Completed 23 Aug 2016 12:48 AM HKT Disseminated 23 Aug 2016 01:00 AM HKT Asia Pacific Equity Research 23 August 2016
Corrected Note (See page 12 for details) China Overseas Land & Neutral Investment 0688.HK, 688 HK The long-term winner of SOE reform gets tested Price: HK$26.85 Price Target: HK$28.00
COLI's interim results were worse than expected, mainly due to margin disappointment. Looking forward with an ASP increase, COLI should be able China to see an inflexion point on margins soon, but we think it is not likely to be in China / Hong Kong Property 2016, when they have to consolidate CITIC's numbers. Such a negative is Ryan Li, CFA AC offset by the fact that COLI should continue to be an acquirer in SOE reform, (852) 2800-8529 which should enable them to grow much faster in scale than the previous [email protected] decade, at the expense of lower ROE though. We maintain our Neutral rating, Bloomberg JPMA RLI
a smaller premium over peers on stock valuation we believe. 24 Potentially the long-term winner in SOE reform: COLI is big enough to HK$ be classified as an acquirer. This is a rather qualitative driver though, as we 20 think synergy for SOE consolidation is not easy to obtain due to restrictions 16 on reform upon mergers, and also NAV impact is uncertain as often share Aug-15 Nov-15 Feb-16 May-16 Aug-16 placement is involved. That said, the market may focus more on the story 0688.HK share price (HK$) rather than the numeric impact, and should such strong expectation of SOE R-CHIP (rebased) YTD 1m 3m 12m reform drive the stock to trade at a premium to NAV, it could be treated as a Abs -1.3% 2.7% 19.3% 27.0% positive even if COLI places equity we think. Rel 1.4% -1.7% 6.5% 23.9% COLI - 12-mth rolling P/E Reiterate Neutral as fundamentals are still deteriorating: COLI is now trading at an 11% discount to NAV (historical average: -7%), 8.6x 2016E x P/E (historical average: 10.9x) and a dividend yield of 3.2%. This is about 35.0 -0.5 standard deviation versus the historical average since 2011, which could 30.0 be fair due to a deteriorating ROE. We believe COLI will be a long-term 25.0 winner as they still have great operational efficiency. However, due to 20.0 +2 STDEV 15.0 +1 STDEV margin pressure and decrease in ROE, we think the evolvement of value 10.0 -1 STDEV from COLI could be slower than some of its peers, including CRL and 5.0 -2 STDEV Vanke. 0.0 Jan-08 Sep-09 Jun-11 Mar-13 Nov-14 Aug-16
China Overseas Land & Investment Ltd. (Reuters: 0688.HK, Bloomberg: 688 HK) Source: Bloomberg, Company data, J.P. Morgan HK$ in mn, year-end Dec FY14A FY15A FY16E FY17E FY18E Company Data Revenue (HK$ mn) 138,505 148,074 191,517 208,669 235,128 Shares O/S (mn) 9,861 Net Profit (HK$ mn) 27,200 33,312 36,348 40,170 43,963 Market Cap (HK$ mn) 264,757 Core Profit (HK$ mn) 26,093 26,376 31,200 38,170 41,963 Market Cap ($ mn) 34,148 EPS (HK$) 3.33 3.61 3.55 3.67 4.01 Price (HK$) 26.85 Core EPS (HK$) 3.19 2.86 3.05 3.48 3.83 Date Of Price 22 Aug 16 Core EPS growth (%) 37.4% (10.5%) 6.7% 14.2% 9.9% Free Float(%) 46.5% DPS (HK$) 0.55 0.92 0.83 1.05 1.15 3M - Avg daily vol (mn) 17.05 ROE 21.4% 16.2% 14.1% 14.4% 14.1% 3M - Avg daily val (HK$ mn) 423.17 P/E (Core) 8.4 9.4 8.8 7.7 7.0 3M - Avg daily val ($ mn) 54.6 P/BV (x) 1.6 1.4 1.2 1.0 0.9 R-CHIP 3943.03 BVPS (HK$) 16.31 19.43 22.90 25.64 28.60 Exchange Rate 7.75 RNAV/Share 32.44 31.32 - Price Target End Date 30-Jun-17 Dividend Yield 2.0% 3.4% 3.1% 3.9% 4.3% Source: Company data, Bloomberg, J.P. Morgan estimates. See page 12 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
www.jpmorganmarkets.com Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
Key catalysts for the stock price: Upside risks to our view: Downside risks to our view: (1) High and stable ROE; (1) Stronger-than-expected sales; (1) Demand shock caused by substantial deterioration in the macro (2) Low gearing; (2) Better-than-expected margins from the CITIC economy; (3) Low funding cost; assets; (2) More-dilutive-than-expected assets acquisition from CITIC; (4) Improvement in sales (3) Easing policies from government in the cities (3) Further Rmb depreciation against USD COLI is exposed to
Key financial metrics FY15A FY16E FY17E FY18E Valuation and price target basis Revenues (LC) 148,074 191,517 208,669 235,128 Our Dec-16 PT of HK$28 is based on an 8.5x 2016-17E average P/E, Revenue growth (%) 6.9% 29.3% 9.0% 12.7% which is 0.5 S.D. below the historical average. EBITDA (LC) 38,736 47,591 57,680 63,483 EBITDA margin (%) 26.2% 24.8% 27.6% 27.0% Tax rate (%) 24.2% 25.0% 25.0% 25.0% Net profit (LC) 33,312 36,348 40,170 43,963 EPS (LC) 3.61 3.55 3.67 4.01 EPS growth (%) 8.5% -1.5% 3.1% 9.4% GAV breakdown DPS (LC) 0.92 0.83 1.05 1.15 BVPS (LC) 19.43 22.90 25.64 28.60 Operating cash flow (LC mn) 34,134 (13,186) 32,549 84,645 0% Free cash flow (LC mn) 34,559 (15,007) 30,737 82,848 13% Interest cover (X) NM NM NM NM Development Net margin (%) 22.5% 19.0% 19.3% 18.7% properties Sales/assets (X) 0.38 0.39 0.38 0.42 Investment Net debt/equity (%) 10.5% 29.6% 22.6% 13.4% properties ROE (%) 16.2% 14.1% 14.4% 14.1% Other investments Key model assumptions FY16E Residential price growth 3% - 10% 87% WACC 11.5%
Source: Bloomberg, Company data and J.P. Morgan estimates. Source: Bloomberg, Company data and J.P. Morgan estimates.
