Asia Pacific Equity Research 31 March 2016
Overweight Shimao Property Holdings 0813.HK, 813 HK In search of the next growth driver Price: HK$11.98 ▼ Price Target: HK$15.20 Previous: HK$16.00
Shimao’s FY2015 results came in broadly in line. Core net profit was down 20% China Y/Y driven by margin deterioration, which is likely stabilizing thanks to recent China / Hong Kong Property market rebound. We believe Shimao’s management is logical enough to preserve AC Ryan Li, CFA cash and is not aggressive in land-banking when land price is rising significantly, (852) 2800-8529 hence net gearing on total equity basis stayed low. Shimao is patiently waiting for [email protected] land-banking opportunity, and they have slowly demonstrated their ability in Bloomberg JPMA RLI
slowdown in growth is a common syndrome among developers which 20
experienced big growth in scale. This happened to Vanke in 2010-12, Longfor 16 in 2012-14, CR Land in 2012-14 and Country Garden in 2013-15. The thing HK$ 12 that we believe Shimao has done better is that given they have multiple fund- 8 raising-platforms, enabling them to control funding cost (via cheap on-shore Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 funding), and to opportunistically raise equity (via on-shore Shanghai Shimao) 0813.HK share price (HK$) from minority shareholders. Thus, Shimao’s net gearing stayed low at <60% on HSCEI (rebased) YTD 1m 3m 12m total equity. This helps prevent the surge in interest cost which could cause a Abs -10.7% 19.1% -13.2% -28.2% second round of margin squeeze, like what R&F could experience soon. Rel -7.1% 5.7% -6.2% -1.2% Management quality is still good: Management is aware of the challenges in operations ahead, and has done pre-emptive measures, including the de-stocking in 2015, slowdown of construction in low-tier cities, and re-entry into top tier cities. We believe Shimao also stands out with its cultural (cinema) and commercial experiences, which may enable them to get integrated land cheaply. Moreover, given the decrease in inventory along YRD, we have held a more optimistic outlook for cities in the region. Shimao, with half of its GAV along YRD, should be the key beneficiary. On the back of all this, we think Shimao should still trade at a premium to peers whose management may not be as strong. Shimao Property Holdings (Reuters: 0813.HK, Bloomberg: 813 HK) Rmb in mn, year-end Dec FY14A FY15A FY16E FY17E FY18E Company Data Revenue (Rmb mn) 56,081 57,733 63,470 72,184 70,639 Shares O/S (mn) 3,473 Net Profit (Rmb mn) 7,185 4,816 5,741 6,142 6,628 Market Cap (Rmb mn) 34,908 Core Profit (Rmb mn) 7,531 6,005 6,771 7,172 7,658 Market Cap ($ mn) 5,364 EPS (Rmb) 2.07 1.39 1.66 1.77 1.92 Price (HK$) 11.98 Core EPS (Rmb) 2.17 1.74 1.96 2.07 2.21 Date Of Price 30 Mar 16 Core EPS growth (%) 14.0% (20.2%) 12.8% 5.9% 6.8% Free Float(%) 40.0% DPS (Rmb) 0.71 0.58 0.66 0.78 0.92 3M - Avg daily vol (mn) 6.82 ROE 17.0% 12.4% 12.0% 11.0% 10.9% 3M - Avg daily val (HK$ mn) 76.73 P/E (Core) 4.6 5.8 5.1 4.9 4.5 3M - Avg daily val ($ mn) 9.9 P/BV (x) 0.7 0.7 0.6 0.5 0.5 HSCEI 8979.41 BVPS (Rmb) 13.53 14.50 18.22 19.63 21.05 Exchange Rate 7.76 RNAV/Share 17.26 18.64 - - Price Target End Date 31-Dec-16 Dividend Yield 7.1% 5.8% 6.6% 7.8% 9.1% Price Target (HK$) 15.20 Source: Company data, Bloomberg, J.P. Morgan estimates. See page 13 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 31 March 2016 [email protected]
Key catalyst for the stock price: Upside risks to our view: Downside risks to our view: Strong saleable resources and launch (1) Better-than-expected development margin (1) Less-than-expected contracted sales pipeline (2) Substantially NAV accretive acquisition (2) Slippage of completion schedule (3) Potential chairman buyback (3) Credit tightening (4) Further policy tightening in tier-1/2 cities
Key financial metrics FY14A FY15A FY16E FY17E Valuation and price target basis Revenues (LC) 56,081 57,733 63,470 72,184 We are lowering our Dec-2016 price target to HK$15.20 (from Revenue growth (%) 35.1% 2.9% 9.9% 13.7% HK$16.00), to reflect our new EPS estimates. Our price target is based on 6.5x 2016E P/E, which is the historical average of the EBITDA (LC) 15,094 13,647 14,840 16,669 mid-cap developers. EBITDA margin (%) 26.9% 23.6% 23.4% 23.1% Tax rate (%) 24.9% 25.2% 25.2% 25.2% Core net profit (LC) 7,531 6,005 6,771 7,172 Core EPS (LC) 2.17 1.74 1.96 2.07 EPS growth (%) 14.0% -20.2% 12.8% 5.9% GAV breakdown DPS (HK$) 0.90 0.70 0.74 0.80 BVPS (LC) 13.53 14.50 18.22 19.63 Others Operating cash flow (LC mn) (11,735) 13,956 6,497 8,860 6% Free cash flow (LC mn) (12,737) (2,827) (4,547) (594) IP Interest cover (X) 62.75 62.14 105.72 138.72 14% Net margin (%) 13.4% 10.4% 10.7% 9.9% Sales/assets (X) 0.28 0.25 0.25 0.27 Net debt/equity (%) 81.2% 86.5% 81.5% 86.7% Net debt/total equity (%) 58.6% 58.1% 57.6% 60.9% ROE (%) 17.0% 12.4% 12.0% 10.6% Dev Key model assumptions FY16E Props Residential ASP growth 0-15% 80% WACC 11.4%
Source: Bloomberg, Company and J.P. Morgan estimates. Source: Bloomberg, Company and J.P. Morgan estimates.
