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研 Research [Table_Title] Van Liu 刘斐凡 Company Report: Shenzhen Invest (00604 HK)

究 (86755) 2397 6672 Equity 公司报告： 深圳控股 (00604 HK) [email protected]

27 September 2018 Quality[Table_Summary Land] Bank and Relative High Gross Margin, Maintain "Accumulate" 有质量土储与较高的毛利率，维持“收集” 公

司  1H18 underlying net profit missed our expectation. Underlying net profit Rating:[Table_Rank]

Accumulate 报 decreased 61.1% YoY to HK$407 mn. Maintained

告  Contracted sales is expected to accelerate in 2H18 and remain at a 评级： 收集 (维持)

CompanyReport growth rate of around 10.0% during 2019 and 2020. Saleable resources in 2H18 reached approximately RMB30.0 bn (indicating 49.3% target sale-through rate). In addition, RMB20.0 bn in saleable resources were 6[Table_Price]-18m TP 目标价 : HK$2.77 non-residential property projects in Shenzhen, which partially avoided effects Revised from 原目标价: HK$3.61

from the government's stringent policy on the residential housing market. Share price 股价: HK$2.490

However, land replenishment initiatives in Shenzhen have gradually become

告

difficult. Thus, contracted sales might retain growth rate of around 10.0% in 证

报 2019 and 2020. Stock performance

券 股价表现

究 We expect relatively high gross margin for the Company. The Company's

研 gross margin is expected to remain at around 33.0% between 2018 and 2020

研 [Table_QuotePic] 究 due to its quality land bank and more saleable resources in the Big Bay Area.

In addition, funding cost should remain within low levels. We also expect 券 报 that the loss from fair value of financial assets will reduce because of the

告 证 sound rise in Evergrande's share price since 30 Jun. 2018. The Company's EquityResearch Report

profitability should recover.

 Because we have revised down underlying net profit, we revise down the target price from HK$3.61 to HK$2.77, which represents a 60% discount to its [Tab revised 2018E NAV, 8.0x underlying 2018 PER and 0.5x 2018 PBR. We le_I maintain "Accumulate". Risk factors: lower-than-expected contracted sales and policies may further tighten in Shenzhen. nfo1  2018 年上半年核心净利低于预期。核心净利同比下跌 61.1%到 407 百万港元。 ] 房  预期合约销售在 2018 年下半年加速并在 2019-2020 年维持 10.0%左右的增速。2018 年 地 下半年的可售资源约为人民币 300 亿元（预示 49.3%的去化率）。另外，人民币 200 亿元

产 的可售货值为深圳非住宅类项目，这能够部分规避政府在住宅市场的严格政策。然而深圳 Change[Table_PriceChange] in Share Price 1 M 3 M 1 Y 行 的土地补充已逐渐变得艰难。因而，合约销售在 2019-2020 年的增速可能维持在 10.0%左 右。 股价变动 1 个月 3 个月 1 年 业 Abs. %

Property Sector (3.5) (10.4) (30.1)  我们预期公司相对高的毛利率。因为有质量的土储以及未来在粤港澳大湾区更多的可售资 绝对变动 % Rel. % to HS Index 源，公司毛利率将在 2018 到 2020 年维持在 33.0%左右。另外，融资成本应会保持在一个 相对恒指变动 % (1.5) (8.2) (30.3) 较低水平。基于自 2018 年 6 月 30 日以来恒大股价的显著上升，我们也预计来自金融资产 Avg. Share price(HK$) 平均股价（港元） 2.4 2.6 3.2 公允价值的损失将会缩小。公司的盈利能力应会恢复。 Source: Bloomberg, Guotai Junan International.  因为我们下调了核心盈利，我们将目标价从 3.61 港元下调至 2.77 港元，相当于较 2018 年每股净资产有 60%的折让，也分别相当于 8.0 倍 2018 年核心市盈率和 0.5 倍 2018 年市 [Tab 净率。我们维持“收集”。风险：低于预期的合约销售以及深圳的政策可能进一步收紧。 le_I Y[Table_ear End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE nfo2 年结Profit] 收入 股东净利 每股净利 每股净利变动 市盈率 每股净资产 市净率 每股股息 股息率 净资产收益率 ] 12/31 (HK$ m) (HK$ m) (HK$) (△ %) (x) (HK$) (x) (HK$) (%) (%) 2016A 21,354 3,171 0.424 4.4 5.9 4.383 0.6 0.225 9.0 9.6 深 2017A 10,254 4,951 0.636 50.0 3.9 5.312 0.5 0.185 7.4 13.3 圳 2018F 24,376 2,905 0.360 (43.4) 6.9 5.603 0.4 0.180 7.2 6.7 控 2019F 27,758 3,957 0.490 36.1 5.1 5.818 0.4 0.216 8.7 8.6 2020F 30,580 4,457 0.552 12.7 4.5 6.141 0.4 0.221 8.9 9.2 股

