Longfor Properties Co Target Price: HKD13.87 Price: HKD11.80 Still an Attractive Mid-Cap Developer Market Cap: USD8,881M Bloomberg Ticker: 960 HK

Hong Kong Results Review 1H16: slightly below expectations

18 August 2016 Property | Real Estate Buy (Maintained) Longfor Properties Co Target Price: HKD13.87 Price: HKD11.80 Still An Attractive Mid-cap Developer Market Cap: USD8,881m Bloomberg Ticker: 960 HK

In our view, Longfor’s fundamentals remain strong due to the following: Share Data 1. Its heavy Tier-1&2 cities’ exposure to support contracted sales growth; Avg Daily Turnover (HKD/USD) 41.4m/5.34m 2. Its gradual GPM rebound; 52-wk Price low/high (HKD) 8.53 - 11.8 3. Rental income is still in a rapid growth stage; 4. Its solid financial position (further financing rate decline, stable Free Float (%) 21 gearing and higher proportion of CNY-denominated borrowings) Shares outstanding (m) 5,837 Maintain BUY, with an unchanged HKD13.87 TP (18% upside), set at an Estimated Return 18% unchanged 25% discount to ENAV. It remains as our Top mid-cap Pick. Shareholders (%) FY16F contracted sales rises by 21%. The new target represents a 37.5% Wu Yajun 44.3 YoY increase. We believe this target is achievable, given the solid YTD Cai Kui 29.2 progress of its contracted sales. Besides that, we think Longfor Properties Woo Kwong Ching 6.0 (Longfor) maintains heavy Tier-1&2 cities’ exposure, which is set to contribute over 80% of its total contracted sales revenue going forward. This factor will Share Performance (%) also help it to achieve a desirable sell-through rate and ASP. YTD 1m 3m 6m 12m Further GPM recovery. Longfor intends to maintain an overall GPM of 25-30% Absolute 2.1 9.1 18.2 25.4 13.0 in the long run. We believe the catalysts are a gradual GPM recovery of booked Relative (1.9) 3.8 4.9 4.9 17.3 sales revenue (due to a higher contracted ASP and the fading proportion of Source: Bloomberg inventory to be cleared) and a higher proportion of total revenue from

investment properties, which command higher GPMs. Longfor Properties Co (960 HK) Price Close Relative to Hang Seng Index (RHS) Greater variety of investment properties. Besides completing new 12.2 127 investment properties to boost rental income, it also aims to explore the 11.2 117 serviced apartments and joint office space segments. We expect its rental 10.2 107 income to increase at a CAGR of 42% in FY15-18F. 9.2 97 8.2 87 1H16 earnings were in line with consensus but slightly missed our forecast 20 18 16 1H15 1H16 YoY Comments 14 (CNYm) 12 Booked sales revenue and rental income 10 Revenue 16,789 18,369 9.4% 8 up 7.6% and 33.9% 6 4 4,450 5,119 15.1% 2

Gross profit Volm

15 16

15 15

- -

GPM (%) 26.5% 27.9% +1.4 ppt Continuous GPM recovery since 2H15 -

Oct Apr

Jun

Feb

Dec Aug EBIT 3,557 4,099 15.2% EBIT margin (%) 21.2% 22.3% +1.1 ppt Source: Bloomberg Forex loss and lower interest income 2,226 2,397 7.7% Recurring NP partially offset earnings growth Recurring NPM (%) 13.3% 13.0% -0.3 ppt Recurring EPS (CNY) 0.383 0.411 7.5%

Source: Company data, RHB Maintain BUY and HKD13.87 TP. We lower our FY16F-18F recurring earnings by 2-5% to factor the slower JV/associates projects bookings, but our end- FY16F ENAV of HKD18.50 remains intact. Our new TP is based on an unchanged 25% discount to ENAV (+1.5SD from its 5-year mean). The key risk to our call is slower-than-expected revenue bookings.

