUY 10.64 (63.5) 5.7 4.6 13.2 22.6 0.5 0.5 3.2 9.7 Longfor 960.HK 12.14 12.81 BUY18.30 (33.7) 9.1 7.5 30.1 20.3 2.0 1.7 2.1 23.7 Sunac 1918.HK 2.34 3.29 BUY7.30 (67.9) 2.9 2.3 11.2 25.1 1.2 0.9 8.2 30.6

Mean (54.6) 6.1 5.1 45.3 19.5 0.9 0.7 4.8 15.2 Source: ICBCI estimates & Bloomberg

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Equity Research

Financial projections Income Statement YE Dec 31 (Rmb mn) FY09A FY10A FY11A FY12F FY13F Turnover 4,671 5,634 9,569 10,534 14,225 - property sales 3,477 4,301 8,477 9,005 12,384 - rental income 286 289 351 832 1,075 - property mgt 328 344 445 386 425 - others 579 700 296 311 342 Cost of sales (3,037) (3,753) (5,565) (6,336) (9,216) Gross profit 1,634 1,881 4,004 4,198 5,009

Other income and gains 55 590 107 118 130 Selling and admin expenses (705) (808) (985) (1,326) (1,776) Exceptional items (964) - 222 - - Property revaluation 276 259 4,956 - - Operating profit 296 1,922 8,304 2,990 3,364

Finance costs (17) (177) (420) (449) (509) JCE & associate items 107 255 480 523 576 Pre-tax profit 386 2,000 8,364 3,065 3,431 Tax (633) (1,021) (3,108) (1,237) (1,282) MI (360) (60) (120) (48) (54) Reported profit / (loss) (607) 919 5,137 1,780 2,094

Core profit 439 725 1420 1,780 2,094

GFA delivered (k sqm) 362 424 586 564 774 ASP (Rmb psm) 9,610 10,135 15,674 15,963 15,999 Source: Company data and ICBCI estimates

Key ratios YE Dec 31 FY09A FY10F FY11A FY12F FY13F Sales mixed (%) - property sales 74.4 76.3 88.6 85.5 87.1 - rental income 6.1 5.1 3.7 7.9 7.6 - property mgt 7.0 6.1 4.7 3.7 3.0 - others 12.4 12.4 3.1 2.9 2.4

Margin (%) Gross margin 35.0 33.4 41.8 39.9 35.2 Pre-tax margin 8.3 35.5 87.4 29.1 24.1 Net margin (13.0) 16.3 53.7 16.9 14.7 Net margin (core profit) 9.4 12.9 14.8 16.9 14.7 Effective tax rate (include LAT) 164.0 51.1 37.2 40.4 37.4

Balance sheet ratios Current ratio (x) 2.2 1.9 1.8 1.8 1.8 Total debt / equity ratio (%) 104.3 111.8 107.4 112.1 117.1 Net debt / equity ratio (%) 53.2 64.7 77.2 76.4 71.2

Returns (%) Core ROE 3.5 5.2 7.9 8.5 9.5 Core ROA 1.2 1.7 2.5 2.8 3.0 Source: Company data and ICBCI estimates

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Equity Research

Balance Sheet YE Dec 31 (Rmb mn) FY09A FY10F FY11A FY12F FY13F Non-current assets 12,443 13,297 19,106 21,103 21,946 Fixed assets 1,580 2,200 2,625 3,570 4,855 Leasehold land 552 547 558 558 558 Investment properties 7,490 7,63211,923 12,923 12,423 Interests in JCEs / associates 1,697 1,719 2,109 2,161 2,218 Other non current assets 1,124 1,199 1,892 1,892 1,892

Current assets 24,511 37,484 42,090 45,987 52,265 Inventories and PUD 17,482 26,229 34,609 36,977 40,446 Trade and other receivables 601 3,340 852 852 852 Tax recoverable 255 442 501 501 501 Pledged bank deposits 1,845 1,0221,307 1,307 1,307 Cash 4,328 6,451 4,821 6,350 9,159

Current liabilities 10,999 19,322 23,359 25,852 28,878 Interest-bearing bank loans 1,888 6,034 10,591 10,591 10,591 Accounts payables 122 171 327 327 327 Receipts in advance 4,075 7,901 5,393 7,420 10,400 Other payables and accruals 3,962 4,633 6,231 6,231 6,231 Profits tax payable & LAT balance 513 537 771 1,237 1,282 Land premium payable 439 46 46 46 46