Sensitivity analysis NAV EPS JPMe vs. consensus, change in estimates Senstivity to Dec-16 FY16E Core EPS FY16E FY17E 5% chg in residential ASP 7% 5% JPMe old 2.10 2.22 1% chg in WACC 3% n/a JPMe new 1.96 2.07 % chg -7% -7% Consensus 2.51 2.73 Source: Bloomberg, Company and J.P. Morgan estimates. Source: Bloomberg, Company and J.P. Morgan estimates.
Comparative metrics CMP Mkt Cap P/E NAV discount P/BV YTD LC US$Mn FY16E FY17E % FY16E FY17E Stock perf. Evergrande Real Estate 6.03 10,628 11.3 9.0 FY16E58% 1.2 1.1 -12% China Overseas Land Investment 24.55 31,197 7.6 6.9 -21% 1.1 1.0 -10% China Resources Land 20.05 17,909 8.6 7.5 -49% 1.1 1.0 -11% China Vanke - H shares 19.00 27,030 7.9 6.4 NA 1.5 1.4 -17% China Jinmao 2.07 2,847 5.4 6.5 -49% 0.4 0.4 -22% Sino-Ocean Land 3.62 3,505 6.1 5.1 -70% 0.5 0.5 -27% Shui On Land 2.07 2,141 12.9 8.5 -55% 0.4 0.4 -3% Shimao Properties 11.98 5,361 5.1 4.9 -36% 0.6 0.5 -13% Guangzhou R&F 11.12 4,618 4.8 4.5 17% 0.7 0.6 16% Agile Property 4.26 2,150 4.9 4.9 -51% 0.3 0.3 -1% KWG Property 5.11 1,973 3.4 3.0 -50% 0.5 0.5 -11% Longfor Properties 10.82 8,135 6.2 5.9 -56% 0.9 0.8 -6% Country Garden 3.07 8,861 6.1 3.7 -35% 0.8 0.7 -3% Joy City 1.19 2,182 12.9 8.6 -68% 0.5 0.5 1% Source: Bloomberg, Company and J.P. Morgan estimates. Prices are as of 29 March 2016.
2 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
Table 1: Shimao - Summary of land acquisitions since 2015 Date of Project City Region Stake Total GFA Attri. GFA AV Total land Attri. land acq cost cost (%) (sqm) (sqm) Rmb psm Rmb mn Rmb mn Feb-15 Beijing Tongzhou Project Beijing North 50.00% 86,600 43,300 14,800 1,282 641 Mar-15 Fuzhou Ebi Project Fuzhou South 100.00% 91,473 91,473 880 81 81 Mar-15 Guling Zhuli Hotel Guling YRD 100.00% 18,900 18,900 1,098 21 21 Apr-15 Nanjing Jiangning University Town Nanjing YRD 100.00% 53,349 53,349 6,373 340 340 Apr-15 Yinchuan Yuehai Project (I) Yinchuan North 51.00% 317,066 161,704 1,319 418 213 Jun-15 Shanghai Nanjing Road Project Shanghai YRD 45.00% 66,096 29,743 47,102 3,113 1,401 Jul-15 Yinchuan Yuehai Project B Yinchuan North 51.00% 274,000 139,740 1,275 349 178 Sep-15 Hong Kong Tai Wo Ping site HK HK 100.00% 58,750 58,750 98,184 5,768 5,768 Sep-15 Xiamen Jimei site Xiamen South 67.45% 378,460 255,271 10,363 3,922 2,645 Sep-15 Wuhan Hongshan Parcel B Wuhan Central 100.00% 530,000 530,000 2,365 1,253 1,253 Dec-15 Beijing Laishui Project Beijing YRD 100.00% 355,382 355,382 2,188 778 778 Dec-15 Nanjing Yuhuatai site Nanjing YRD 100.00% 190,721 190,721 11,955 2,280 2,280 Dec-15 Fuzhou Lianpan A-14 Fuzhou South 100.00% 268,923 268,923 16,399 4,410 4,410 Dec-15 No.2 Shaoxing Remin Road Shaoxing YRD 100.00% 201,556 201,556 5,557 1,120 1,120 Jan-16 Yinchuan Yuehai Project Site C Yinchuan North 100.00% 134,635 134,635 1,605 216 216 Mar-16 Beijing 5th Ring Road* Beijing North 100.00% 66,667 66,667 30,000 2,000 2,000 2015 2,891,276 2,398,812 8,693 25,135 21,129 YTD 2016 201,302 201,302 11,009 2,216 2,216 *Details to be confirmed. Source: Company data.
Table 2: Shimao – changes in EPS and NAV estimates FY16E FY17E FY18E Gross revenue (Rmb mn) Old 64,531 76,530 69,749 New 63,470 72,184 70,639 % change -2% -6% 1% Core net profit (Rmb mn) Old 7,289 7,685 8,020 New 6,771 7,172 7,658 % change -7% -7% -5% Core EPS (Rmb) Old 2.10 2.22 2.31 New 1.96 2.07 2.21 % change -7% -7% -4% NAV (HK$ per share) Dec-16 Old 13.64 New 18.64 % change 37% Source: J.P. Morgan estimates.