Forecasts and Valuations Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Total turnover (CNYm) 50,991 47,423 59,348 62,810 70,934 Reported net profit (CNYm) 8,354 8,988 9,808 9,211 10,416 Recurring net profit (CNYm) 6,610 6,950 8,473 9,211 10,416 Recurring net profit growth (%) 6.4 5.1 21.9 8.7 13.1 Recurring EPS (CNY) 1.21 1.19 1.45 1.58 1.79 DPS (CNY) 0.28 0.36 0.42 0.47 0.54 Recurring P/E (x) 8.33 8.45 6.94 6.39 5.65 P/B (x) 1.15 1.07 0.94 0.85 0.77 Dividend Yield (%) 2.8 3.5 4.2 4.7 5.3 Return on average equity (%) 19.7 17.5 16.7 14.0 14.4 Analyst Return on average assets (%) 5.3 5.1 5.0 4.2 4.2 Toni Ho, CFA Net debt to equity (%) 57.1 54.6 50.9 45.8 36.9 +852 2103 5888 Our vs consensus EPS (adjusted) (%) 7.8 4.3 4.3 [email protected]

Source: Company data, RHB

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Longfor Properties Co Hong Kong Results Review

18 August 2016 Property | Real Estate

1H16 – Moderate And In-line Earnings Growth Faster GPM recovery and lower financing rate in 1H16 1H16 recurring net profit rose 7.7% YoY to CNY2.4bn, mainly driven by: i. A higher GPM; and ii. Strong rental income growth. GPM improved further to 27.9% (1H15 and FY15: 26.5% and 27.4% respectively). It was also better than our FY16 forecast of 27.7%. This was attributed to the gradual recovery in the GPM for its booked sales and the higher proportion of total revenue and GPM from investment properties. Longfor’s revenue rose 9.4% YoY, supported by a 33.9% YoY surge in rental income. That said, its earnings growth was partially offset by: i. A lack of revenue bookings from JV projects; ii. Forex loss; and iii. A decrease in interest income. The recurring net profit represented 28% of our full-year earnings forecast, slightly lower than the 32% achieved in 1H15 and our expectation of 30%. Thus, the recurring net profit was 7% below our forecast, but in line with that of the consensus. No interim dividend was declared, same as in 1H15.

Figure 1: Longfor's 1H16 results review Actual Actual Actual 1H16 RHB BBG FYE Dec (CNYm) 1H15 2H15 1H16 YoY 1H16 Diff (%) Consensus Diff (%)

Turnover 16,789 30,634 18,369 9.4% 17,257 6.4% 19,049 -3.6% Property sales 15,708 29,285 16,903 7.6% Property investment 660 755 883 33.9% Property mgmt and others 421 593 583 38.3% Cost of sales -12,340 -22,068 -13,249 7.4% Gross profit 4,450 8,565 5,119 15.1%

Selling and marketing exp -313 -705 -411 31.2% Administrative expenses -662 -773 -686 3.6% Other income 45 171 117 N/A Other gains and losses 38 -193 -41 N/A Operating profit 3,557 7,064 4,099 15.2%

Revaluation change 1,828 612 1,725 -5.6% Exceptionals 396 38 55 N/A Finance cost - net 138 57 46 -66.7% Associates and JCEs 97 151 -30 N/A Profit before taxation 6,015 7,923 5,895 -2.0% Taxation -2,129 -2,445 -1,999 -6.1% Profit after taxation 3,886 5,478 3,896 0.3% Minority interests -50 -326 -166 230.8% Reported net profit 3,836 5,152 3,730 -2.7% Recurring net profit 2,226 4,724 2,397 7.7% 2,584 -7.2% 2,411 -0.6%

Basic EPS (CNY) 0.660 0.884 0.639 -3.1% Core EPS (CNY) 0.383 0.811 0.411 7.3% DPS (CNY) 0.000 0.357 0.000 N/A BVPS (CNY) 8.590 9.469 9.731

Gross margin 26.5% 28.0% 27.9% Operating margin 21.2% 23.1% 22.3% Effective tax rate -35.4% -30.9% -33.9% Net margin 22.8% 16.8% 20.3% Core net margin 13.3% 15.4% 13.0%

Source: RHB

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Longfor Properties Co Hong Kong Results Review

18 August 2016 Property | Real Estate

Solid financial position Longfor’s average financing costs lowered further to 5.18% (FY15: 5.74%), benefiting from the lower interest cost of onshore financing. The proportion of CNY-denominated borrowings increased to 78% (end-FY15: 71%). Meanwhile, its net gearing (including minority interests as total equity) increased to 62.7% (end-FY15: 54.6%), but it was still lower than the sector average.

