August 19, 2010

EARNINGS REVIEW Shenzhen Overseas Chinese Town Holding Sell Research Report In line with expectations: high-end exposure concerns; weak B/S

What surprised us Investment Profile OCT reported 1H10 net income of Rmb1.35bn, up 85% yoy due to high GFA Low High booked, in line with the profit warning on July 15. Highlights: 1) 1H10 gross Growth Growth margin dropped 3ppt yoy to 39% and we expect ‘10E gross margin of 35% Returns * Returns * Multiple Multiple with more lower-margin projects booked. The Rmb367mn profit from Volatility Volatility associated projects helped 1H10 net margin (at 21%). 2). We remain Percentile 20th 40th 60th 80th 100th concerned that its property sales will be negatively affected more in the Shenzhen Overseas Chinese Town Holding (000069.SZ) near-term given its high-end market focus, which has been targeted more by Asia Pacific Property Peer Group Average * Returns = Return on Capital For a complete description of the the govt’s tightening measures. 3). OCT’s 1H10 presales at Rmb4.3bn or 41% investment profile measures please refer to of our ‘10E target, was well below its peers Vanke (62%) and Poly (56%). With the disclosure section of this document. only Rmb3.9bn unbooked presales as of 1H10, we estimate almost no ‘11E Key data Current revenue has been locked-in, suggesting less visible ‘11E earnings growth Price (Rmb) 13.79 12 month price target (Rmb) 10.40 outlook than peers. 4). Balance sheet (B/S) is deteriorating significantly Market cap (Rmb mn / US$ mn) 42,852.1 / 6,309.1 with ‘10E net gearing at 110%. Moreover, OCT is the only company so far Foreign ownership (%) -- under our coverage with its 1H10 cash (of Rmb4.5bn) being well below short 12/09 12/10E 12/11E 12/12E term loans (Rmb8.0bn), suggesting a stretched B/S for expansion, despite little EPS (Rmb) New 0.55 0.65 0.64 0.73 liquidity risk due to its state-owned background. EPS revision (%) 0.0 3.0 (2.6) (1.1) EPS growth (%) 20.0 19.3 (2.0) 13.3 EPS (dil) (Rmb) New 0.55 0.65 0.64 0.73 P/E (X) 25.1 21.1 21.5 19.0 What to do with the stock P/B (X) 4.1 3.6 3.2 2.8 Post the results, we fine-tuned our 2010-2012E earnings by 3%/-3%/-1%, EV/EBITDA (X) 25.6 19.7 18.4 17.8 Dividend yield (%) 0.7 1.2 1.2 1.3 and marginally raised our 12m NAV-based TP to Rmb10.4 (from Rmb10.0) ROE (%) 17.1 18.1 15.6 15.8 following recent new land acquisitions. The stock trades at a 20% discount to end-2010E potential NAV and 21.1X 2010E P/E, vs. A-share peers’ Price performance chart average 33% discount and 16.6X. Retain Sell. Upside risks: better-than- 22 3,600 expected contract sales. 20 3,400

1H10 result comparison 18 3,200

Rmb mn 1H09 2H09 1H10 YoY% 2009A 2010E YoY% 16 3,000 Revenue 3,452 7,505 6,373 85% 10,957 13,477 23% 14 2,800 Gross margin 41.5% 34.3% 38.8% -3 ppt 36.6% 35.0% -2 ppt 12 2,600 Net margin 21.2% 13.0% 21.2% +0 ppt 15.6% 15.1% +0 ppt EPS (Rmb) 0.24 0.31 0.43 85% 0.55 0.65 19% 10 2,400 Aug-09 Nov-09 Feb-10 Jun-10 Advance from customers 1,221 4,766 3,914 220% 4,766 4,355 -9% Net gearing 47% 32% 85% +38 ppt 32% 110% +78 ppt Shenzhen Overseas Chinese Town Holding (L) Shanghai SE A Share Index (R) Source: Company data, Gao Hua Securities Research estimates

INVESTMENT LIST MEMBERSHIP Share price performance (%) 3 month 6 month 12 month Asia Pacific Sell List Absolute 16.2 (9.6) (33.1) Rel. to Shanghai SE A Share Index 13.1 2.4 (26.8) Coverage View: Attractive Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 8/18/2010 close. China Real Estate

Jason Sun SAC License No. S1420208080017 Beijing Gao Hua Securities Company Limited and its affiliates do and +86(10)6627-3187 [email protected] Beijing Gao Hua Securities Company Limited seek to do business with companies covered in its research reports. As a Yi Wang, CFA SAC License No. S1420206030005 result, investors should be aware that the firm may have a conflict of +86(21)2401-8930 [email protected] Beijing Gao Hua Securities Company Limited interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For analyst certification, see the end of the text. Other important disclosures follow the Reg AC certification, or contact your investment representative.