3 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
Table 3: Shimao – results summary
JPMe Rmb mn, December 31 fiscal year-ends 2H14 1H15 2H15E % H/H % Y/Y 2014 2015 2015 % Y/Y vs JPMe Property sales 30,962.2 27,731.0 26,863.5 -3% -13% 53,566.8 54,594.5 61,800.9 2% -12% Hotel operations 640.5 624.0 678.0 9% 6% 1,178.0 1,302.0 1,295.8 11% 0% Property rental and others 802.5 838.0 998.5 19% 24% 1,335.7 1,836.5 1,788.2 37% 3% Gross Turnover 32,405.1 29,193.0 28,540.0 -2% -12% 56,080.5 57,733.0 64,884.9 3% -11%
Selling and marketing expenses (871.0) (661.0) (954.3) 44% 10% (1,495.9) (1,615.3) (1,570.7) 8% 3% Administrativ e ex penses (1,392.8) (1,563.0) (1,715.4) 10% 23% (2,807.7) (3,278.4) (2,628.0) 17% 25% SG&A (2,263.8) (2,224.0) (2,669.7) 20% 18% (4,303.6) (4,893.7) (4,198.7) 14% 17%
Property sales and rental 8,263.1 6,741.0 6,299.7 -7% -24% 14,565.9 13,040.8 13,412.5 -10% -3% Hotel operations 8.6 65.5 139.4 113% 1513% 99.3 204.9 85.2 106% 140% Unallocated costs 175.0 5.9 (414.0) NM NM (158.4) (408.1) (158.4) 158% 158% EBIT 8,446.7 6,812.4 6,025.1 -12% -29% 14,506.8 12,837.5 13,339.4 -12% -4%
Interest income 105.6 75.9 265.3 249% 151% 171.6 341.3 160.9 99% 112% Interest ex penses (233.6) (346.0) (214.9) -38% -8% (412.1) (560.9) (307.3) 36% 83% Operating profit 8,318.7 6,542.4 6,075.5 -7% -27% 14,266.3 12,617.9 13,193.0 -12% -4% Share of associates / JCEs (mainly AGC) (91.6) (374.2) (109.0) -71% 19% (174.5) (483.2) (142.3) 177% 240% Profit before tax 8,227.1 6,168.2 5,966.5 -3% -27% 14,091.8 12,134.7 13,050.7 -14% -7% Income tax (1,965.4) (1,765.7) (1,407.9) -20% -28% (3,551.2) (3,173.5) (3,086.2) -11% 3% LAT (1,365.0) (840.7) (855.2) 2% -37% (1,839.8) (1,696.0) (1,830.1) -8% -7% Minority Interest (909.5) (848.2) (412.2) -51% -55% (1,169.9) (1,260.4) (1,656.2) 8% -24% Core net profit 3,987.1 2,713.6 3,291.2 21% -17% 7,530.8 6,004.8 6,478.2 -20% -7% Revaluation gain / (loss) - after tax 313.8 516.7 783.3 52% 150% 919.0 1,300.0 750.0 41% 73% Ex ceptional items (377.3) 328.5 (1,517.5) -562% 302% (346.0) (1,189.0) (708.3) 244% 68% Reported net profit 3,923.5 3,558.8 2,557.0 -28% -35% 8,103.8 6,115.8 6,519.9 -25% -6%
DPS (HK$) 0.600 0.000 0.400 #DIV/0! -33% 0.900 0.700 0.800 -22% -13% Reported EPS (Rmb) 1.123 1.028 0.739 -28% -34% 2.339 1.767 1.882 -24% -6% Core EPS (Rmb) 1.141 0.784 0.951 21% -17% 2.174 1.735 1.870 -20% -7%
Net debt / (cash) 38,059.3 39,710.8 43,411.4 9% 14% 38,059.3 43,411.4 38,675.8 14% 12% Shareholders' equity 46,863.4 48,773.2 50,161.7 3% 7% 46,863.4 50,161.7 50,927.2 7% -2% Net gearing 81.2% 81.4% 86.5% 5.1% 5.3% 81.2% 86.5% 75.9% 5.3% 10.6%
Pre-LAT dev elopment margin 29.7% 31.8% 22.2% -9.6% -7.5% 32.4% 27.2% 27.3% -5.2% -0.2% Post-LAT development margin 24.9% 28.7% 18.7% -10.0% -6.2% 28.8% 23.9% 24.2% -4.9% -0.3% EBIT margin 26.1% 23.3% 21.1% -2.2% -5.0% 25.9% 22.2% 20.6% -3.6% 1.7% Operating margin 25.7% 22.4% 21.3% -1.1% -4.4% 25.4% 21.9% 20.3% -3.6% 1.5% Net Margin (before MI) 15.4% 13.5% 13.4% -0.1% -2.0% 15.8% 13.4% 12.8% -2.4% 0.7%
SG&A % sales -7.0% -7.6% -9.4% -1.7% -2.4% -7.7% -8.5% -6.5% -0.8% -2.0% Effective tax rate -23.6% -27.0% -23.2% 3.8% 0.5% -24.9% -25.2% -23.4% -0.3% -1.8% LAT % sales -4.4% -3.0% -3.2% -0.2% 1.2% -3.4% -3.1% -3.0% 0.3% -0.1%
Development properties Gross Revenue 30,962.2 27,731.0 26,863.5 -3% -13% 53,566.8 54,594.5 61,800.9 2% -12% Cost of properties sold (Land+Cons+Finance) (20,108.0) (18,226.1) (19,186.1) 5% -5% (34,063.8) (37,412.2) (42,263.0) 10% -11% Gross development profit 10,854.2 9,504.9 7,677.4 -19% -29% 19,503.0 17,182.3 19,537.9 -12% -12%
GFA recognized (sqm) (excl AGC) 2,295,397 2,500,090 2,932,332 17% 28% 4,257,924 5,432,422 5,432,422 28% 0% Gross Revenue psm (Rmb) 13,489 11,092 9,161 -17% -32% 12,580 10,050 11,376 -20% -12%
Contracted sales (Rmb mn) - (incl JV and associates) 38,106 31,550 35,489 12% -7% 70,216 67,039 -5% Contracted sales (sqm) - (incl JV and associates) 3,168,718 2,627,000 2,913,485 11% -8% 5,788,804 5,540,485 -4% Average Selling Price (Rmb psm) 12,026 12,010 12,181 1% 1% 12,130 12,100 0% Source: Company data, J.P. Morgan
4 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
Key takeaways from results briefing
Outlook & Strategies Slowdown growth pace for better quality: Management said they have intentionally slowed down the growth pace of Shimao in the past year in order to preserve earnings quality, especially 2015 was a year focused on destocking, and they did not want to sell more tier- 3/4 projects which would otherwise hurt margin. Looking ahead, Shimao will still control its growth pace (e.g. sales target for 2016 is flat Y/Y), on the back of (1) reducing construction/investment in tier- 3/4 cities and (2) slowing down sales in top-tier cities in order to fetch higher margins later when ASP further goes up. The rationale for suspending the growth in tier-3/4 cities is also rooted in the possibility that the company can hold the land until market recovery (driven by policy easing in low-tier cities) so that a better margin can be achieved. Management concluded that they would prioritize profitability, sustainability and branding over growth.