[Table_BaseData]Shares in issue (m) 总股数 (m) 8,231.8 Major shareholder 大股东 SHUM YIP HOLDINGS 62.4% Market cap. (HK$ m) 市值 (HK$ m) 20,497.2 Free float (%) 自由流通比率 (%) 37.6

3 month average vol. 3 个月平均成交股数 (‘000) 9,378.8 FY18 Net gearing (%) FY18 净负债/股东资金 (%) 32.6 Shenzhen Invest (00604 HK) Shenzhen (00604 Invest 52 Weeks high/low (HK$) 52 周高/低 (HK$) 3.810 / 2.270 FY18 Est. NAV (HK$) FY18 每股估值（港元） 6.8

Source: the Company, Guotai Junan International.

See the last page for disclaimer Page 1 of 9

[Table_PageHeader]Shenzhen Invest (00604 HK)

Housing sales maintained steady growth. During Jan.-Aug. 2018, the YoY increase in commodity house sales maintained

steady growth compared to that during Jan.-Jul. 2018. The YoY increase in investment de] creased1 r a slightlyM t h byg 0.1i ppts.R _ Moreover,e l b a T [

land area sold increased 15.6% YoY during Jan.-Aug. 2018. Sources of funds for real estate development enterprises recorded moderate YoY rebound. We expect steady investment. Housing sales amount remained high in absolute terms. In addition, saleable areas extended downside momentum. Subsequently, we argue steady fundamentals for the property market.

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

16,000 70.0% 1,800 50.0% 27 September2018 60.0% 14,000 1,600 40.0% 50.0% 12,000 1,400 40.0% 30.0% 1,200 10,000 30.0% 20.0% 1,000 8,000 20.0% 10.0% 10.0% 800 6,000 0.0% 0.0% 600 4,000 -10.0% -10.0% 400 2,000 -20.0% 200 -20.0%

0 -30.0% 0 -30.0%

15 15 16 17 17 16 18

15 15 16 17 18 14 16 17

15 17 18 16

14 15 16 17

15 17 16

15 17 18 16

15 16 17 18

15 17 18 16

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Apr Oct Oct Apr Oct Apr Apr

Jun Jun Jun Jun

Feb Feb Feb Feb

Aug Dec Dec Aug Aug Dec Aug Dec

Jun Jun Jun Jun

Mar Mar Mar Mar

Dec Sep Dec Dec Sep Dec Sep 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) 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)

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

Source: National Bureau of Statistics of China, Guotai Junan International. Source: National Bureau of Statistics of China, Guotai Junan International.

Severe external environment will be maintained but policies should be moderately loose if the macro economy starts to deteriorate due to the Sino-US trade war. There should be no trigger for policy changes due to stable ASP, proper stock turnover and decreasing land auction premium. Tightening policies will be extended. Despite recent marginal loosening, the credit environment will follow a tightening trend in the long run. For the global market, the US has entered into an interest rate

hike cycle, therefore, we expect that the PBOC will continue to reduce leverage and shrink its balance sheet in the long run.

Monetary policy will be prudent and neutral, with the keynote of deleveraging.

We think that commodity housing sales will only experience limited decline. Urbanization and demand from housing (00604 HK) replacement will lead to sustainable housing demand in 2018-2020. Moreover, if the property market starts to slump, the policy and credit environment related to the property sector should ease again to stabilize the property market as per the last round of policy easing which started on 30 Sep. 2014. 深圳控股

Figure 3: Key Property Development and Sales Data

30.0% 10.5% 7.7% 20.0% ShenzhenInvest 13.5% 8.1% 22.5% 15.8% 8.8% 6.5% 10.0% 19.8% 7.0% 8.9% 0.0% 2.0% 17.3% 1.0% 7.5% 0.0% 2013 2014 2015 2016 2017 2018F -10.0% -10.7% -2.0% -14.0% -7.6% -14.0% -20.0% -7.0% -3.4% -30.0% -31.7% -40.0%

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.