Prospects Remain Solid We lower our FY16F-18F recurring earnings by 2-5%, mainly factoring the slower-than- expected income contributions from JV and associates projects. That said, our new earnings forecast still represent a sound recurring net profit CAGR of 14% for FY15-18F.

Figure 2: Changes to our P&L forecasts FY16F FY17F FY18F FYE Dec (CNYm) Original New chg (%) Original New chg (%) Original New chg (%) Revenue 57,522 59,348 3% 64,916 62,810 -3% 72,653 70,934 -2% Cost of goods sold -41,564 -42,920 3% -47,444 -45,064 -5% -52,629 -51,330 -2% Gross profit 15,958 16,428 3% 17,472 17,746 2% 20,024 19,604 -2% Selling and marketing exp -1,166 -1,275 9% -1,249 -1,457 17% -1,336 -1,488 11% Administrative expenses -1,565 -1,650 5% -1,721 -1,733 1% -1,856 -1,819 -2% Other gains and losses 72 58 -20% 87 70 -20% 105 84 -20% Revaluation gain 0 1,780 N/A 0 0 N/A 0 0 N/A Interest Expense -170 -170 0% -179 -179 0% -187 -187 0% Interest income 145 145 0% 136 135 -1% 134 132 -2% Associate and JCEs 339 147 -56% 378 181 -52% 416 286 -31% Profit before tax 13,614 15,464 14% 14,924 14,763 -1% 17,299 16,612 -4% Taxation -4,493 -5,103 14% -4,925 -4,872 -1% -5,709 -5,482 -4% Minority interests -508 -553 9% -567 -680 20% -623 -714 15% Reported net profit 8,613 9,808 14% 9,433 9,211 -2% 10,967 10,416 -5% Recurring net profit 8,613 8,473 -2% 9,433 9,211 -2% 10,967 10,416 -5%

Gross profit margin (%) 27.7% 27.7% -0.1% 26.9% 28.3% 1.3% 27.6% 27.6% 0.1% Reported net profit margin (%) 15.0% 16.5% 1.6% 14.5% 14.7% 0.1% 15.1% 14.7% -0.4% Recurring net profit margin (%) 15.0% 14.3% -0.7% 14.5% 14.7% 0.1% 15.1% 14.7% -0.4%

Source: RHB

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Longfor Properties Co Hong Kong Results Review

18 August 2016 Property | Real Estate

Figure 3: Longfor's interim income statement Actual Actual Actual Actual Actual RHB FYE Dec (CNYm) 1H14 2H14 1H15 2H15 1H16 2H16F

Turnover 15,945 35,046 16,789 30,634 18,369 40,979 Property sales 15,187 34,101 15,708 29,285 16,903 39,123 Property investment 378 499 660 755 883 1,155 Property mgmt and others 380 446 421 593 583 702 Cost of sales -11,011 -26,463 -12,340 -22,068 -13,249 -29,671 Gross profit 4,933 8,582 4,450 8,565 5,119 11,309

Selling and marketing exp -321 -744 -313 -705 -411 -864 Administrative expenses -803 -495 -662 -773 -686 -964 Other income 111 62 45 171 117 -59 Other gains and losses -382 -271 38 -193 -41 41 Operating profit 3,539 7,135 3,557 7,064 4,099 9,462