Expect growth to resume in 2017/18: Management expects performance to stay flattish in 2016, but growth should resume in 2017/18, albeit at a mild growth rate of ~10%, when more high- margin projects are recognized and certain major commercial properties in Beijing, Shanghai and Hong Kong begin operations.
Will keep exploring asset disposal opportunities: Management said they have been reviewing various asset disposal opportunities but thought the offer prices were not too appealing. For example, in a core asset located in Gongsan, Beijing, at a gross yield of 2.5%, management thought there is more upside as the offer price was just roughly the same as the land price in the area, so they preferred to keep the asset for now. They would keep this option open for all tiers of cities. They would stand firm for good prices for core assets in tier-1/2 cities, but they might settle for a loss when disposing of lower-quality commercial projects in tier-3/4 cities. Management added that they might consider a special dividend in the event of a core asset disposal.
Restructuring was a key theme in 2015: During the year, Shimao reduced the number of regions from 11 to 9 in order to uphold regional management efficiency, with focus on 15 key top-tier cities among the existing 41 cities where Shimao has a preference. Moreover, Shimao sold three commercial assets (Shenzhen, Hangzhou and Nanchang) to subsidiary Shanghai Shimao (600823.HK), with the goal to solidify the positioning of Shimao being focused on residential & hotel, and that of Shanghai Shimao being primarily engaged in commercial properties.
5 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
Land-banking to explore partnership & secondary market: Shimao invested Rmb21 bn in land acquisitions during the year. Excluding Hong Kong, land acquisitions in mainland China total Rmb15 bn, which was not big. Management said they would target to acquire Rmb20 bn (or even Rmb30 bn) of land in 2016. Apart from the primary land market, Shimao would also explore partnership with SOE, the model of “maintaining control with minority stake / 小股操 盘” (an asset-light approach to introduce a partner to invest while Shimao withholds the project control), and M&A in secondary land market. In terms of geographical region, Shimao would stay focused on opportunities in tier-1 and core tier-2 cities.
Tightening in Shanghai would affect sales volume: Management said the policy tightening in Shanghai would inevitably suppress sales volume, but they expect land prices would still remain high, so there is limited downside for ASP. That said, despite the ASP uptrend, management quoted an example of their Cloud Atlas project in Shanghai, where they wanted to raise the ASP from Rmb38k psm to Rmb48k psm last year, but was disapproved by the local government. Overall, management thinks excessive ASP growth is not healthy for the industry, and would rather ASP to grow stably.
Operations Conservative sales target: Shimao set the 2016 sales target at Rmb67 bn, which is the same as last year’s target as the company intends to slow down the growth pace as explained above. For contracted sales in 2016, they target 56% to come from tier-1 and top tier-2 cities, 31% from low tier-2 cities and 13% from tier-3/4 cities. In addition, management has reduced sellable resources given they have reduced those in tier-3/4 cities, however, they target to achieve a higher average sell-through rate of 60% (67% for newly launched projects and 50% for existing inventory) in 2016, up from 55% in 2015.
Inventory reduced by more than expected: Among the 2016 sellable resources that total a GFA of 9.3 mn sqm, 1.3 mn sqm are completed inventory. Management said the level successfully dropped from 1.8 mn sqm in 2014, and the decline was even out of their expectation as they originally targeted to reduce the level to 1.5 mn sqm only. Management believes the current inventory level is of an optimal scale, and would strive to maintain a similar level going forward.
Target cash collection to achieve 88% next year: 2015 saw an improvement of cash collection rate from 80.2% in 2014 to 85% in 2015. Management targets to further improve the rate to 88% in 2016.
6 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
Land bank is shrinking: As of end-2015, Shimao’s land bank totals an attributable GFA of 32.99 mn sqm. With annual sales exceeding land acquisitions, management said the land bank years have reduced from 5-6 years previously to 3-4 years now. Despite a smaller land bank, management said the land bank structure has improved with the elimination of many low-quality projects. Overall, Shimao has been working to reduce the proportion of tier-3/4 cities in its land reserve. Among the sellable resources, tier-3/4 cities now only account for 10%, down from 20-30% previously.
Financials Expect gross margin to be 28-29% in 2016: According to the company’s calculations, gross margin declined from 32.5% in 2014 to 28.5% in 2015. The drop is attributed to the recognition of public resettlement housing and active destocking during the year. Excluding resettlement housing, the gross margin would have been 29.2%. Management expects gross margin to be in the range of 28- 29% in 2016, and might even reach 30% in the medium term.
Costs increased due to lower-than-expected sales & restructuring: Costs as % of revenue increased. Management explained that this is because sales were lower than expected, and there were additional expenses on consolidating 11 regional offices into 9. However, they expect costs to decline next year as financing costs will go down and the BT-to-VAT reform would potentially reduce tax expenses too. For the VAT reform, management predicts this might result in a 1-2ppts increase in earnings.
Target to lower the proportion of non-Rmb debt by 16ppts: The proportion of non-Rmb-denominated debt was 48% in 2015. Shimao targets to lower the proportion to 32% in 2016, through repaying Rmb13.2 bn of USD-denominated debt. Management said the remaining non-Rmb-denominated debt would have a large proportion of HKD-denominated debt, which, in their view, is fine for Shimao as the company will soon receive income in HKD from its HK projects when launched.
Expect financing cost to be 6% next year: Shimao’s average cost of financing went down from 7.76% in 2014 to 6.9% in 2015, with the issuance of domestic bond at interest rates of 3.9% to 4.15%. Management expects the average borrowing cost to further decline to 6%, or even lower, in 2016.
Dividend yield of 5.8%: Shimao proposed a full-year dividend of HK$70 cents/share (HK$40 cents from final dividend and HK$30 cents from interim dividend), down from HK$90 cents/share in 2014. This represents a payout ratio (based on core net profit) of 33%, flat Y/Y. Using last close, this implies a dividend yield of 5.8%.