1H18 underlying net profit missed our expectation. Top line jumped by 107.3% YoY to HK$11,304 mn in 1H18 due to more

GFA delivered. Gross profit amounted to HK$3,881 mn, up 76.7% YoY. Fair value of financial assets decreased HK$1,888 mn

riding on Evergrande’s share price dropping. As a result, net profit fell sharply by 94.1% YoY to HK$217 mn, which missed our Report expectation. Underlying net profit dropped 61.4% YoY to HK$407 mn, again missing our expectation. Gross margins decreased 5.9 ppts YoY to 34.3%. Net profit margin also fell 15.6 ppts YoY to 3.6%. Net gearing ratio increased 21.6 ppts YoY. Cash

balance decreased 28.0% YoY to HK$9,349 mn. Company

See the last page for disclaimer Page 2 of 9 [Table_PageHeader]Shenzhen Invest (00604 HK)

Table 1: Comparison of the Company’s Income Statement in 1H17 and 1H18

HK$ mn 1H17 ] 1 r a M 1H18t h g i R _ e Changel b a T [

Total revenue 5,454 11,304 107.3%

Gross profit 2,197 3,881 76.7% GPM 40.3% 34.3% -5.9 ppts NP (Inc. after-tax fair value gains on IP and exchange losses) 3,629 217 -94.0% NP (Ex. after-tax fair value gains on IP and exchange losses) 1,048 407 -61.1%

NPM (Inc. after-tax fair value gains on IP and exchange losses) 66.5% 1.9% -64.6 ppts 27 September2018 NPM (Ex. after-tax fair value gains on IP and exchange losses) 19.2% 3.6% -15.6 ppts DPS (HK$ cent) 7.3 7.2 -1.5% Underlying EPS (HK$ cent) 47.4 2.7 -94.3% ROE 10.4% 0.6% -9.8 ppts Source: the Company, Guotai Junan International.

Table 2: Comparison of the Company’s Balance Sheet in 2017 and 1H18 HK$ mn 2017 1H18 Change Cash and cash equivalents 12,984 9,349 -28.0% Total asset 117,227 111,160 -5.2%

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

Properties under development 39,711 37,020 -6.8% Total debt 22,903 26,077 13.9% Shareholders' equity 41,468 36,486 -12.0% Net gearing ratio 23.9% 45.8% 21.9 ppts Source: the Company, Guotai Junan International.

Contracted sales is expected to accelerate in 2H18, but might still retain growth rate of around 10.0% in 2019 and 2020.

In Jan.-Aug. 2018, contracted sales recorded RMB 5.208 bn, down by 47.7% YoY. The Company revised its 2018 sales target to RMN20.0 bn. So far, the Company has only achieved 26.0% of its 2018 sales target. Saleable resources in 2H18 reached

around RMB30.0 bn (indicating 49.3% target sale-through rate). Moreover, in 2H18, RMB20.0 bn of saleable resources were (00604 HK) non-residential property projects in Shenzhen, which should partially avoid effects from the government’s stringent control on the residential housing market. With this adjusted sales strategy, we expect that the Company’s contracted sales could rebound.

With sufficient salable resources, we think that contracted sales might accelerate in 2H18 and its sales target should be 深圳控股 achievable. However, land replenishment initiatives in Shenzhen have gradually become difficult. Thus, contracted sales might still retain growth rate of around 10.0% in 2019 and 2020.

Figure 4: The Company’s Contracted Sales Breakdown by Figure 5: The Company’s Contracted Sales Breakdown by

City Tier During 1H18 Product Type During 1H18 ShenzhenInvest

Residential, 23% Tier-3 / Tier-4 Cities, 43.4% Shenzhen, 47.4% Complex, 46%

Tier-2 Cities, Industry, 2% 8.9%

Other Tier-1 Cities, 0.3%

Source: the Company. Source: the Company.

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Company

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Figure 6: The Company’s Saleable Resources Breakdown Figure 7: The Company’s Saleable Resources Breakdown by City Tier by Product Type

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

35,000 RMB mn 35,000 RMB mn

30,000 30,000 1,450 3,480 4,060 4,640 6,090 5,800 25,000 1,160 25,000 1,120 1,160.00 12,880 145.00 20,000 20,000 13,340

15,000 15,000 24,360 23,490 23,780 22,330 23,055

10,000 10,000 27 September2018 14,210 5,000 5,000

0 0 2016 2017 2018 2015 2016 2017

Tier-1 Cities Tier-2 Cities Tier-3 / Tier-4 Cities Reisidential Industrial (inc. office) Business (inc. hotel)

Source: the Company. Source: the Company.

Rental Income is expected to record strong growth. In 1H18, rental income was HK$439 mn, up 3.2% YoY. Total rental area amounted to approximately 1.1 mn sq.m. The Company is expected to launch an area of around 600,000 sq.m. of investment property in next two years. All new investment projects are located in urban areas of Shenzhen. This could lead to high

] 2 r a M t h g i R _ e l b a T [ occupancy rate of over 90% for new investment projects. Total rental area is likely to reach around 1.7 mn sq.m. in 2019, up 54.5% from 2017. We expect rental income to approximately double from HK$930 mn in 2017 to HK$1,969 mn in 2020 or at a CAGR of 28.4% in 2017-2020 due to expected high occupancy rate and soaring total rental area.