Revaluation change 2,330 -139 1,828 612 1,725 0 Exceptionals 364 0 396 38 55 0 Finance cost - net 67 56 138 57 46 -70 Associates and JCEs 131 145 97 151 -30 178 Profit before taxation 6,430 7,196 6,015 7,923 5,895 9,569 Taxation -2,078 -2,798 -2,129 -2,445 -1,999 -3,104 Profit after taxation 4,352 4,398 3,886 5,478 3,896 6,465 Minority interests -345 -52 -50 -326 -166 -387 Reported net profit 4,007 4,347 3,836 5,152 3,730 6,077 Recurring net profit 2,134 4,476 2,226 4,724 2,397 6,076

Basic EPS (CNY) 0.736 0.794 0.660 0.884 0.639 1.044 Core EPS (CNY) 0.392 0.819 0.383 0.811 0.411 1.043 DPS (CNY) 0.000 0.284 0.000 0.357 0.000 0.421 BVPS (CNY) 7.336 8.751 8.590 9.469 9.731 10.500

Gross margin 30.9% 24.5% 26.5% 28.0% 27.9% 27.6% Operating margin 22.2% 20.4% 21.2% 23.1% 22.3% 23.1% Effective tax rate -32.3% -38.9% -35.4% -30.9% -33.9% -32.4% Net margin 25.1% 12.4% 22.8% 16.8% 20.3% 14.8% Core net margin 13.4% 12.8% 13.3% 15.4% 13.0% 14.8%

Source: RHB

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Longfor Properties Co Hong Kong Results Review

18 August 2016 Property | Real Estate

Figure 4: Summary of Longfor's annual income statement FYE Dec (CNYm) FY14 FY15 FY16F FY17F FY18F Property sales 49,289 44,993 56,025 58,331 64,762 Property investment 876 1,415 2,038 2,853 4,114 Property mgmt and others 826 1,015 1,285 1,626 2,058 Total revenue 50,991 47,423 59,348 62,810 70,934 Cost of sales -37,475 -34,408 -42,920 -45,064 -51,330 Gross profit 13,516 13,015 16,428 17,746 19,604 Other income and expenses -479 59 58 70 84 Selling and marketing exp -1,065 -1,018 -1,275 -1,457 -1,488 Administrative expenses -1,298 -1,435 -1,650 -1,733 -1,819 Revaluation change 2,554 2,874 1,780 0 0 Finance cost - net 123 195 -25 -44 -55 Associates and JCEs 276 248 147 181 286 Profit before taxation 13,627 13,938 15,464 14,763 16,612 Taxation -4,876 -4,574 -5,103 -4,872 -5,482 Profit after taxation 8,750 9,364 10,361 9,891 11,130 MI -397 -376 -553 -680 -714 Reported net profit 8,354 8,988 9,808 9,211 10,416 Recurring net profit 6,610 6,950 8,473 9,211 10,416 Reported EPS (CNY) 1.531 1.544 1.683 1.581 1.787 Recurring EPS (CNY) 1.211 1.194 1.454 1.581 1.787 DPS (CNY) 0.284 0.357 0.421 0.474 0.536

Profit margin: Gross margin 26.5% 27.4% 27.7% 28.3% 27.6% Reported net margin 16.4% 19.0% 16.5% 14.7% 14.7% Recurring net margin 13.0% 14.7% 14.3% 14.7% 14.7%

YoY growth: Turnover 22.8% -7.0% 25.1% 5.8% 12.9% Booked property sales revenue 22.5% -8.7% 24.5% 4.1% 11.0% Reported net profit 3.9% 7.6% 9.1% -6.1% 13.1% Recurring net profit 6.4% 5.1% 21.9% 8.7% 13.1% Reported EPS 3.5% 0.9% 9.0% -6.1% 13.1% Recurring EPS 6.0% -1.4% 21.8% 8.7% 13.1%

Source: RHB

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Longfor Properties Co Hong Kong Results Review

18 August 2016 Property | Real Estate

Valuations

Figure 5: Longfor's end-FY16F ENAV Details Total HKD m HKD/share % of Total Landbank and properties under development 87,552 15.0 81% Investment properties 63,684 10.9 59% Net debts as of end-FY16F (42,962) (7.4) -40%