Sensitivity analysis NAV EPS JPMe vs. consensus, change in estimates Sensitivity to Dec-16 FY16E Core EPS FY16E FY17E 5% chg in residential ASP 4% 2% JPMe old 3.30 3.75 1% chg in WACC 2% n/a JPMe new 3.05 3.48 % chg -8% -7% Consensus 3.29 3.80 Source: Bloomberg, Company data and J.P. Morgan estimates. Source: Bloomberg, Company data and J.P. Morgan estimates.
Comparative metrics CMP Mkt Cap P/E NAV P/BV YTD LC US$mn FY16E FY17E Discount FY16E FY17E Stock perf. Evergrande Real Estate 5.75 10,142 21.7 30.6 -22% 1.2 1.1 -16% COLI 26.85 34,134 8.6 7.5 -11% 1.2 1.1 -1% China Resources Land 21.85 19,524 10.1 7.9 -45% 1.2 1.0 -3% China Vanke - H shares 20.60 39,617 8.1 6.0 NA 1.8 1.5 -10% China Jinmao 2.48 3,412 6.6 6.2 -58% 0.6 0.6 -6% Sino-Ocean Land 3.68 3,565 7.0 5.2 -71% 0.5 0.5 -26% Shui On Land 2.19 2,266 13.9 9.2 -51% 0.4 0.4 3% Shimao Properties 11.16 4,939 5.5 5.1 -31% 0.5 0.5 -19% Guangzhou R&F 12.70 5,276 5.4 5.4 57% 0.8 0.7 33% Agile Property 4.96 2,505 8.1 7.8 -52% 0.4 0.4 15% KWG Property 5.42 2,134 3.8 3.3 -49% 0.6 0.5 -6% Longfor Properties 12.62 9,496 7.6 6.3 -46% 1.0 0.9 9% Country Garden 3.83 10,967 7.9 4.6 -19% 1.0 0.9 20% Source: Bloomberg, Company data and J.P. Morgan estimates. Prices are as of Aug 22, 2016.
2 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
Fundamentals deteriorating, but potentially the long-term winner in SOE reform
Margin squeeze persists Margins continued to get squeeze as expected. 1H16 gross margin was 28.2% (-4% Y/Y), below management guidance of 30%. Post-LAT margin also dropped to 24%, which is likely due to minimal recognized sales from HK/Macau. While management is confident FY16 margin will revert to 30%+ (unbooked ASP saw a 21% increase, and the two HK projects, NOVA and My Place, will be recognized in 2H), we stay skeptical as the likely low-margin CITIC’s projects (~10% of sales) will also be booked. We think such margin squeeze is structural. COLI reported better-than-industry margin in the old days due to their counter-cyclical landbank expansion, however over the past 30 months when government controlled land supply, such landbank cycle has been lengthened and thus COLI is no longer able to expand counter- cyclically with its small landbank, and this inevitably will lead to margin squeeze. This should mean a smaller premium over peers on stock valuation in our opinion.
Potentially the long-term winner in SOE reform While we stay cautious on COLI in the near term, we think it could be a potential long-term winner on the back of SOE reform, initiated by the State Council. COLI is big enough to be classified as an acquirer. The previous acquisitions of CSCEC and CITIC's portfolios have provided track record to COLI, making them easier to get the nod of approval from SASAC to acquire more SOE developers. This is a rather qualitative driver though, as we think synergy for SOE consolidation is not easy to capture due to restrictions on reform upon mergers, and also NAV impact is uncertain as often share placement is involved. That said, the market may focus more on the story rather than the numeric impact, and should such strong expectation of SOE reform on COLI drive the stock to trade at premium to NAV (like other SOEs such as China Merchants Int’l or Shanghai Industrial during 2007), then even if COLI places more equity it could be treated as a positive by the market.
Reiterate Neutral as fundamentals are still deteriorating COLI is now trading at an 11% discount to NAV (close to historical average of - 7%), 8.6x 2016E P/E (historical average: 10.9x) and a dividend yield of 3.2%. This is about -0.5 std dev versus the historical average since 2011, which could be fair due to a deteriorating ROE.
3 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
We believe COLI will be a long-term beneficiary as they still have one of the best operational efficiencies and margin in the industry. However, due to margin pressure and decrease in ROE, we think the evolvement of value from COLI could be slower than some of its peers, including CRL and Vanke. Hence, we maintain our Neutral rating on COLI, and prefer CRL within the large-cap space. We would turn more positive on COLI if we see more evidence of synergies to be created by CITIC's acquisition.
Results review
COLI’s interim results were below our expectation. Core net profit was HK$13.7 bn, up 2% Y/Y and 16% below our estimate, due to lower-than-expected delivery & margin. Margin continued to get squeezes as expected. Overall gross margin was 28.2%, below company guidance of 30%. COLI raised its sales target by 13.5% (in HKD terms) to HK$210 bn (including JCE) to adjust for the contribution from CITIC acquisition, and the company saw net cash for the first time. The positive surprise comes from dividend payout, which is 25.2% (versus 14.6% in 1H15). We stay cautious on COLI and expect FY16 margin will further squeeze due to the new contribution from CITIC projects. Among large-caps, we still prefer CR Land for its margin expansion and injection story.
Results below our expectation: Overall revenue grew 21% Y/Y to Rmb78.1 bn, which is 8% below our estimate due to lower-than-expected delivery. Reported gross margin is 28.2%, below company guidance of 30%. Core net profit was HK$13.7 bn, up 2% Y/Y but 19% below our estimate, with a lower-than-expected margin. Margin squeeze continued, with post-LAT development margin dropping 5.8ppts to 24.0%. While core net margin picked up slightly by 1.9ppts H/H to 17.3%, margins are generally below our estimate.
Net cash for the first time: COLI’s adjusted net gearing was -6.5% as of June (net cash), vs 7.8% as of end-2015. We think this is largely due to the prudent land-banking in 1H16, during which COLI only used 10% of sales proceeds in land purchase. However, with the acquisition of CITIC assets, we estimate net gearing (including related loans) will jump to 30-40% by end-2016, which is still at a reasonable level, in our view.