As a Shenzhen SOE and alongside increasing land bank exposure in the Big Bay Area, we expect relative high gross margin for the Company in the future. The Company, will further deepen cooperation with the parent company to secure resources for urban redevelopment projects in Shenzhen. As at the end of 1H18, the Company owned quality land bank of approximately 2.32 mn sq.m. in Shenzhen. But the existing land bank in Shenzhen only accounted for 12% of total potential land bank in Shenzhen. Thus, sufficient potential land bank in Shenzhen will result in sufficient saleable resources in Shenzhen and

will thereby support relative high gross margin. As at 30 Jun. 2018, the Company had total GFA of 6.10 mn sq.m.; 61% of total (00604 HK) land bank was in tier-1 cities (41%) and tier-2 cities (20%). The Company expects that, at the end of 2020, projects in Shenzhen and Big Bay Area projects will account for 60% of total land bank and 80% of the Company’s assets value.

深圳控股 Figure 8: The Company’s Land Bank Breakdown by City Figure 9: The Company’s Land Bank Breakdown by Product

Tier at the end of 1H18 Type at the end of 1H18 ShenzhenInvest

Complex, Tier-1 Cities, 32.0% Tier-3 / Tier-4 39% Cities, 41%

Residential, 67.0%

Industrial, 1.0%

Tier-2 Cities, 20%

Source: the Company. Source: the Company.

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Company

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Figure 10: The Company’s Gross Margins of Property Sales Breakdown by City Tier

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

50.0%

45.0%

40.0%

35.0%

30.0%

25.0% 46.4% 20.0% 38.80% 35.50%

15.0% 31.7% 27 September2018 10.0%

5.0%

0.0% 2017 1H18 Projects in Shenzhen Other Projects not in Shenzhen Source: the Company.

Funding costs are expected to remain at low levels in 2018 and the Company's profitability will recover riding on the rise in Evergrande's share price. The weighted average funding cost in 1H18 was 4.9%, which is significantly lower than the average funding cost of HK listed properties of the Company’s peers (amounting to around 7.7% in 1H18). The tightening up of monetary environment will lead to a slight increase in funding costs. However, on grounds of financial support from its parent

] 2 r a M t h g i R _ e l b a T [ company and its SOE background, we think that the Company’s funding costs will remain at low levels. In addition, Evergrande's share price significantly increased beginning 30 Jun. 2018 due to strong results of Evergrande. Thus, we think the loss from fair value of financial assets will reduce resulting in profitability recovering.

Figure 11: The Company’s Average Funding Cost and Net Gearing Ratio

5.6 80.0% 66.7%

5.4 70.0%

5.2 60.0%

5.0 45.8% 50.0%

4.8 40.0% 5.5 23.4%

4.6 23.9% 30.0% (00604 HK)

22.7% 4.9 4.4 20.0% 4.6 4.9 4.2 10.0% 4.6 4.0 0.0% 深圳控股 2014 2015 2016 2017 1H18

Average funding cost Net gearing ratio Source: the Company.

ShenzhenInvest We have revised down underlying profit estimations. We expect that Shenzhen Invest's contracted sales will accelerate in 2H18 and remain at a growth rate of around 10.0% during 2019 and 2020. Total revenue in 1H18 was higher than our previous assumptions. Therefore, we revise up 2018F, 2019F and 2020F total revenue by 12.3%, 3.4% and 4.7% to HK$24,376 mn, HK$27,758 mn and HK$30,580 mn, respectively. We expect that gross margins of property sales in Shenzhen will be lower than our previous assumptions riding on further tightening of policies. As we revise down gross margin in 2018F, 2019F and 2020, we also revise down land appreciation tax in 2018F, 2019F and 2020F. Overall, we revise down 2018F, 2019F and 2020F underlying net profit by 3.0%, 10.1% and 8.7% to HK$2,791 mn, HK$3,258 mn and HK$3,674 mn, respectively. Net gearing ratio in 1H18 was higher than our previous expectation. The sale-through rate is likely to gradually fall on grounds of severe external environment. That is, net gearing ratio should increase further in the future. Therefore, we revise up net gearing ratio in 2018F, 2019F and 2020F by 4.6 ppts, 16.4 ppts and 21.5 ppts, respectively.