Non-current liabilities 13,439 15,113 17,099 19,338 22,024 Interest bearing bank loans 10,706 11,703 11,191 13,430 16,116 Deferred tax liabilities 2,733 3,4105,908 5,908 5,908 Others - ----

Minority Interest 440 486 450 474 501

Total net assets 12,076 15,860 20,288 21,426 22,808

Shareholder's equity 12,076 15,860 20,288 21,426 22,808 Source: Company data and ICBCI estimates

Yuexiu Property - 26 April 2012 11

Equity Research

Appendix I – breakdown of landbank by projects Interest Planned GFA Residential Office Commercial Carpark & others Project Name Holding (sq.m.) (sq.m.) (sq.m.) (sq.m.) (sq.m.) Location Guangzhou Southern Le Sand 95% 2,177,100 1,307,900 249,500 448,600 171,100 Nansha, Guangzhou Panyu Southern District Land 95% 554,100 350,800 0 49,000 154,300 Panyu, Guangzhou Starry Golden Sands 100% 408,800 286,200 0 9,800 112,800 Baiyun, Guangzhou Sporty Stadium Building 100% 125,000 0 81,300 25,000 18,700 Yuexiu, Guangzhou Science City Project Plot 95% 299,000 208,500 0 9,800 80,700 Haizhu, Guangzhou Asia Pacific Century Plaza 95% 232,000 0 105,000 27,000 100,000 Tianhe, Guangzhou Starry Wenhua 95% 221,000 142,000 0 0 79,000 Panyu, Guangzhou Starry Wenhan 95% 164,000 109,000 0 0 55,000 Panyu, Guangzhou Starry Wenyu 95% 126,100 89,000 0 0 37,100 Panyu, Guangzhou Fortune World Plaza 97.55% 386,000 0 78,700 197,100 110,200 Liwan, Guangzhou Guangzhou IFC (portion) 99% 57,700 0 0 57,700 0 Tianhe, Guangzhou Fortune Century Square 100% 134,400 0 96,700 9,600 28,100 Tianhe, Guangzhou Fortune Centre 95% 210,400 0 157,000 7,000 46,400 Tianhe, Guangzhou Zhujiang New Town 95% 35,200 21,000 0 0 14,200 Tianhe, Guangzhou Huadu Glade Greenland 100% 93,400 71,000 0 0 22,400 Huadu, Guangzhou Paradiso Homeland 95% 74,000 58,000 0 0 16,000 Haizhu, Guangzhou Jiang Nan New Village phase 3&4 95% 62,200 38,200 0 0 24,000 Haizhu, Guangzhou Other Projects 95% 139,100 70,900 0 6,800 61,400 Guangzhou 100% NA Sub-total 5,499,500 2,752,500 768,200 847,400 1,131,400

Other Pearl Rived Delta projects Yau Tong Property 100% 58,800 58,800 0 0 0 Yautong, Hong Kong Zhongshan Starry Jun Ting 100% 151,700 106,000 0 9,000 36,700 Shiqi, Zhongshan Zhongshan Starry Winking 95% 555,400 340,800 0 78,800 135,800 Dongqu, Zhongshan Bo-ai Plot 95% 512,600 243,700 126,700 3,000 139,200 Zhongshan Zhongshan DongSheng Plot 100% 427,300 338,400 0 31,100 57,800 DongSheng, Jiangmen Starry Regal Court 95% 583,900 413,300 0 26,700 143,900 Beixin, Jiangmen Nanhai Plot 95% 291,100 100,000 31,600 84,300 75,200 Foshan, Nanhai Sub-total 2,580,800 1,601,000 158,300 232,900 588,600

Projects out of Guangdong Hangzhou Lin-an Plot 100% 1,174,500 832,500 48,000 104,000 190,000 Lin-an, Hangzhou Wuhan Qiaokou Land 95% 643,900 266,000 139,500 64,800 173,600 Qiaokou, Wuhan Shenyang Yuexiu Hill Lake 99.95% 366,700 353,800 0 0 2,500 Xinqu, Shengyang Shenyang Nanta Street Plot 100% 669,900 311,800 0 197,600 160,500 Dongling, Shengyang Yantai Starry Phoenix 95% 219,800 116,000 0 32,000 71,800 Zhifu, Yantai Sub-total 3,074,800 1,880,100 187,500 398,400 598,400

Total 11,155,100 6,233,600 1,114,000 1,478,700 2,318,400 Source: Company data

Yuexiu Property - 26 April 2012 12

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