13.5% increase in sales target: COLI revised the FY16 sales target to HK$210 bn, up 13.5% from HK$185 bn (including JV and associates), partly attributable to the contribution of the CITIC acquisition. Taking into consideration a ~5% expected Rmb depreciation against HK$, the upward revision would be ~20% in Rmb terms.
Positive surprise on DPS: Interim DPS was HK$0.35/sh, up from HK$0.20/sh in 1H15, which comes as a positive surprise. Payout ratio on core net profit is 25.2% (1H15: 14.6%), the highest in recent years.
4 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
Key takeaways from results briefing
Strategies & Outlook Patient in land-banking: COLI will stay patient in land-banking in the primary market as they think land prices are too high. However, they believe land prices cannot go up forever, so they will wait for the right opportunity to re-enter the land market, and their current strategy is to “wait”, and this is why they only acquired four pieces of land in 1H16. Strike a balance between growth & profitability: After revising the FY16 sales target by 13.5%, this represents 17% Y/Y growth in contracted sales, which is lower than other major developers. Management explained this is because they want to ensure they can achieve both growth and profitability, so they are not blindly chasing high growth. JV is an option; but still focused on wholly-owned projects: COLI has a 2020 target of achieving HK$400 bn in sales scale. Management said most of it is attributable, as their primary focus is still to run wholly-owned/consolidated projects. They are open to the option of JV, but it won’t be their core strategy. Stable outlook on HK market: Management said they will maintain their strategy for HK – to participate to a certain extent but not to be the leader. They recognized Chinese developers would not have the same competitive advantage as the HK developers. They maintain a stable outlook on the HK market. 3-5% market share a long-term goal: Management said the goal to achieve 10% market share would be unrealistic, but in the long-term they still target to achieve a market share of 3-5%.
Operations CITIC updates: (1) Management said the transition work for the CITIC projects is mostly completed. COLI will very soon announce details; (2) CITIC portfolio will have total saleable resources of ~HK$450 bn, and COLI is targeting they can mostly be launched in three years’ time; (3) CITIC’s projects should contribute ~10% of contracted sales in FY2016. CSCEC contribute ~10% of sales: Management did not directly address whether the CSCEC projects will dilute the overall margin, but they said the sales from CSCEC should be at around 10%, so their impact could not be big. Two HK projects will be launched very soon: One Kai Tak and Marina South (Ap Lei Chau) will both soon be launched. For One Kai Tak, the sales office will open within the week and they are confident in the sales as they think the amenities in the neighborhood are very well-planned. Sell-through rate improved to 70-80%: Sell-through rate last year was 65- 70%, but this year it improved to 70-80%. New starts roughly same as last year: New starts in 1H16 totaled roughly 5 mn sqm, which is similar to last year’s level. Management added that most of the new starts are located in tier-1/2 cities. As for completion, management expects FY16 to see 20% growth.
5 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
Financials Management confident in achieving 30% gross margin for FY16: Overall gross margin dropped to 28.2%. Management attributes this to two main reasons: (1) effect from consolidating subsidiaries; and (2) impact from sales in “certain region” (not specified). Management said they are confident in improving the margin back to 30% level for FY16, given the unrecognized sales have an ASP of HK$21.8k psm, up from HK$18.0k psm as of end-2015. Two HK projects to be recognized in 2H16: Nova and My Place will both be recognized in 2H. During 1H16, only a tiny portion of recognized sales is from HK, and those are a few existing inventory. Dividend payout to stably increase: Management expects to gradually increase the dividend payout. For 2016, they target to keep it in the range of 20-30%. With the net cash status, they think they can achieve an increase in dividend, while they also have several ideas on the best use of the net cash, which cannot be disclosed at the moment. Cash collection rate maintains at ~90%: While cash collection was HK$72 bn and sales were HK$95.3 bn, management reminded that cash collection is not on a consolidated basis, so the actual cash collection has been maintained at ~90%. Target to reduce USD/HKD debt to 50%: As of 1H16, USD/HKD- denominated debt accounts for 69.3% (down from 78.3% as of end-2015). Management targets the lower the proportion to 50%. FY16 net gearing to be at ~30%: With the debt assumed from CITIC being added in 2H16, management expects the net gearing in FY16 will be at ~30%. It will be highly unlikely that the net gearing will go up to over 40% unless any major unforeseen circumstance occurs. Target to remain ROE at 20%: Management sets the target to maintain an ROE of 20%. Increase in cash balance: Cash balance jumped from HK$100 bn as of end- 2015 to HK$118 bn as of 1H16. Major cash flows are: sales (+HK$72 bn); construction (-HK$20 bn), tax (~HK$10 bn). Table 1: COLI - Summary of earnings changes
FY16E FY17E FY18E Revenue (HK$ mn) Old 165,963 182,296 198,258 New 191,517 208,669 235,128 % change 15% 14% 19% Core net profit (HK$ mn) Old 32,540 37,013 37,615 New 31,200 38,170 41,963 % change -4% 3% 12% Core EPS (HK$) Old 3.30 3.75 3.81 New 3.05 3.48 3.83 % change -8% -7% 0% NAV (HK$ per share) Old 30.39 New 32.44 % change 7% Source: J.P. Morgan estimates.