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Company

See the last page for disclaimer Page 5 of 9 [Table_PageHeader]Shenzhen Invest (00604 HK)

Table 3: Revisions to 2018-2020 Profit Estimations

New estimation Old estimation ] 1 r a M t h Changeg i R _ e l b a T [

HK$ mn 2018F 2019F 2020F 2018F 2019F 2020F 2018F 2019F 2020F

Total revenue 24,376 27,758 30,580 21,715 26,852 29,204 12.3% 3.4% 4.7% Gross profit 8,117 9,059 10,079 8,143 10,016 10,864 -0.3% -9.6% -7.2% Operating profit 6,725 8,780 9,833 7,867 9,668 10,501 -14.5% -9.2% -6.4% Net profit 3,192 4,348 4,898 3,731 4,699 5,191 -14.4% -7.5% -5.6%

Underlying profit 2,791 3,258 3,674 2,877 3,625 4,023 -3.0% -10.1% -8.7% 27 September2018 Gross margin 33.3% 32.6% 33.0% 37.5% 37.3% 37.2% -4.2 ppts -4.7 ppts -4.2 ppts Operating profit margin 27.6% 31.6% 32.2% 36.2% 36.0% 36.0% -8.6 ppts -4.4 ppts -3.8 ppts Net profit margin 13.1% 15.7% 16.0% 17.2% 17.5% 17.8% -4.1 ppts -1.8 ppts -1.8 ppts Underlying net profit margin 11.4% 11.7% 12.0% 13.2% 13.5% 13.8% -1.8 ppts -1.8 ppts -1.8 ppts ROE 6.7% 8.6% 9.2% 7.8% 9.2% 9.6% -1.1 ppts -0.6 ppts -0.4 ppts ROCE 4.9% 6.6% 7.3% 5.6% 6.5% 6.7% -0.7 ppts 0.0 ppts 0.6 ppts ROA 2.3% 2.8% 3.0% 2.6% 2.9% 2.9% -0.3 ppts -0.1 ppts 0.0 ppts Net gearing ratio 32.6% 50.1% 56.8% 28.0% 33.7% 35.3% 4.6 ppts 16.4 ppts 21.5 ppts Source: Guotai Junan International.

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

Maintain "Accumulate". We expect that the Company’s contracted sales will accelerate in 2H18, but will retain growth rate of around 10.0% during 2019 and 2020. Rental income is expected to record fast growth. As a Shenzhen SOE and alongside increasing land bank exposure in the Big Bay Area, we expect relatively high gross margin for the Company in the future. Funding costs are likely to remain at low levels. Profitability should recover riding on the rise in Envergrande's share price. The Company still exhibits a steady outlook. Due to trimmed underlying net profit, we revise down the target price from HK$3.61 to HK$2.77, which implies a 60% discount to its 2018E NAV, 8.0x underlying 2018 PER and 0.5x 2018 PBR. We maintain our investment rating as "Accumulate". Risks include: 1) property sales might miss our expectation and 2) policies may further

tighten in Shenzhen.

Table 4: Breakdown of Shenzhen Invest’s 2018 NAV

NAV summary results 2018E (00604 HK)

Development properties (HK$ mn) 41,132

Investment properties (HK$ mn) 28,812 深圳控股 Total gross asset value (HK$ mn) 69,944

(Net debt)/net cash(HK$ mn) (14,744) NAV (HK$ mn) 55,200 NAV/share (HK$) 6.84

TP discount to NAV 60% ShenzhenInvest Target price (HK$) 2.77 Source: the Company, Guotai Junan International.

Figure 12: Shenzhen Invest’s 3-Year Historical P/B Figure 13: Shenzhen Invest’s 3-Year Historical P/E

Report

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

See the last page for disclaimer Page 6 of 9 [Table_PageHeader]Shenzhen Invest (00604 HK)

Table 5: Peers Comparison

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

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

HK listed large developers with major revenue from mainland China Overseas Land & 00688 HK 272,261.6 24.850 6.6 5.6 4.9 0.9 0.8 0.7 3.8 14.5 3.8 InvestChina Evergrande 03333 HK 330,512.1 25.350 6.7 5.6 5.1 2.1 1.7 1.4 9.2 35.1 9.2 GroupChina Resources Land 01109 HK 189,907.7 27.400 7.6 6.6 5.7 1.2 1.1 1.0 4.3 16.8 4.3 LtdCountry Garden 02007 HK 225,988.3 10.420 5.7 4.3 3.7 1.6 1.3 1.0 6.0 30.5 6.0 HoldingsLongfor Group Co Holdings 00960 HK 122,466.1 20.650 8.3 6.7 5.4 1.3 1.2 1.1 4.8 17.9 4.8