7 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
Table 4: Shimao – NAV estimates
Dec-2016 NAV EV Gross EV % psm EV per share of Methodology Rmb Rmb mn Rmb EV Development Properties Bohai Rim Discounted cash flow 2,133 22,264 6.43 18% Pearl River Delta Discounted cash flow 4,065 23,982 6.92 20% Yangtze River Delta Discounted cash flow 4,076 37,493 10.83 31% Western China Discounted cash flow 1,908 2,203 0.64 2% Central China Discounted cash flow 2,554 7,775 2.25 6% Hong Kong Discounted cash flow 122,780 7,213 2.08 6% Others Discounted cash flow 1,964 2,098 0.61 2% Less: Outstanding land cost As of end-2015E (6,392) (1.85) Effective landbank 3,131 96,636 27.90 80% Investment Properties Office / Retail Cap rate 48,252 7,696 2.22 6% Hotels Cap rate 2.16 8,998 2.60 7% 16,694 4.82 14% Other investments Shanghai Shimao (600823.SS) Market cap 7,598 2.19 6% 7,598 2.19 6%
Total enterprise value (EV) 120,928 34.92 100% Less: net (debts) / cash (including related party loan) (67,063) (19.36) Net asse t value 53,865 15.55
Number of shares outstanding (mn) 3,463 Net asse t value per share (Rmb per share) 15.55 Net asse t value per share (HK$ per share) 18.64
Share price as of 30-Mar-16 11.98 Prem / (disc) to NAV -36%
Source: J.P. Morgan estimates
8 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
Table 5: Shimao - detailed earnings model (Rmb mn)
2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E Gross turnover breakdown Property sales 16,179.3 20,450.1 24,589.5 26,607.1 39,503.4 53,566.8 54,594.5 60,156.1 68,641.7 66,876.6 Shanghai Shimao 479.4 4,333.0 5,256.1 5,438.5 9,395.3 11,678.0 13,783.8 16,039.1 27,755.0 30,279.2 Shimao Property 15,699.9 16,117.1 19,333.3 21,168.7 30,108.1 41,888.8 40,810.8 44,116.9 40,886.7 36,597.4 Hotel operations 641.7 974.2 892.0 999.1 978.6 1,178.0 1,302.0 1,432.2 1,575.4 1,732.9 Property rental and others 211.1 365.2 549.9 1,046.0 1,020.6 1,335.7 1,836.5 1,882.0 1,966.6 2,029.5 Gross Turnover 17,032.1 21,789.4 26,031.4 28,652.2 41,502.7 56,080.5 57,733.0 63,470.2 72,183.7 70,639.0
Business tax and levies (848.7) (1,116.1) (1,413.7) (1,669.6) (2,381.4) (3,120.0) (3,216.9) (3,709.3) (4,220.6) (4,127.6) Cost of sales (10,029.4) (12,391.4) (14,279.6) (16,987.4) (27,165.3) (38,022.8) (41,284.6) (44,840.6) (51,539.3) (49,329.5) Gross Profit 6,154.0 8,282.0 10,338.1 9,995.2 14,337.3 18,057.8 16,170.8 18,629.6 20,644.4 21,309.5
Selling and marketing expenses (470.6) (563.9) (769.9) (1,046.8) (1,305.7) (1,495.9) (1,615.3) (2,099.9) (2,729.8) (3,548.8) Administrative expenses (1,107.3) (1,083.1) (1,349.3) (1,815.9) (2,283.3) (2,807.7) (3,278.4) (2,972.5) (2,528.7) (2,157.6)
EBIT breakdown Property sales and rental 4,447.3 6,617.6 8,007.7 7,478.5 10,916.2 14,565.9 13,040.8 14,320.2 15,983.5 16,015.3 Hotel operations (43.1) 145.9 150.5 81.5 72.2 99.3 204.9 69.4 40.3 2.2 Unallocated costs (40.6) 15.1 (93.4) (146.2) 27.3 (158.4) (408.1) (408.1) (408.1) (408.1) EBIT 4,363.7 6,778.6 8,064.9 7,413.7 11,015.8 14,506.8 12,837.5 13,981.5 15,615.7 15,609.3
Interest income 30.5 66.2 100.1 146.1 190.9 171.6 341.3 168.3 159.4 108.8 Interest expenses (337.7) (737.8) (480.4) (168.2) (312.2) (412.1) (560.9) (308.6) (279.6) (227.0) Operating profit 4,056.5 6,107.0 7,684.5 7,391.6 10,894.4 14,266.3 12,617.9 13,841.1 15,495.5 15,491.1 Share of associates / JCEs (mainly AGC) 18.9 (48.1) 121.9 (269.8) 844.2 (174.5) (483.2) 148.7 413.9 661.6 Profit before tax 4,075.3 6,058.9 7,806.4 7,121.8 11,738.6 14,091.8 12,134.7 13,989.8 15,909.5 16,152.7 Income tax (1,552.7) (1,422.7) (2,500.1) (2,064.3) (2,468.5) (3,551.2) (3,173.5) (3,481.2) (3,897.3) (3,896.2) LAT (554.5) (1,071.7) (1,170.8) (925.9) (2,107.2) (1,839.8) (1,696.0) (2,080.4) (2,405.7) (2,217.3) Minority Interest (91.8) (191.4) (47.8) (185.6) (558.7) (1,169.9) (1,260.4) (1,657.1) (2,434.8) (2,381.2) Core net profit 1,876.3 3,373.0 4,087.7 3,945.9 6,604.3 7,530.8 6,004.8 6,771.1 7,171.7 7,658.1 Revaluation gain / (loss) - after tax 213.8 1,126.7 1,216.9 1,137.9 496.6 919.0 1,300.0 1,000.0 1,000.0 1,000.0 Underlying net profit 2,090.2 4,499.7 5,304.6 5,083.8 