6 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
Table 2: COLI – 1H2016 results summary
JPMe 1H15 2H15 1H16 % H/H % Y/Y 1H16E vs JPM Property sales 62,545.9 81,148.7 76,812.6 -5% 23% 82,299.0 -7% Property inv estment 917.9 997.5 1,063.8 7% 16% 1,006.6 6% Other operations 1,384.9 1,079.6 273.2 -75% -80% 1,232.3 -78% Gross Turnover 64,848.6 83,225.8 78,149.5 -6% 21% 84,537.8 -8%
Selling and marketing expenses (937.4) (1,244.8) (998.8) -20% 7% (1,132.6) -12% Administrativ e ex penses (1,017.0) (1,014.0) (961.9) -5% -5% (1,171.2) -18% Total SG&A (1,954.3) (2,258.8) (1,960.7) -13% 0% (2,303.8) -15%
Property sales 18,516.6 18,708.1 19,744.8 6% 7% 21,370.2 -8% Property inv estment 712.8 810.3 781.7 -4% 10% 773.4 1% Property construction and others 103.0 65.6 (11.6) -118% -111% 80.1 NM Unallocated corporate expenses (108.2) (107.8) (142.8) 33% 32% (118.8) 20% EBIT 19,224.2 19,476.3 20,372.1 5% 6% 22,104.9 -8%
Interest income 365.2 557.2 657.0 18% 80% 484.2 36% Interest ex penses (282.1) (291.9) (293.2) 0% 4% (315.7) -7% Operating profit 19,307.3 19,741.5 20,735.8 5% 7% 22,273.4 -7% Share of associates / JCEs (COGO, etc) 543.9 432.7 742.3 72% 36% 902.7 -18% Profit before tax 19,851.2 20,174.3 21,478.1 6% 8% 23,176.1 -7% Income tax (4,056.5) (5,387.2) (4,177.8) -22% 3% (4,677.4) -11% LAT (adjusted for income tax impact) (1,894.9) (1,572.4) (3,047.4) 94% 61% (2,154.9) 41% Minority Interest (399.7) (339.1) (532.9) 57% 33% (74.4) NM Core net profit 13,500.2 12,875.6 13,719.9 7% 2% 16,269.5 -16% Revaluation gain / (loss) - after tax 2,663.6 2,920.3 3,954.8 35% 48% 2,663.6 48% Ex ceptional items 153.5 1,198.9 2,010.9 NM NM (525.6) NM Reported net profit 16,317.2 16,994.8 19,685.5 16% 21% 18,407.5 7%
Interim DPS (HK$) 0.200 0.000 0.350 NM 75% 0.260 35% Final DPS (HK$) 0.000 0.410 0.000 NM NM 0.000 NA Reported EPS (HK$) 1.901 1.724 1.996 16% 5% 1.867 7% Core EPS (HK$) 1.573 1.306 1.391 7% -12% 1.650 -16%
Net gearing 13.4% 7.8% -6.5% -14.3% -19.9% 7.8% -14.3%
Gross margin, on gross revenue 32.2% 25.7% 28.2% 2.5% -4.0% 28.9% 0.7% Pre-LAT development margin 29.8% 31.8% 28.0% -3.8% -1.8% 29.0% -1.0% Post-LAT development margin 26.5% 29.9% 24.0% -5.8% -2.5% 26.3% -2.3% EBIT margin 29.6% 23.4% 26.1% 2.7% -3.6% 26.1% -0.1% Core Net Margin (before MI) 20.6% 15.4% 17.3% 1.9% -3.3% 18.3% -1.0%
SG&A % Revenue -3.0% -2.7% -2.5% 0.2% 0.5% -2.7% 0.2% Effectiv e tax rate -21.0% -27.3% -20.1% 7.1% 0.9% -21.0% 0.9% LAT % revenue -3.0% -1.9% -4.0% -2.0% -0.9% -2.6% -1.3%
Gross contracted sales (HK$ mn) 85,452 95,180 95,259 0% 11% GFA sold 5,821,700 6,780,500 6,010,800 -11% 3% ASP (HK$ psm) 14,678 14,037 15,848 13% 8% Source: Company data, J.P. Morgan.
7 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
Table 3: COLI - detailed earnings model, 2009-2018E, Dec 31 fiscal year-ends (HK$ mn) 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E Property sales 38,294.0 45,151.6 49,027.7 61,407.0 78,614.8 116,253.7 143,694.6 186,774.8 203,684.1 229,912.0 Property investment 206.4 311.0 380.1 584.8 857.5 1,184.9 1,915.3 2,277.8 2,520.2 2,751.6 Other operations 787.0 1,118.4 1,544.5 1,144.0 1,152.7 394.6 2,464.5 2,464.5 2,464.5 2,464.5 Gross Turnover 39,493.8 46,892.1 51,332.3 64,580.7 82,469.1 119,997.0 148,074.4 191,517.1 208,668.7 235,128.1
Gross Profit 11,777.5 17,773.9 20,672.2 21,266.4 25,475.6 39,237.7 42,311.6 53,040.3 63,617.6 70,173.3
EBIT breakdown Property sales 10,511.9 16,361.6 18,897.5 22,514.5 23,542.4 36,095.5 37,224.7 45,810.9 55,767.9 61,412.7 Property investment 160.1 294.1 311.6 496.1 765.7 864.7 1,523.2 1,819.9 2,013.7 2,197.9 Property construction and others 160.1 170.2 185.7 56.0 108.8 (16.4) 168.5 160.1 160.1 160.1 Unallocated corporate expenses (115.9) (244.2) (112.7) (75.6) (170.8) (220.0) (216.0) (237.5) (261.3) (287.4) EBIT 10,716.1 16,581.7 19,282.1 23,071.6 24,358.3 36,850.9 38,700.4 47,553.3 57,680.4 63,483.3