Beijing Gao Hua Securities Company Limited Investment Research August 19, 2010 Shenzhen Overseas Chinese Town Holding (000069.SZ)

Shenzhen Overseas Chinese Town Holding: Summary Financials

Profit model (Rmb mn) 12/09 12/10E 12/11E 12/12E Balance sheet (Rmb mn) 12/09 12/10E 12/11E 12/12E

Total revenue 10,957.0 13,477.5 14,915.2 16,958.0 Cash & equivalents 2,999.3 4,563.4 3,702.5 5,185.8 Cost of goods sold (6,946.8) (8,764.3) (9,809.0) (11,563.4) Accounts receivable 1,144.3 1,403.1 1,552.8 1,765.5 SG&A (1,594.4) (1,752.1) (1,804.7) (1,899.3) Inventory 9,099.3 20,379.8 24,221.7 24,326.7 R&D ------Other current assets 1,367.3 221.5 243.7 268.1 Other operating profit/(expense) (188.6) (67.4) 0.0 0.0 Total current assets 14,610.2 26,567.9 29,720.7 31,546.1 EBITDA 2,227.2 2,893.7 3,301.5 3,495.3 Net PP&E 10,807.4 13,502.9 14,994.5 16,690.3 Depreciation & amortization 0.0 0.0 0.0 0.0 Net intangibles 2,622.0 2,622.0 2,622.0 2,622.0 EBIT 2,227.2 2,893.7 3,301.5 3,495.3 Total investments 2,360.8 2,360.8 2,360.8 2,360.8 Interest income 0.0 60.0 91.3 74.0 Other long-term assets 344.4 413.3 454.7 500.1 Interest expense (131.5) (475.9) (726.8) (831.2) Total assets 30,744.8 45,466.9 50,152.6 53,719.2 Income/(loss) from uncons. subs. 282.6 285.9 232.7 528.4 Others 2.5 0.0 0.0 0.0 Accounts payable 6,816.5 8,599.9 10,749.6 12,672.2 Pretax profits 2,380.8 2,763.7 2,898.6 3,266.5 Short-term loans 3,935.7 7,935.7 8,935.7 9,735.7 Income tax (516.5) (619.5) (666.5) (684.5) Other current liabilities 5,580.8 5,169.8 3,205.1 560.7 Minorities (158.7) (109.3) (237.4) (321.3) Total current liabilities 16,333.0 21,705.5 22,890.4 22,968.6 Long-term debt 2,754.5 10,754.5 12,754.5 14,754.5 Net income pre-preferred dividends 1,705.6 2,035.0 1,994.7 2,260.7 Other long-term liabilities 207.6 207.6 207.6 207.6 Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 2,962.1 10,962.1 12,962.1 14,962.1 Net income (pre-exceptionals) 1,705.6 2,035.0 1,994.7 2,260.7 Total liabilities 19,295.1 32,667.5 35,852.5 37,930.7 Post-tax exceptionals 0.0 0.0 0.0 0.0 Net income 1,705.6 2,035.0 1,994.7 2,260.7 Preferred shares 0.0 0.0 0.0 0.0 Total common equity 10,479.3 12,005.5 13,501.6 15,197.1 EPS (basic, pre-except) (Rmb) 0.55 0.65 0.64 0.73 Minority interest 970.4 793.8 798.5 591.4 EPS (basic, post-except) (Rmb) 0.55 0.65 0.64 0.73 Total liabilities & equity 30,744.8 45,466.9 50,152.6 53,719.2 EPS (diluted, post-except) (Rmb) 0.55 0.65 0.64 0.73 BVPS (Rmb) 3.37 3.86 4.34 4.89 DPS (Rmb) 0.100.160.160.18RNAV (Rmb mn) -- 53,867.5 -- -- Dividend payout ratio (%) 18.2 25.0 25.0 25.0 RNAVPS (Rmb) -- 17.33 -- -- Free cash flow yield (%) 11.7 (23.3) (6.9) (0.9)

Growth & margins (%) 12/09 12/10E 12/11E 12/12E Ratios 12/09 12/10E 12/11E 12/12E Sales growth 26.6 23.0 10.7 13.7 ROE (%) 17.1 18.1 15.6 15.8 EBITDA growth 4.3 29.9 14.1 5.9 ROA (%) 5.7 5.3 4.2 4.4 EBIT growth 4.3 29.9 14.1 5.9 ROACE (%) 11.5 11.7 9.2 9.4 Net income growth 20.0 19.3 (2.0) 13.3 Inventory days 567.0 613.8 829.8 766.2 EPS growth 20.0 19.3 (2.0) 13.3 Receivables days 45.3 34.5 36.2 35.7 Gross margin 36.6 35.0 34.2 31.8 Payable days 312.8 321.0 360.0 369.7 EBITDA margin 20.3 21.5 22.1 20.6 Net debt/equity (%) 32.2 110.4 125.8 122.3 EBIT margin 20.3 21.5 22.1 20.6 Interest cover - EBIT (X) 16.9 7.0 5.2 4.6