7,100.9 8,449.8 7,304.8 7,771.1 8,171.7 8,658.1 Exceptional items 1,421.0 342.9 418.2 680.8 289.0 (346.0) (1,189.0) (1,029.7) (1,029.7) (1,029.7) Reported net profit 3,511.2 4,842.6 5,722.8 5,764.6 7,389.9 8,103.8 6,115.8 6,741.4 7,142.0 7,628.4 Fully diluted EPS (Rmb) 1.01 1.36 1.62 1.66 2.13 2.33 1.76 1.94 2.06 2.20 Fully diluted core EPS (Rmb) 0.54 0.95 1.16 1.14 1.91 2.17 1.73 1.95 2.07 2.21 Total DPS (Rmb) 0.29 0.35 0.35 0.48 0.71 0.79 0.62 0.65 0.70 0.75 Payout ratio 55% 36% 28% 39% 33% 33% 34% 34% 38% 41% Margin Gross margin, on gross revenue 36.1% 38.0% 39.7% 34.9% 34.5% 32.2% 28.0% 29.4% 28.6% 30.2% Gross margin (after LAT) 32.9% 33.1% 35.2% 31.7% 29.5% 28.9% 25.1% 26.1% 25.3% 27.0% Pre-LAT development margin 35.8% 37.0% 39.1% 32.5% 35.0% 32.4% 27.2% 28.9% 28.2% 29.8% Post-LAT development margin 32.2% 31.5% 34.1% 28.8% 29.4% 28.8% 23.9% 25.2% 24.5% 26.3% EBIT margin 25.6% 31.1% 31.0% 25.9% 26.5% 25.9% 22.2% 22.0% 21.6% 22.1% Operating margin 23.8% 28.0% 29.5% 25.8% 26.2% 25.4% 21.9% 21.8% 21.5% 21.9% Effective tax rate -38.3% -23.3% -32.5% -27.9% -22.7% -24.9% -25.2% -25.2% -25.2% -25.2% Net Margin (after MI) 10.9% 15.7% 15.2% 14.7% 13.9% 13.7% 11.2% 10.4% 9.4% 9.9% YoY growth (%) Gross Turnover 136.7% 27.9% 19.5% 10.1% 44.8% 35.1% 2.9% 9.9% 13.7% -2.1% EBIT 125.7% 55.3% 19.0% -8.1% 48.6% 31.7% -11.5% 8.9% 11.7% 0.0% Core net profit 205.0% 79.8% 21.2% -3.5% 67.4% 14.0% -20.3% 12.8% 5.9% 6.8% Reported net profit 317.4% 37.9% 18.2% 0.7% 28.2% 9.7% -24.5% 10.2% 5.9% 6.8% Development properties GFA recognized (sqm) (excl AGC) 1,854,288 1,930,388 2,086,265 2,595,608 3,553,699 4,257,924 5,432,422 4,808,032 5,198,394 6,099,728 Y/Y% 166% 4% 8% 24% 37% 20% 28% -11% 8% 17% Gross Revenue psm (Rmb) 8,725 10,594 11,786 10,251 11,116 12,580 10,050 12,512 13,204 10,964 Y/Y% -3% 21% 11% -13% 8% 13% -20% 24% 6% -17% Contracted sales (Rmb mn) - (incl JV and associates) 22,505 30,500 30,700 46,100 67,073 70,216 67,039 68,138 78,286 88,951 Y/Y% 88% 36% 1% 50% 45% 5% -5% 2% 15% 14% Contracted sales (sqm) - (incl JV and associates) 2,502,502 2,530,000 2,390,000 4,088,000 5,239,270 5,788,804 5,540,485 5,040,795 5,594,570 6,892,133 Y/Y% 102% 1% -6% 71% 28% 10% -4% -9% 11% 23% Average Selling Price (Rmb psm) 8,993 12,055 12,845 11,277 12,802 12,130 12,100 13,517 13,993 12,906 Y/Y% -7% 34% 7% -12% 14% -5% 0% 12% 4% -8% Source: Company data, J.P. Morgan
9 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
Table 6: Shimao - detailed balance sheet (Rmb mn) 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E Current assets Properties under development + Land use rights 18,899.8 29,013.9 44,958.6 44,285.2 72,192.3 96,292.8 111,861.1 127,690.6 138,980.9 137,623.8 Completed properties held for sale 5,198.6 4,761.5 7,382.1 7,103.4 11,604.9 21,166.5 18,140.3 18,140.3 18,140.3 18,140.3 Trade receivables 2,998.0 5,124.3 4,472.1 6,638.5 11,217.4 12,457.2 14,786.9 14,786.9 14,786.9 14,786.9 Prepaid income tax 310.5 640.6 949.2 1,165.2 2,154.8 2,055.1 2,157.2 2,157.2 2,157.2 2,157.2 Amount due from related parties 0.7 1,526.3 1,451.6 1,316.0 1,206.1 979.3 1,581.9 1,581.9 1,581.9 1,581.9 Restricted cash 560.4 1,589.1 1,681.2 2,204.0 2,547.2 3,463.0 3,817.7 3,817.7 3,817.7 3,817.7 Cash and cash equivalents 6,919.0 12,139.5 12,312.7 15,893.8 17,026.0 20,471.8 22,591.8 22,657.2 15,365.8 16,447.3 Total current assets 34,887.0 54,795.1 73,207.6 78,606.2 117,948.7 156,885.9 174,937.0 190,831.9 194,830.8 194,555.1
Non-current assets PP&E 2,338.8 2,900.8 3,994.8 5,611.4 6,286.8 7,860.5 7,480.7 8,122.1 8,569.0 8,792.5 Investment properties 6,372.6 11,855.0 20,567.0 26,248.1 26,941.9 26,975.8 30,025.3 31,125.3 32,225.3 33,325.3 Hotels 3,552.8 3,652.8 4,331.0 4,091.3 4,091.3 4,091.3 4,091.3 5,612.1 7,247.1 9,004.6 Land use rights 3,060.4 2,572.4 2,475.1 4,717.3 5,645.4 7,286.6 7,921.9 7,921.9 7,921.9 7,921.9 Intangible assets 2,348.3 2,280.5 2,264.0 2,139.9 1,847.6 1,840.7 1,840.7 1,840.7 1,840.7 1,840.7 Associates / JCEs 2,343.1 4,321.0 5,616.2 7,038.1 9,283.1 12,291.7 13,457.9 13,106.6 13,020.5 13,182.2 Available-for-sale financial assets 692.4 347.8 267.4 369.8 408.4 204.5 1,204.5 1,204.5 1,204.5 1,204.5 Deferred taxation assets 750.1 1,193.8 1,313.9 1,248.4 1,306.3 1,429.9 1,984.0 1,984.0 1,984.0 1,984.0 Other assets 10,182.1 11,750.1 3,205.7 757.3 2,008.3 1,666.8 1,311.5 1,311.5 1,311.5 1,311.5 Total non-current assets 31,640.6 40,874.2 44,035.0 52,221.6 57,819.2 63,647.6 69,317.7 72,228.7 75,324.5 78,567.1 Total assets 66,527.6 95,669.3 117,242.5 130,827.8 175,767.9 220,533.5 244,254.7 263,060.5 270,155.2 273,122.3