Total 108,274 18.5 100% Source: RHB

Figure 6: Longfor's 5-year rolling forward ENAV band

Title: 20.0 Source:

Please fill in the values above to have them entered in your report

+2SD = 22% discount 16.0

+1SD = 30% discount

Mean =39% discount 12.0 -1SD = 48% discount

Share Price Share (HKD) -2SD = 57% discount 8.0

4.0 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16

Source: RHB

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Longfor Properties Co Hong Kong Results Review

18 August 2016 Property | Real Estate

Peer Comparison

Figure 7: Peer comparison I Company Stock *Price Mkt cap 3-mth RHB/Cons Discount P/E EPS YoY change 3-yr EPS P/BV Div yield code avg t/o NAV to NAV FY15 FY16F FY16F FY17F CAGR FY15 FY16F FY15 FY16F (HKD) (USDm) (USDm) (HKD) (%) (x) (x) (%) (%) (%) (%) (%) (%) (%) Large peer average 28.6 9.1 8.5 7.7 17.5 12.1 1.5 1.3 3.8 4.1 China Overseas 688 HK 26.55 33,758 53.2 35.50 25.2 8.9 8.1 10.2 14.6 12.3 1.4 1.2 2.3 2.6 China Vanke 2202 HK 20.30 41,331 44.6 26.00 21.9 10.6 9.3 14.1 17.5 14.6 1.9 1.7 4.2 4.7 CR Land 1109 HK 21.50 19,215 30.5 34.80 38.2 10.2 9.0 14.0 17.0 14.4 1.3 1.1 2.7 3.0 Evergrande 3333 HK 5.77 10,179 15.3 7.60 24.1 6.9 10.5 -34.4 33.8 -0.2 1.3 1.1 7.8 6.7 Country Garden 2007 HK 3.40 9,738 6.2 5.04 32.5 6.5 6.6 -1.3 20.7 11.0 1.0 0.9 4.5 4.6 Longfor 960 HK 11.80 8,881 5.4 18.50 36.2 8.5 7.5 13.0 12.3 12.8 1.0 0.9 3.6 3.9 Shimao 813 HK 10.96 4,851 7.8 26.20 58.2 5.2 4.8 8.2 9.7 8.4 0.6 0.6 6.4 6.6

Mid-and-small peer average 56.1 13.4 10.8 27.6 17.7 12.3 0.6 0.6 6.3 4.4 Sino-Ocean 3377 HK 3.58 3,469 3.2 7.90 54.7 7.5 6.9 8.1 21.5 13.1 0.5 0.5 3.5 4.7 Franshion 817 HK 2.41 3,316 1.7 5.50 56.2 8.3 7.4 13.1 17.7 13.5 0.7 0.6 3.3 4.3 Guangzhou R&F 2777 HK 12.18 5,061 10.0 18.50 34.2 6.4 5.3 21.1 12.7 13.8 0.8 0.7 11.6 6.6 SOHO China 410 HK 4.35 2,917 3.0 10.00 56.5 45.9 37.2 23.5 13.0 12.1 0.5 0.5 19.2 3.1 Sunac 1918 HK 5.70 2,501 8.8 13.90 59.0 5.0 6.3 -19.8 31.9 11.5 0.9 0.8 4.0 3.1 Shenzhen Inv 604 HK 3.65 3,593 3.8 6.60 44.7 9.0 9.0 0.2 25.6 12.2 0.8 0.8 4.4 5.1 Yuexiu Property 123 HK 1.12 1,791 6.6 3.70 69.7 9.6 9.6 0.0 17.0 11.9 0.4 0.4 4.3 4.0 Agile 3383 HK 4.81 2,429 2.5 12.10 60.2 6.6 5.6 16.5 18.4 15.4 0.5 0.4 8.2 5.6 KWG 1813 HK 5.38 2,119 3.2 15.50 65.3 5.0 4.4 14.1 12.1 11.0 0.6 0.6 6.4 7.0 Shui On Land 272 HK 2.16 2,236 1.8 5.90 63.4 18.5 9.0 105.0 7.8 34.1 0.4 0.4 2.3 2.4 Greentown 3900 HK 6.22 1,735 1.9 17.00 63.4 11.1 6.6 69.2 19.4 32.1 0.5 0.4 N/A 2.7 Hopson 754 HK 7.40 2,124 0.7 32.80 77.4 53.2 20.6 159.0 13.9 47.9 0.3 N/A 1.4 1.5 CIFI 884 HK 2.22 1,920 1.2 4.40 49.5 5.5 4.7 17.8 13.6 16.7 1.0 0.9 10.1 7.5 Poly HK 119 HK 2.32 1,095 2.5 12.90 82.0 N/A 35.2 N/A 13.6 -163.8 0.3 0.3 N/A 0.5 COGO 81 HK 2.48 730 0.5 6.80 63.5 6.6 4.8 37.5 35.9 23.3 0.5 0.4 N/A 2.0