Cash flow statement (Rmb mn) 12/09 12/10E 12/11E 12/12E Valuation 12/09 12/10E 12/11E 12/12E Net income pre-preferred dividends 1,705.6 2,035.0 1,994.7 2,260.7 P/E basic (X) 25.1 21.1 21.5 19.0 D&A add-back 0.0 0.0 0.0 0.0 P/B (X) 4.1 3.6 3.2 2.8 Minorities interests add-back 158.7 109.3 237.4 321.3 EV/EBITDA (X) 25.6 19.7 18.4 17.8 Net (inc)/dec working capital 3,035.2 (9,755.8) (1,841.9) 1,605.0 Dividend yield (%) 0.7 1.2 1.2 1.3 Other operating cash flow 1,412.9 657.8 (1,362.4) (2,293.2) Cash flow from operations 6,312.3 (6,953.8) (972.3) 1,893.8 Underlying valuation 12/09 12/10E 12/11E 12/12E Capital expenditures 0.0 (2,695.5) (1,491.5) (1,695.8) Underlying profit (Rmb mn) 1,705.5 2,034.9 1,994.7 2,260.7 Acquisitions 0.0 0.0 0.0 0.0 Underlying EPS (Rmb) 0.55 0.65 0.64 0.73 Divestitures 0.0 0.0 0.0 0.0 Others (2,340.5) (475.9) (888.4) (1,016.0) Underlying ROE (%) 17.1 18.1 15.6 15.8 Cash flow from investments (2,340.5) (3,171.4) (2,379.9) (2,711.8) Underlying ROA (%) 5.7 5.3 4.2 4.4 Underlying ROACE (%) 11.5 11.7 9.2 9.4 Dividends paid (common & pref) (310.7) (310.7) (508.7) (498.7) Underlying P/E (X) 25.1 21.1 21.5 19.0 Inc/(dec) in debt (3,092.3) 12,000.0 3,000.0 2,800.0 Underlying dividend payout (%) 18.2 25.0 25.0 25.0 Common stock issuance (repurchase) 139.0 0.0 0.0 0.0 Underlying EPS growth (%) 20.0 19.3 (2.0) 13.3 Other financing cash flows (535.3) 0.0 0.0 0.0 Cash flow from financing (3,799.3) 11,689.3 2,491.3 2,301.3 Total cash flow 172.5 1,564.1 (860.9) 1,483.3 Note: Last actual year may include reported and estimated data. Source: Company data, Goldman Sachs Research estimates.

Analyst Contributors

Jason Sun [email protected]

Yi Wang, CFA [email protected]

Gao Hua Securities Investment Research 2 August 19, 2010 Shenzhen Overseas Chinese Town Holding (000069.SZ)

Reg AC

I, Jason Sun, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Investment Profile

The Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.

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Disclosures

Coverage group(s) of stocks by primary analyst(s)

Jason Sun: China Property. China Property: Agile Property Holdings, China Merchants Property (A), China Overseas Land, China Resources Land, China Vanke (A), China Vanke (B), China World Trade Center, Country Garden Holdings Company, E-House (China) Holdings Limited, Evergrande Real Estate Group, Fantasia Holding Group Co., Financial Street Holding Co, Franshion Properties (China), Gemdale Corp, Greentown China Holdings, Guangzhou R&F Properties, Huafa Industrial, IFM Investments, KWG Property Holding, Poly (Hong Kong) Investments, Poly Real Estate Group, Powerlong Real Estate Holdings, Shanghai Forte Land, Shenzhen Investment, Shenzhen Overseas Chinese Town Holding, Shimao Property, Shui On Land, Sino-Ocean Land Holdings, SOHO China, Yanlord Land.

Company-specific regulatory disclosures

The following disclosures relate to relationships between Goldman Sachs Gao Hua Securities Company Limited ("Goldman Sachs Gao Hua") and companies covered by the Investment Research Division of Beijing Gao Hua Securities Company Limited ("Gao Hua Securities") and referred to in this research. There are no company-specific disclosures for: Shenzhen Overseas Chinese Town Holding (Rmb13.79)

Ratings, coverage groups and views and related definitions

Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return. Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership. Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The analyst assigns one of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation. Not Rated (NR). The investment rating and target price have been removed pursuant to Gao Hua Securities policy when Goldman Sachs Gao Hua is acting in an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS). We have suspended the investment rating and price target for this stock, because there is not a sufficient fundamental basis for determining, or there

Gao Hua Securities Investment Research 3 August 19, 2010 Shenzhen Overseas Chinese Town Holding (000069.SZ)

are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). We have suspended coverage of this company. Not Covered (NC). We do not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.

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