Current liabilities Trade & other payables 7,038.9 11,512.9 17,317.4 14,316.4 20,995.3 30,241.5 26,149.6 28,764.6 31,641.0 34,805.1 Presale proceeds from customers 6,502.9 11,932.1 11,828.9 20,578.0 29,901.0 33,220.2 30,766.5 31,605.1 30,376.5 40,356.1 Tax payable 5,078.1 5,797.1 7,313.3 7,338.9 9,369.1 11,024.0 12,462.1 13,708.3 15,079.1 16,587.0 Borrowings 3,932.3 9,376.7 14,983.4 12,380.6 11,775.3 18,724.7 16,953.6 14,812.6 15,654.3 10,654.3 Amt due to related parties 38.8 30.8 30.8 2,897.7 10,336.4 14,731.3 24,448.0 25,670.4 26,953.9 28,301.6 Total current liabilities 22,591.0 38,649.6 51,473.8 57,511.7 82,377.1 107,941.6 110,779.8 114,560.9 119,704.9 130,704.2
Non-current liabilities Borrowings 12,558.1 19,176.2 20,197.0 21,222.2 27,652.7 33,368.4 29,802.0 25,989.4 20,335.1 10,680.8 Senior note 4,036.5 5,519.3 7,380.8 7,391.1 9,901.0 9,901.0 23,065.4 27,065.4 27,065.4 21,065.4 Deferred income tax liabilities 1,824.9 2,370.2 3,172.8 3,775.6 3,985.2 4,339.4 5,858.2 6,151.1 6,458.7 6,781.6 Total non-current liabilites 18,419.5 27,065.7 30,750.6 32,388.9 41,538.9 47,608.7 58,725.6 59,205.9 53,859.1 38,527.7
Equity attrib to equity holders of the parent Issued capital 361.9 362.4 355.7 356.3 356.3 356.3 356.3 356.3 356.3 356.3 Share premium 12,014.2 12,038.8 10,254.3 9,860.4 8,254.8 8,254.8 8,254.8 16,424.8 16,424.8 16,424.8 Retained profit 10,035.0 13,389.8 19,037.8 23,636.3 30,025.9 36,500.7 41,452.7 45,914.9 50,346.4 54,807.0 Reserves 219.4 153.2 438.0 505.6 909.7 122.5 (1,065.9) (1,065.9) (1,065.9) (1,065.9) Proposed final dividend 717.4 754.6 505.8 1,548.6 2,195.6 1,629.1 1,163.7 1,418.8 1,850.0 2,307.4 Shareholders' equity 23,347.9 26,698.8 30,591.7 35,907.2 41,742.3 46,863.4 50,161.7 63,048.9 67,911.6 72,829.6 Minority interests 2,169.2 3,255.2 4,426.4 5,020.1 10,109.6 18,119.7 24,587.7 26,244.8 28,679.6 31,060.8 Total equity 25,517.1 29,954.0 35,018.1 40,927.2 51,851.9 64,983.1 74,749.3 89,293.7 96,591.2 103,890.4 Total liabilities and shareholders equity 66,527.6 95,669.3 117,242.5 130,827.8 175,767.9 220,533.5 244,254.7 263,060.5 270,155.2 273,122.3
Net debt to equity 55.9% 76.2% 93.4% 63.8% 71.3% 81.2% 86.5% 81.5% 86.7% 71.6% Total debt / total assets 30.9% 35.6% 36.3% 31.3% 28.1% 28.1% 28.6% 25.8% 23.3% 15.5% Book value per share (Rmb) 6.59 7.52 8.83 10.37 12.13 13.65 14.61 18.36 19.77 21.21 Source: Company data, J.P. Morgan
10 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
Investment Thesis, Valuation and Risks
Shimao Property Holdings (Overweight; Price Target: HK$15.20) Investment Thesis Shimao is patiently waiting for land-banking opportunity, and they have slowly demonstrated their ability in seeking and closing deals in the secondary market, including a piece in Shanghai in 2015 and recently a piece in Beijing. Should Shimao be able to buy cheap land bank in top tier cities using low-cost capital, we believe Shimao will resume its growth pace soon, which is a free option attaching to today’s stock price at 5x 2016E P/E. We believe the lack of growth is fully priced-in, and with potential Chairman buyback in the near-term, together with strong sales momentum from YRD, we stay overweight.
Valuation Our Dec-2016 price target of HK$15.2 is based on 6.5x 2016E P/E.
Risks to Rating and Price Target Key upside risks: 1) better-than-expected contracted sales; 2) potential Chairman buy-back; and 3) margin expansion driven by cheaper funding costs and higher ASP achieved. Key downside risks are a lower-than-expected contracted sales or slippage in completion schedule, and policy tightening in cities where Shimao is exposed to.