Interest income 141.3 140.7 221.2 269.9 538.3 414.9 922.4 968.5 1,016.9 1,067.8 Interest expenses (180.9) (417.3) (548.0) (242.8) (290.4) (345.5) (574.0) (631.4) (694.6) (764.0) Total interest expenses (781.7) (1,150.5) (1,431.2) (1,824.9) (2,389.2) (3,672.4) (4,599.2) (5,059.1) (5,565.0) (6,121.5) Share of associates / JCEs (COGO, etc) 22.9 334.9 922.1 2,637.5 3,773.3 1,598.9 976.6 1,504.5 1,446.3 1,396.5 Profit before tax 10,699.4 16,639.9 19,877.4 25,736.2 28,379.6 38,519.1 40,025.4 49,394.9 59,449.1 65,183.5 Income tax (3,020.6) (4,298.5) (4,568.9) (5,920.1) (6,248.0) (9,422.6) (9,443.7) (11,972.6) (14,500.7) (15,946.7) LAT (adjusted for income tax impact) (1,099.2) (3,102.0) (2,883.2) (3,757.0) (3,002.3) (4,747.1) (3,467.2) (5,156.8) (5,965.4) (7,124.7) Minority Interest (135.1) (296.3) (94.1) (110.3) (135.2) (525.2) (738.8) (1,065.9) (812.7) (148.7) Core net profit 6,444.5 8,943.1 12,331.2 15,948.9 18,994.1 23,824.2 26,375.7 31,199.6 38,170.4 41,963.3 Revaluation gain / (loss) - after tax 989.6 1,491.8 2,265.0 2,738.1 2,578.6 3,876.7 5,584.0 3,954.8 2,000.0 2,000.0 Underlying net profit 7,434.1 10,434.9 14,596.3 18,687.0 21,572.7 27,700.9 31,959.7 35,154.4 40,170.4 43,963.3 Exceptional items 34.8 1,938.3 867.8 35.2 1,471.0 (20.8) 1,352.4 1,193.6 - - Reported net profit 7,468.9 12,373.2 15,464.1 18,722.2 23,043.7 27,680.2 33,312.1 36,348.0 40,170.4 43,963.3 Reported EPS (HK$) 0.916 1.514 1.892 2.291 2.820 3.387 3.610 3.555 3.666 4.013 Core EPS (HK$) 0.790 1.094 1.509 1.952 2.324 2.915 2.858 3.051 3.484 3.830 Total DPS (HK$) 0.200 0.270 0.330 0.410 0.470 0.550 0.923 0.830 1.050 1.150
Margin Gross margin (after LAT), on gross revenue 26.0% 24.5% 32.7% 25.1% 26.0% 27.4% 25.4% 24.1% 26.7% 25.8% Pre-LAT development margin 34.8% 43.0% 45.4% 44.1% 37.6% 37.9% 33.3% 28.8% 27.4% 28.7% Post-LAT development margin 31.9% 36.2% 39.5% 38.0% 33.8% 33.8% 30.9% 25.9% 24.4% 25.5% EBIT margin 27.1% 35.4% 37.6% 35.7% 29.5% 30.7% 26.1% 24.8% 27.6% 27.0% Operating margin 27.0% 34.8% 36.9% 35.8% 29.8% 30.8% 26.4% 25.0% 27.8% 27.1% Core Net Margin (before MI) 16.6% 19.0% 22.4% 20.8% 18.6% 19.0% 17.7% 16.1% 18.0% 17.3% Y/Y change Gross Turnover 96.9% 18.7% 9.5% 25.8% 27.7% 45.5% 23.4% 29.3% 9.0% 12.7% Gross Profit 43.1% 50.9% 16.3% 2.9% 19.8% 54.0% 7.8% 25.4% 19.9% 10.3% EBIT 56.1% 54.7% 16.3% 19.7% 5.6% 51.3% 5.0% 22.9% 21.3% 10.1% Total interest expenses -41.6% 47.2% 24.4% 27.5% 30.9% 53.7% NM 10.0% 10.0% 10.0% Core net profit 119.4% 38.8% 37.9% 29.3% 19.1% 25.4% 10.7% 18.3% 22.3% 9.9% Reported net profit 47.9% 65.7% 25.0% 21.1% 23.1% 20.1% 20.3% 9.1% 10.5% 9.4% Development properties (HK+China) Contracted sales for the period (sqm) 4,754,900 5,301,000 5,580,000 5,703,400 7,590,000 7,547,500 10,195,500 12,831,463 13,903,763 13,570,211 GFA completed (sqm) (sellable area) 4,086,000 4,740,000 4,230,000 6,968,900 8,380,000 10,259,630 11,291,233 12,150,000 12,150,000 12,150,000 GFA recognized (sqm) 3,820,000 4,270,000 2,900,718 4,180,000 5,400,000 6,790,000 11,161,752 12,277,927 13,505,719 14,856,291 Y/Y % 120% 12% -32% 44% 29% 26% 64% 10% 10% 10% Gross Revenue psm (Rmb) 8,826 8,964 13,711 11,812 11,370 13,536 10,728 13,065 13,469 14,399
Contracted sales (Rmb mn) - (incl COGO) 41,344 60,378 74,911 90,348 108,178 111,324 150,527 176,989 203,854 234,810 Contracted sales (sqm) - (incl COGO) 4,754,900 5,548,658 5,952,765 6,738,200 9,228,373 9,397,300 12,602,200 13,862,420 15,248,662 16,773,528 Average Selling Price (Rmb psm) - (incl COGO) 8,695 10,882 12,584 13,408 11,722 11,846 11,944 12,768 13,369 13,999
Source: Company data, J.P. Morgan estimates. Note: For 2014, figures are not restated.