LtdChina Vanke Co Ltd-H 02202 HK 305,338.3 26.750 7.5 6.1 5.4 1.7 1.4 1.2 4.7 23.6 4.7 27 September2018 Sunac China Holdings 01918 HK 113,820.7 25.850 7.3 4.6 3.5 1.8 1.4 1.0 3.1 24.0 3.1 LtdAgile Group Holdings 03383 HK 45,046.0 11.500 5.1 4.1 3.4 0.9 0.8 0.7 9.4 18.5 9.4 LtdShimao Property 00813 HK 67,104.8 20.150 6.5 5.1 4.1 0.9 0.8 0.7 6.0 14.7 6.0 HoldingsGuangzhou Ltd R&F 02777 HK 46,917.7 14.560 4.0 3.2 2.7 0.6 0.5 0.5 9.9 15.9 9.9 PropertiesBbmg Corp -- H 02009 HK 41,113.6 2.710 5.4 5.2 5.1 0.5 0.4 0.4 3.5 8.5 3.5 Sino-Ocean Group 03377 HK 26,732.1 3.510 4.7 3.9 3.1 0.4 0.4 0.4 8.9 9.8 8.9 HoldingChina Jinmao Ltd Holdings 00817 HK 42,040.5 3.640 7.2 5.5 4.3 1.0 0.9 0.8 5.7 13.2 5.7 GroupHopson Development 00754 HK 15,022.5 6.750 7.5 7.3 6.5 n.a. n.a. n.a. 4.0 n.a. 4.0 HoldingsZhenro Properties 06158 HK 17,687.7 4.290 6.2 4.3 3.3 1.0 0.7 0.6 n.a. 20.0 n.a. GroupKwg Group Ltd Holdings Ltd 01813 HK 23,763.2 7.490 4.5 3.5 2.8 0.7 0.6 0.5 8.1 15.5 8.1 Yuexiu Property Co Ltd 00123 HK 17,609.9 1.420 5.8 5.2 4.6 0.5 0.4 0.4 6.6 7.3 6.6

Shenzhen Investment 00604 HK 20,497.1 2.490 7.3 6.1 6.0 0.5 0.4 ] 2 r 0.4 a M t h 6.1 g i R 6.3_ e l b 6.1a T [

LtdYuexiu Real Estate 00405 HK 15,592.4 5.130 n.a. 22.6 22.6 1.0 1.0 1.0 6.6 4.7 6.6 InvestmenYuzhou Properties Co 01628 HK 16,186.9 3.480 3.5 2.7 2.2 0.7 0.6 0.5 10.4 21.8 10.4 Greentown China 03900 HK 16,713.3 7.710 6.3 5.9 5.7 0.5 0.5 0.4 3.1 7.4 3.1 HoldingsChina Aoyuan Property 03883 HK 14,346.4 5.350 5.3 3.8 2.9 1.0 0.9 0.7 7.1 21.9 7.1 GroupSoho China Ltd 00410 HK 16,066.5 3.090 35.3 29.9 20.9 0.4 0.4 0.4 3.7 1.3 3.7 Median 6.4 5.2 4.6 0.9 0.8 0.7 6.0 15.7 6.0

Simple Average 7.5 6.9 5.8 1.0 0.8 0.7 6.1 15.9 6.1

Weighted Average 6.9 5.8 5.0 1.4 1.2 1.0 5.7 21.8 5.8

HK listed mid-small developers with major revenue from mainlandChina Overseas Grand 00081 HK 8,729.6 2.550 4.4 3.5 2.8 0.4 0.4 0.3 2.7 11.0 2.7

OceansPoly Property Group Co 00119 HK 10,288.9 2.810 3.9 3.7 3.4 0.3 0.3 0.3 7.8 9.4 7.8 (00604 HK) LtdShanghai Industrial 00563 HK 6,350.5 1.320 7.8 7.3 6.6 0.5 0.4 0.4 2.9 4.6 2.9 UrbanModern De Land China Co 01107 HK 3,236.3 1.160 5.7 4.1 3.6 0.5 0.5 0.5 4.9 9.4 4.9

LtdPowerlong Real Estate 01238 HK 13,510.9 3.380 3.0 2.4 2.1 0.4 0.4 0.3 8.1 20.8 8.1 深圳控股 HoldinC C Land Holdings Ltd 01224 HK 7,531.7 1.940 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Fantasia Holdings 01777 HK 5,590.1 0.970 3.6 n.a. n.a. n.a. n.a. n.a. 6.8 n.a. 6.8 GroupRonshine Co China 03301 HK 14,738.5 9.220 4.2 2.9 2.2 1.0 0.7 0.6 4.2 25.3 4.2 HoldingsCentral China Ltd Real 00832 HK 8,439.6 3.090 7.7 3.7 2.7 0.8 0.7 0.5 3.9 10.8 3.9 EstateChina Sce Group 01966 HK 11,586.2 3.030 3.6 2.9 2.3 0.7 0.6 0.5 8.1 20.0 8.1