11 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
Shimao Property Holdings: Summary of Financials Income Statement Cash flow statement Rmb in millions, year end Dec FY15 FY16E FY17E FY18E Rmb in millions, year end Dec FY15 FY16E FY17E FY18E Revenues 57,733 63,470 72,184 70,639 EBIT 1,278 3,961 5,177 5,944 % change Y/Y 2.9% 9.9% 13.7% (2.1%) Depr. & amortization 809 859 1,053 1,277 EBIT 12,838 13,981 15,616 15,609 Change in working capital 6,283 75 860 18,144 % change Y/Y (11.5%) 8.9% 11.7% (0.0%) Others 5,587 1,603 1,771 1,932 EBIT Margin 22.2% 22.0% 21.6% 22.1% Cash flow from operations 13,956 6,497 8,860 27,297 Net Interest (220) (140) (120) (118) Earnings before tax 12,135 13,990 15,909 16,153 Capex (16,915) (11,129) (9,527) (3,258) % change Y/Y (13.9%) 15.3% 13.7% 1.5% Disposal/(purchase) 0 0 0 0 Tax (4,869) (5,562) (6,303) (6,113) Net Interest (5,160) (3,261) (2,947) (2,414) as % of EBT 40.1% 39.8% 39.6% 37.8% Free cash flow (2,827) (4,547) (594) 24,113 Net income (reported) 4,816 5,741 6,142 6,628 % change Y/Y (33.0%) 19.2% 7.0% 7.9% Equity raised/(repaid) 0 8,170 0 0 Core net profit 6,005 6,771 7,172 7,658 Debt raised/(repaid) 7,827 (1,954) (4,813) (20,654) % change Y/Y (20.3%) 12.8% 5.9% 6.8% Other 0 0 0 0 Shares outstanding 3,434 3,434 3,434 3,434 Dividends paid (2,490) (2,088) (2,372) (2,812) EPS (reported) (Rmb) 1.39 1.66 1.77 1.92 Beginning cash 20,472 22,592 22,657 15,366 % change Y/Y (32.9%) 19.2% 7.0% 7.9% Ending cash 22,592 22,657 15,366 16,447 Core EPS (Rmb) 1.74 1.96 2.07 2.21 DPS (Rmb) 0.58 0.66 0.78 0.92 % change Y/Y (20.2%) 12.8% 5.9% 6.8% Balance sheet Ratio Analysis Rmb in millions, year end Dec FY15 FY16E FY17E FY18E %, year end Dec FY15 FY16E FY17E FY18E Cash and cash equivalents 22,592 22,657 15,366 16,447 EBIT margin 22.2% 22.0% 21.6% 22.1% Accounts receivable 14,787 14,787 14,787 14,787 Net margin 8.3% 9.0% 8.5% 9.4% Inventories 130,001 145,831 157,121 155,764 SG&A/Sales 8.5% 8.0% 7.3% 8.1% Others 7,557 7,557 7,557 7,557 Current assets 174,937 190,832 194,831 194,555 Sales per share growth 3.1% 9.9% 13.7% (2.1%) LT investments 4,500 4,500 4,500 4,500 Sales growth 2.9% 9.9% 13.7% (2.1%) Net fixed assets 19,494 21,656 23,738 25,719 Net profit growth (33.0%) 19.2% 7.0% 7.9% Total Assets 244,255 263,060 270,155 273,122 EPS growth (32.9%) 19.2% 7.0% 7.9% Liabilities Interest coverage (x) 62.1 105.7 138.7 142.8 ST loans 16,954 14,813 15,654 10,654 Net debt to total capital 38.7% 33.6% 33.1% 20.0% Payables 38,612 42,473 46,720 51,392 Net debt to equity 63.2% 50.6% 49.4% 25.0% Others 55,215 57,275 57,330 68,658 Sales/assets 0.2 0.3 0.3 0.3 Total current liabilities 110,780 114,561 119,705 130,704 Assets/equity 4.8 4.5 4.1 3.9 Long-term debt 52,867 53,055 47,400 31,746 ROE 12.4% 12.0% 11.0% 10.9% Other liabilities 5,858 6,151 6,459 6,782 ROCE 6.7% 6.7% 7.2% 7.9% Total Liabilities 169,505 173,767 173,564 169,232 Shareholder's equity 50,162 63,049 67,912 72,830 BVPS 14.50 18.22 19.63 21.05 Source: Company reports and J.P. Morgan estimates.
12 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
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 Shimao Property Holdings. Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Shimao Property Holdings. 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 Shimao Property Holdings. Other Significant Financial Interests: J.P. Morgan owns a position of 1 million USD or more in the debt securities of Shimao Property Holdings. 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].
Date Rating Share Price Price Target (HK$) (HK$) 02-Mar-10 OW 13.52 16.50 14-Apr-10 OW 13.78 17.00 07-Jun-10 OW 11.84 13.50 Shimao Property Holdings (0813.HK, 813 HK) Price Chart 25-Aug-10 OW 13.72 15.00 11-Nov-10 OW 13.44 16.80 23-Mar-11 OW 10.70 16.00 OW HK$13.5 N HK$15.4OW HK$24N HK$20.5N HK$19 48 01-Sep-11 OW 8.65 11.80 25-Oct-11 N 6.67 7.20 OW HK$17OW HK$16.8N HK$7.2N HK$13.5OW OWHK$17 HK$21N OWHK$16 HK$20.5N HK$19OW HK$16 23-Feb-12 N 9.48 9.60 36 05-Jun-12 N 10.02 11.20 OW HK$16.5OW HK$15OW OWHK$16 HK$11.8N HK$9.6N HK$11.2OW HK$19OW HK$19N OWHK$17.5 HK$21N HK$18.5N HK$16 28-Aug-12 N 11.40 13.50 Price(HK$) 30-Nov-12 N 15.54 15.40 24 17-Jan-13 OW 17.40 19.00 27-Mar-13 OW 13.36 17.00 22-Jul-13 OW 15.80 19.00 12 21-Aug-13 OW 18.00 21.00 27-Nov-13 OW 18.54 24.00 06-Jun-14 N 15.74 17.50 0 22-Jun-14 N 13.82 16.00 Oct Apr Oct Apr Oct Apr Oct 06 08 09 11 12 14 15 31-Jul-14 N 17.54 20.50 27-Aug-14 OW 16.52 21.00 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Mar 02, 2010. 30-Oct-14 OW 16.12 20.50 22-Jan-15 N 17.36 19.00 01-Apr-15 N 16.30 18.50 25-Apr-15 N 17.70 19.00 31-Oct-15 N 13.50 16.00 03-Mar-16 OW 10.42 16.00
13 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
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 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 Property Holdings Ltd (3383.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), Evergrande Real Estate (3333.HK), Gemdale Corp. - A (600383.SS), Guangzhou R&F Properties (2777.HK), Jinmao Investments (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 Land (3377.HK)
J.P. Morgan Equity Research Ratings Distribution, as of December 31, 2015 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research Coverage 44% 44% 12% IB clients* 52% 47% 35% JPMS Equity Research Coverage 45% 47% 8% IB clients* 70% 63% 50% *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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14 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
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15 Ryan Li, CFA Asia Pacific Equity Research (852) 2800-8529 31 March 2016 [email protected]
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