8 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
Table 4: COLI - detailed balance sheet, 2009-2018E, Dec 31 fiscal year-ends (HK$ mn)
2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E Current assets Cash and cash equivalents 23,781.5 31,574.0 17,841.5 39,879.6 40,875.8 50,238.1 100,572.6 146,011.2 173,771.9 252,364.1 Restricted bank deposits 81.3 449.5 1,337.9 1,000.8 535.5 977.2 1,873.1 1,873.1 1,873.1 1,873.1 Inventories 3.7 4.2 30.7 24.2 28.9 64.0 60.3 60.3 60.3 60.3 Amount due from related parties 494.3 1,485.3 1,029.2 6,091.1 5,728.3 5,948.8 6,035.2 6,035.2 6,035.2 6,035.2 Receivables 1,120.3 2,874.5 1,850.1 2,598.9 2,431.0 7,671.3 11,203.2 11,203.2 11,203.2 11,203.2 Deposits and prepayments 1,059.7 2,774.5 1,860.2 3,843.7 5,529.8 5,588.8 6,763.9 6,763.9 6,763.9 6,763.9 Deposits for land to be developed for sales 15,934.8 1,916.7 6,027.7 14,136.3 19,835.1 15,124.0 4,492.7 4,492.7 4,492.7 4,492.7 Tax prepaid 331.9 354.5 534.9 941.0 1,889.7 2,024.4 3,282.2 3,282.2 3,282.2 3,282.2 Properties held for sales (Completed) 8,938.6 13,680.3 16,663.2 14,360.3 19,423.7 29,388.8 29,388.8 29,388.8 29,388.8 29,388.8 Properties held for sales (under development) 41,508.4 70,781.7 80,808.8 97,391.5 144,938.0 166,995.9 176,952.3 256,487.5 217,686.1 165,004.6 Other current assets 4.0 0.0 0.0 0.0 0.0 0.0 926.2 0.0 0.0 0.0 Total current assets 93,258.6 125,895.3 127,984.1 180,267.5 241,215.6 284,021.3 341,550.3 465,597.9 454,557.3 480,468.0
Non-current assets Investment properties 7,747.6 14,053.7 17,765.4 23,657.3 32,531.7 44,754.8 64,057.1 62,155.8 65,655.8 69,155.8 PP&E 253.8 319.4 337.6 975.9 1,371.2 1,354.8 1,223.0 1,285.2 1,344.8 1,401.4 Prepaid lease for land and others 47.4 36.0 68.6 162.0 156.4 147.6 293.9 308.5 324.0 340.2 Associates 268.0 252.7 3,429.2 3,612.6 4,496.1 4,891.0 5,589.3 6,089.3 6,589.3 7,089.3 Jointly controlled entities 11,731.0 20,305.2 24,396.3 18,896.9 14,278.3 12,731.7 9,420.8 10,925.3 12,371.7 13,768.1 Syndicated property projects 21.4 23.0 22.8 18.4 18.9 20.9 24.2 24.2 24.2 24.2 Other investments 681.0 1,254.1 1,862.3 2,125.1 2,345.3 2,905.9 5,013.6 5,013.6 5,013.6 5,013.6 Negative goodwill 109.0 109.0 109.0 109.0 109.0 109.0 64.5 64.5 64.5 64.5 Total non-current assets 20,859.2 36,353.1 47,991.3 49,557.2 55,306.8 66,915.7 85,686.3 85,866.5 91,387.9 96,857.2 Total assets 114,117.7 162,248.4 175,975.4 229,824.7 296,522.5 350,937.1 427,236.7 551,464.4 545,945.1 577,325.2
Current liabilities Bank borrowings 6,964.2 10,214.1 9,820.3 5,545.6 3,302.7 22,541.8 7,269.5 7,269.5 7,269.5 7,269.5 Receipt in advance from customers 17,522.4 23,274.2 24,480.2 40,506.2 61,414.4 46,848.4 47,494.7 36,099.6 26,705.4 11,847.1 Payables and accrurals 12,204.3 14,815.8 17,110.6 17,733.3 22,726.1 36,831.4 36,507.8 40,158.6 44,174.5 48,591.9 Amount due to related party 10,644.7 2,142.3 3,838.0 5,172.8 7,127.6 9,270.4 3,954.7 44,251.2 4,785.2 5,263.7 Taxation payable 5,459.1 10,952.0 12,680.1 15,017.6 16,357.0 20,418.0 18,466.3 20,312.9 22,344.2 24,578.6 Total current liabilities 52,794.8 61,398.4 67,929.2 83,975.5 110,927.8 135,910.0 113,692.9 148,091.7 105,278.7 97,550.7
Non-current liabilities Senior notes 2,332.4 10,018.2 7,689.6 21,147.7 32,688.1 48,177.4 66,200.4 72,700.4 79,200.4 85,700.4 Bank borrowings and senior notes 14,369.9 24,305.7 25,113.9 32,095.3 36,708.8 23,813.0 41,986.4 64,861.4 64,861.4 64,861.4 Amount due to related party 0.0 791.9 1,055.2 2,017.8 581.6 739.2 1,238.4 1,238.4 1,238.4 1,238.4 Deferred tax liabilities 1,990.3 7,792.1 3,602.9 3,031.4 4,565.8 5,489.7 7,505.6 7,505.6 7,505.6 7,505.6 Total non-current liabilites 18,692.6 42,907.9 37,461.5 58,292.3 74,544.2 78,219.3 116,930.8 146,305.8 152,805.8 159,305.8
Equity Issued capital 816.9 817.3 817.3 817.3 817.3 817.3 817.3 817.3 817.3 817.3 Share premium 18,791.8 18,796.1 18,796.1 18,796.1 18,796.1 18,816.8 61,616.9 91,340.9 91,340.9 91,340.9
Other reserves 2,833.9 4,426.9 6,914.0 8,066.3 10,691.2 9,622.9 (1,231.4) (37.8) (37.8) (37.8) Proposed dividend 1,439.3 2,011.4 2,583.5 3,155.6 4,054.6 5,280.7 7,351.4 8,567.6 9,882.3 10,977.9 Retained profits 18,211.2 28,683.2 41,200.9 56,408.9 75,611.5 98,796.0 123,003.4 150,257.7 178,924.1 210,287.8 Shareholders' funds 42,093.1 54,734.9 70,311.7 87,244.1 109,970.6 133,333.6 191,557.5 250,945.6 280,926.7 313,386.0 Minority interests 536.9 3,207.3 273.0 312.8 1,079.8 3,474.1 5,055.4 6,121.3 6,934.0 7,082.7 Total equity 42,629.9 57,942.1 70,584.7 87,557.0 111,050.4 136,807.7 196,612.9 257,066.9 287,860.7 320,468.6 Total liabilities and shareholders equity 114,117.4 162,248.4 175,975.4 229,824.7 296,522.5 350,937.1 427,236.7 551,464.4 545,945.1 577,325.2
Net debt to equity (incl. related loans) 25.0% 29.0% 42.2% 29.9% 35.9% 40.7% 10.5% 29.6% 22.6% 13.4% Total debt / total assets 20.7% 27.5% 24.2% 25.6% 24.5% 26.9% 27.0% 1.0% 27.7% 27.3% Book value per share (HK$) 5.2 6.7 8.6 10.7 13.5 16.3 19.4 22.9 25.6 28.6 Source: Company data, J.P. Morgan estimates. Note: For 2014, figures are not restated.
9 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
Investment Thesis, Valuation and Risks
China Overseas Land & Investment (Neutral; Price Target: HK$28.00) Investment Thesis We believe COLI will be a long-term winner as they still have one of the best operational efficiencies and margins in the industry. However, due to margin pressure and a decrease in ROE after the CITIC deal, we think the evolvement of value from COLI could be slower than some of its peers, including CRL and Vanke. Hence, we maintain our Neutral rating on COLI, and prefer CRL within the large-cap space. We would turn more positive on COLI if we see more evidence of synergies to be created by CITIC's acquisition.