HoldingsTop Spring Ltd International 03688 HK 3,311.5 2.390 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. ShenzhenInvest HldBeijing Capital Land 02868 HK 8,781.1 2.900 n.a. n.a. n.a. n.a. n.a. n.a. 10.6 n.a. 10.6 LtdZhong-H An Real Estate 00672 HK 1,888.4 0.325 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. LtdBeijing North Star Co 00588 HK 11,961.4 2.340 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. LtdChina-H South City 01668 HK 10,252.3 1.280 6.7 5.2 4.3 0.3 0.3 0.2 5.5 10.5 5.5 HoldingsShui On Land Ltd 00272 HK 14,915.1 1.850 6.3 23.3 16.3 0.3 0.3 0.3 5.5 1.9 5.5 Glorious Property 00845 HK 3,311.9 0.425 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

HoldingsMedian 4.4 3.7 3.1 0.4 0.4 0.4 5.5 10.7 5.5

Simple Average 5.2 5.9 4.6 0.5 0.5 0.4 5.9 12.4 5.9

Weighted Average 5.0 6.5 5.0 0.5 0.5 0.4 6.1 13.4 5.8 Source: the Company, Guotai Junan International .

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Company

See the last page for disclaimer Page 7 of 9 [Table_PageHeader]Shenzhen Invest (00604 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 (HK$ m) 2016A 2017A 2018F 2019F 2020F Year end 31 Dec (HK$ m) 2016A 2017A 2018F 2019F 2020F

Total Revenue 21,354 10,254 24,376 27,758 30,580 PPE 3,844 4,747 4,984 5,233 5,495

- Sales of Properties 17,808 6,381 20,060 22,585 24,888 Investments in Associates 3,995 4,431 4,564 4,701 4,842

- Other Income 3,546 3,873 4,316 5,173 5,692 Investment Property 22,807 26,939 32,869 43,262 47,995

Cost of Sales (13,083) (6,703) (16,259) (18,700) (20,500) Other Non-current Assets 8,915 18,146 17,097 17,575 18,077

Gross Profit 8,271 3,551 8,117 9,059 10,079 Total Non-current Assets 39,562 54,264 59,514 70,771 76,409

- Change in Fair Value of IPs 1,859 1,258 1,099 1,423 1,578 Cash & Cash Equivalents 9,860 11,167 7,738 5,413 4,398 27 September2018

- SG&A (1,319) (1,116) (2,233) (2,441) (2,636) Properties under Development 35,292 39,711 44,898 48,920 54,144

- Other Gains, Net (823) 3,874 (257) 740 812 Completed Properties 7,515 5,977 8,612 9,002 8,852 Operating Profit 7,988 7,567 6,725 8,780 9,833 Restricted Cash 2,204 1,817 3,526 3,244 2,845 - Shares of Ass and JVS 1,143 845 929 1,046 1,153 Trade and Other Receivables 2,007 4,170 2,839 3,199 3,575

- Finance income/(costs), net (838) (748) (976) (1,075) (1,116) Other Current Assets 106 121 115 110 105

Profit before Tax 8,293 7,665 6,678 8,751 9,870 Total Current Assets 56,984 62,963 67,727 69,887 73,919

Income Tax (4,822) (2,465) (3,486) (4,403) (4,972) Total Assets 96,546 117,227 127,242 140,659 150,328

Profit after Tax 3,471 5,199 3,192 4,348 4,898

Non-controlling Interest (300) (248) (287) (391) (441) Due to The Holding Company 4,122 6,467 6,722 6,991 7,272

Shareholders' Profit / Loss 3,171 4,951 2,905 3,957 4,457 Trade and Other Payables 18,140 24,146 28,336 32,616 35,152

Adjusted Net Profit 2,890 2,001 2,791 3,258 3,674 Bank Borrowings 5,288 8,138 9,765 12,695 13,964

] 2 r a M t h g i R _ e l b a T [ Basic EPS 0.424 0.636 0.360 0.490 0.552 Other Current Liabilities 8,755 7,974 7,336 7,409 7,483

Underlying EPS (RMB) 0.386 0.256 0.346 0.404 0.455 Total Current Liabilities 36,306 46,724 52,160 59,711 63,872 Long-term Borrowings 14,469 14,766 16,242 19,491 21,440