Valuation Our Jun-17 price target of HK$28 is based on an 8.5x P/E, which is 0.5 S.D. below the historical average.
Risks to Rating and Price Target Key downside risks to our price target and rating include a demand shock caused by a substantial deterioration in the macro economy, more dilutive-than-expected asset injections and further Rmb depreciation against the USD.
Upside risks include stronger-than-expected sales, better-than-expected profitability from CITIC assets and more policy easing in cities where COLI is exposed to.
10 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
China Overseas Land & Investment: Summary of Financials Income Statement Cash flow statement HK$ in millions, year end Dec FY15 FY16E FY17E FY18E HK$ in millions, year end Dec FY15 FY16E FY17E FY18E Revenues 148,074 191,517 208,669 235,128 EBIT 46,962 54,543 61,449 67,183 % change Y/Y 6.9% 29.3% 9.0% 12.7% Depr. & amortization 36 38 0 0 EBIT 38,700 47,553 57,680 63,483 Change in working capital (13,531) 32,552 (44,844) (9,962) % change Y/Y (4.4%) 22.9% 21.3% 10.1% Others 668 (100,320) 15,944 27,424 EBIT Margin 26.1% 24.8% 27.6% 27.0% Cash flow from operations 34,134 (13,186) 32,549 84,645 Net Interest 348 337 322 304 Earnings before tax 46,962 54,543 61,449 67,183 Capex (113) (1,600) (1,600) (1,600) % change Y/Y 9.4% 16.1% 12.7% 9.3% Disposal/(purchase) 774 0 0 0 Tax (12,911) (17,129) (20,466) (23,071) Net Interest (3,224) (4,091) (4,548) (5,054) as % of EBT 27.5% 31.4% 33.3% 34.3% Free cash flow 34,559 (15,007) 30,737 82,848 Net income (reported) 33,312 36,348 40,170 43,963 % change Y/Y 22.5% 9.1% 10.5% 9.4% Equity raised/(repaid) 42,800 29,724 0 0 Core net profit 26,376 31,200 38,170 41,963 Debt raised/(repaid) 19,052 29,375 6,500 6,500 % change Y/Y 1.1% 18.3% 22.3% 9.9% Other (44,887) 0 0 0 Shares outstanding 9,861 10,956 10,956 10,956 Dividends paid (5,636) (7,878) (10,189) (11,504) EPS (reported) (HK$) 3.61 3.55 3.67 4.01 Beginning cash 58,281 100,573 146,011 173,772 % change Y/Y 8.5% (1.5%) 3.1% 9.4% Ending cash 104,526 137,462 173,772 252,364 Core EPS (HK$) 2.86 3.05 3.48 3.83 DPS (HK$) 0.92 0.83 1.05 1.15 % change Y/Y (10.5%) 6.7% 14.2% 9.9% Balance sheet Ratio Analysis HK$ in millions, year end Dec FY15 FY16E FY17E FY18E %, year end Dec FY15 FY16E FY17E FY18E Cash and cash equivalents 100,573 146,011 173,772 252,364 EBIT margin 26.1% 24.8% 27.6% 27.0% Accounts receivable 11,203 11,203 11,203 11,203 Net margin 22.5% 19.0% 19.3% 18.7% Inventories 210,894 290,429 251,628 198,946 SG&A/Sales 2.8% 2.8% 2.8% 2.8% Others 18,880 17,954 17,954 17,954 Current assets 341,550 465,598 454,557 480,468 Sales per share growth (5.3%) 16.7% 1.7% 12.7% LT investments - - - - Sales growth 6.9% 29.3% 9.0% 12.7% Net fixed assets 1,517 1,594 1,669 1,742 Net profit growth 22.5% 9.1% 10.5% 9.4% Total Assets 427,237 551,464 545,945 577,325 EPS growth 8.5% (1.5%) 3.1% 9.4% Liabilities Interest coverage (x) NM NM NM NM ST loans 7,269 7,269 7,269 7,269 Net debt to total capital (35.3%) (40.3%) (54.6%) (128.5%) Payables 36,508 40,159 44,174 48,592 Net debt to equity (26.1%) (28.7%) (35.3%) (56.2%) Others 69,916 100,664 53,835 41,689 Sales/assets 0.4 0.4 0.4 0.4 Total current liabilities 113,693 148,092 105,279 97,551 Assets/equity 2.4 2.2 2.1 1.9 Long-term debt 41,986 64,861 64,861 64,861 ROE 16.2% 14.1% 14.4% 14.1% Other liabilities 74,944 81,444 87,944 94,444 ROCE 12.5% 11.0% 11.2% 11.1% Total Liabilities 230,624 294,397 258,084 256,857 Shareholder's equity 191,558 250,946 280,927 313,386 BVPS 19.43 22.90 25.64 28.60 Source: Company reports and J.P. Morgan estimates.
11 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
The AFL logo erroneously appeared on a previously pubished version of this Note. Other Companies Discussed in This Report (all prices in this report as of market close on 22 August 2016) China Resources Land (1109.HK/HK$21.85/Overweight) Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention. Important Disclosures
Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in securities issued by China Overseas Land & Investment, China Resources Land. Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for China Overseas Land & Investment within the past 12 months. Client: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients: China Overseas Land & Investment, China Resources Land. Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as investment banking clients: China Overseas Land & Investment. Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients, and the services provided were non-securities-related: China Resources Land. Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking services from China Overseas Land & Investment. Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from China Overseas Land & Investment. Other Significant Financial Interests: J.P. Morgan owns a position of 1 million USD or more in the debt securities of China Overseas Land & Investment, China Resources Land. Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477- 0406 or e-mail [email protected].
12 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
Date Rating Share Price Price Target (HK$) (HK$) 18-Mar-07 OW 8.70 9.60 18-Apr-07 OW 10.26 10.50 01-Jun-07 OW 10.96 13.00 19-Jul-07 OW 13.84 17.50 26-Nov-07 OW 15.74 20.00 01-Feb-08 OW 13.01 19.00 24-Mar-08 OW 11.43 15.00 20-Jan-09 N 10.68 9.00 China Overseas Land & Investment (0688.HK, 688 HK) Price Chart 24-Mar-09 N 12.48 10.00 08-Jun-09 OW 16.42 18.50 60 18-Aug-09 OW 17.46 19.50 OW HK$13OW HK$15 OW HK$18.5 OW HK$19.5 N HK$23 N HK$24.5OW HK$35 N HK$28 07-Jun-10 OW 14.74 17.00 48 12-Aug-10 OW 16.30 18.00 OW HK$10.5OW HK$19 N HK$10 OW HK$18OW HK$16.5OW HK$18.5N HK$26OW HK$27OW HK$29OW HK$33.5OW HK$33.5N HK$24 11-Nov-10 OW 16.38 19.50 18-Mar-11 OW 13.24 18.00 36 OWOW HK$9.6 HK$17.5OW HK$20 N HK$9OW HK$19.5OW HK$17OWOW HK$18 HK$21.3OW HK$18.3OWOW HK$21 HK$23.5N HK$21.5OWOW HK$26 HK$24.5OW HK$28.5OW HK$33OW HK$31 10-Aug-11 OW 16.42 21.30 Price(HK$) 19-Oct-11 OW 13.70 16.50
24 23-Feb-12 OW 16.40 18.30 16-Mar-12 OW 15.78 18.50 12-Aug-12 OW 17.68 21.00 12 30-Nov-12 OW 22.50 23.50 17-Jan-13 N 24.80 26.00 19-Mar-13 N 21.55 23.00 0 22-Jul-13 N 20.75 21.50 Oct Apr Oct Apr Oct Apr Oct 06 08 09 11 12 14 15 24-Oct-13 OW 23.65 27.00 14-Mar-14 OW 19.60 26.00 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Mar 18, 2007. 22-Jun-14 OW 19.46 24.50 31-Jul-14 OW 22.75 29.00 30-Oct-14 N 21.85 24.50 25-Mar-15 OW 22.90 28.50 22-Apr-15 OW 30.40 33.50 25-Apr-15 OW 30.75 35.00 20-Aug-15 OW 23.00 33.00 31-Oct-15 OW 25.30 33.50 20-Mar-16 OW 25.50 31.00 23-Mar-16 N 24.50 24.00 01-Aug-16 N 25.50 28.00
13 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
Date Rating Share Price Price Target (HK$) (HK$) 02-Apr-07 OW 9.27 10.60 07-May-07 OW 10.44 11.00 01-Jun-07 OW 10.40 12.50 16-Sep-07 OW 14.52 16.50 26-Nov-07 OW 16.80 23.00 04-Dec-07 OW 18.92 22.00 04-Feb-08 OW 15.46 19.50 30-Mar-08 OW 13.40 17.80 10-Jun-08 OW 13.62 15.40 28-Jul-08 OW 11.00 14.20 15-Sep-08 OW 7.28 12.00 China Resources Land (1109.HK, 1109 HK) Price Chart 13-Jan-09 OW 8.79 10.50 30-Mar-09 OW 11.00 12.60 23-Jun-09 OW 16.50 18.00 OW HK$12.5OW HK$22OW HK$15.4OW HK$18 OW HK$27OW HK$25.5N HK$15.5OW HK$23 03-Aug-09 N 18.94 21.00 44 21-Sep-09 N 17.26 20.00 OW HK$11OWOW HK$23 HK$17.8OW HK$12OW HK$12.6N HK$20OW HK$16.5 N HK$10.5 N HK$20OW HK$24.5N HK$12N HK$18OW HK$30OW HK$27.5OW HK$29.5 29-Mar-10 OW 15.68 20.00
33 07-Jun-10 OW 14.60 16.50 OW HK$10.6OW OWHK$16.5 HK$19.5OW HK$14.2OW HK$10.5N HK$21OW HK$20N HK$17N HK$15N HK$15.6N HK$15.5N HK$16.5N OWHK$17.2 HK$23.5OW HK$23OW HK$21N HK$17OW HK$24.5OW HK$27OW HK$30 21-Sep-10 N 16.94 17.00 Price(HK$) 28-Mar-11 N 13.64 15.00 22 22-Aug-11 N 12.78 15.60 25-Oct-11 N 10.24 10.50 23-Feb-12 N 15.14 15.50 11 20-Aug-12 N 14.80 16.50 30-Nov-12 N 20.00 17.20 04-Dec-12 N 20.70 20.00 0 17-Jan-13 OW 22.95 27.00 Oct Apr Oct Apr Oct Apr Oct 06 08 09 11 12 14 15 18-Mar-13 OW 19.40 23.50 22-Jul-13 OW 19.72 23.00 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Apr 02, 2007. 26-Aug-13 OW 21.70 24.50 27-Nov-13 OW 20.95 25.50 24-Mar-14 OW 16.60 21.00 22-Jun-14 N 14.08 12.00 31-Jul-14 N 17.56 15.50 20-Aug-14 N 18.18 17.00 30-Oct-14 N 17.74 18.00 09-Dec-14 OW 19.90 23.00 24-Mar-15 OW 21.00 24.50 25-Apr-15 OW 25.75 30.00 25-Aug-15 OW 17.56 27.00 31-Oct-15 OW 20.30 27.50 22-Mar-16 OW 20.30 30.00 01-Aug-16 OW 19.28 29.50
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
14 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com. Coverage Universe: Li, Ryan: Agile Group Holdings Ltd (3383.HK), China Evergrande Group (3333.HK), China Jinmao (0817.HK), China Overseas Land & Investment (0688.HK), China Resources Land (1109.HK), China Vanke - A (000002.SZ), China Vanke - H (2202.HK), Country Garden Holdings (2007.HK), Gemdale Corp. - A (600383.SS), Guangzhou R&F Properties (2777.HK), Jinmao Hotel (6139.HK), Joy City Property Ltd (0207.HK), KWG Property Holding Ltd. (1813.HK), Longfor Properties Co. Ltd. (0960.HK), Poly Real Estate Group Co. Ltd - A (600048.SS), Shimao Property Holdings (0813.HK), Shui On Land Ltd (0272.HK), Sino-Ocean Group Holding Limited (3377.HK)
J.P. Morgan Equity Research Ratings Distribution, as of July 1, 2016 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research Coverage 43% 45% 12% IB clients* 52% 49% 37% JPMS Equity Research Coverage 42% 50% 8% IB clients* 68% 65% 51% *Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
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15 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 23 August 2016 [email protected]
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