[Table_CashFlowStatement] Cash Flow Statement Deferred Income Tax Liabilities 8,770 9,827 8,844 9,286 9,751

Year end 31 Dec (HK$ m) 2016A 2017A 2018F 2019F 2020F Other Long-term Liabilities 780 810 852 896 942

Operating Activities Total Non-current Liabilities 24,019 25,402 25,938 29,673 32,132

Profit before Taxation 3,471 5,199 3,192 4,348 4,898 Total Liabilities 60,325 72,126 78,097 89,383 96,004

Income Tax Expenses 4,822 2,465 3,486 4,403 4,972

D&A 173 1 1 1 1 Total Shareholders' Equity 32,811 41,468 45,225 46,964 49,571

Others (1,693) (942) (937) (1,229) (1,414) Minority Interest 3,410 3,633 3,920 4,311 4,752

Changes in Working Capital: 2,020 3,679 (3,101) 849 (1,391) Total Equity 36,221 45,101 49,144 51,275 54,324

Net Cash from Operations 8,793 10,403 2,642 8,372 7,066 (00604 HK)

[Table_FinancialRatio] Tax Paid (2,109) 4,353 (1,070) (3,364) (3,073) Financial Ratios

Interest Paid (1,261) (1,212) (1,623) (1,860) (1,953) 2016A 2017A 2018F 2019F 2020F

Cash from Operating Activities 5,423 13,544 (51) 3,149 2,040 Revenue Growth (%) 15.9 -52.0 137.7 13.9 10.2 深圳控股

Investing Activities Gross Profit Growth (%) 29.7 -57.1 128.6 11.6 11.3

Interest Received 168 416 937 1,008 1,086 Reported Net Profit Growth (%) 12.4 49.8 -38.6 36.2 12.6

Acquisition of Subsidiary (1,132) 0 0 0 0 Underlying Net Profit Growth (%) 18.4 -30.8 39.4 16.7 12.8

Loans from (to) JVs and Associates (21) (15) (4) (2) 0

Investments in Ips (1,557) (4,132) (5,930) (10,393) (4,732) Gross Margin (%) 38.7 34.6 33.3 32.6 33.0 ShenzhenInvest Other Investing Cash Flow 560 (12,400) (392) (1,159) (1,212) Operating Profit Margin (%) 37.4 73.8 27.6 31.6 32.2 Cash from Investing Activities (1,982) (16,131) (5,389) (10,545) (4,858) Adjusted Net Margin (%) 13.5 19.5 11.4 11.7 12.0

Financing Activities ROE (%) 9.6 13.3 6.7 8.6 9.2

Debt Raised/(Repaid) (1,618) 3,146 3,104 6,178 3,219 ROCE (%) 6.5 9.3 4.9 6.6 7.3

Dividends Paid (1,181) (1,682) (1,443) (1,452) (1,741) ROA (%) 3.3 4.2 2.3 2.8 3.0

Process from Issue of Shares 0 0 0 0 0

Other Financing Cash Flow (567) 2,375 294 309 325 Net Gearing Ratio 23.4 23.9 32.6 50.1 56.8

Cash from Financing Activities (3,366) 3,838 1,956 5,035 1,802 Debt to Equity Ratio 62.5 61.5 61.4 63.5 63.9

Net Changes in Cash 75 1,251 (3,485) (2,362) (1,016)

Cash at Beg of Year 9,708 9,860 11,167 7,738 5,413 Underlying P/E (x) 6.4 9.7 7.2 6.2 5.5

Exchange Losses 76 56 55 37 1 P/E (Basic) (x) 5.9 3.9 6.9 5.1 4.5

Cash at End of Year 9,860 11,167 7,738 5,413 4,398 P/E (Diluted) (x) 5.9 3.9 6.9 5.1 4.5 P/B (x) 0.6 0.5 0.4 0.4 0.4

Dividend Yield (%) 9.0 7.4 7.2 8.7 8.9

Source: the Company, Guotai Junan International.

Report

Company

See the last page for disclaimer Page 8 of 9 [Table_PageHeader]Shenzhen Invest (00604 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%; or the fundamental outlook of the company or sector is neutral. 27 September2018 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),BINHAI INVESTMENT (02886 HK),VALUE A SHARE (03095 HK),MR HS HDIVY ETF (03110 HK),CAM SCSMALLCAP (03157 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. (00604 HK)

(4) Guotai Junan and its group companies have not 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 深圳控股 Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

DISCLAIMER ShenzhenInvest

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.

© 2018 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. Report

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