Sector average 34.8 10.1 9.0 12.2 17.6 12.2 1.3 1.1 4.4 4.1 Note: Prices as at 17 Aug Source: RHB, Bloomberg

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Longfor Properties Co Hong Kong Results Review

18 August 2016 Property | Real Estate

Figure 8: Peer comparison II Company Stock Revenue Net profit Gross margin Net margin Net gearing ROE Share price change code FY15 FY16F FY15 FY16F FY15 FY15 FY16F FY15 FY16F FY15 FY16F 1-mth YTD (USDm) (USDm) (USDm) (USDm) (%) (%) (%) (%) (%) (%) (%) (%) (%) Large peer average 27.2 14.3 11.4 51.9 49.4 17.2 14.4 11.9 -6.5 China Overseas 688 HK 18,069 22,734 4,296 4,246 30.2 23.8 18.7 6.6 8.1 20.5 15.5 2.9 -2.4 China Vanke 2202 HK 27,781 31,405 2,731 3,158 24.8 9.8 10.1 20.4 11.5 19.3 19.5 29.1 -11.4 CR Land 1109 HK 13,332 15,031 2,260 2,137 31.2 17.0 14.2 23.0 15.6 15.9 13.3 11.5 -4.9 Evergrande 3333 HK 20,066 25,656 2,343 1,087 28.1 11.7 4.2 136.1 120.5 20.5 12.2 19.0 -15.4 Country Garden 2007 HK 17,065 18,779 1,398 1,467 20.2 8.2 7.8 58.6 55.7 15.2 13.9 5.6 6.9 Longfor 960 HK 7,148 8,456 1,355 1,190 27.4 19.0 14.1 55.0 51.1 16.6 13.5 9.1 2.1 Shimao 813 HK 8,702 9,409 922 1,002 28.5 10.6 10.7 63.9 83.0 12.6 12.5 6.2 -20.5

Mid-and-small peer average 29.4 16.9 12.4 79.9 62.2 8.5 9.2 7.6 0.8 Sino-Ocean 3377 HK 4,646 5,132 359 500 20.6 7.7 9.7 65.3 59.5 5.0 7.8 2.6 -28.0 Franshion 817 HK 2,851 4,503 489 473 38.7 17.1 10.5 60.6 52.6 11.1 9.1 6.6 -9.1 Guangzhou R&F 2777 HK 6,676 7,553 1,013 950 32.1 15.2 12.6 138.1 139.0 14.6 14.2 4.3 27.5 SOHO China 410 HK 150 255 81 83 73.7 54.0 32.4 25.1 31.1 2.7 1.6 12.4 29.6 Sunac 1918 HK 3,468 4,544 497 389 12.4 14.3 8.6 98.4 43.3 18.7 13.0 14.0 -5.0 Shenzhen Inv 604 HK 2,376 2,770 370 401 34.6 15.6 14.5 45.8 3.4 9.0 9.2 13.7 0.6 Yuexiu Property 123 HK 3,333 3,496 153 188 21.1 4.6 5.4 91.0 57.0 3.4 4.3 12.0 -16.4 Agile 3383 HK 6,482 6,659 264 431 25.1 4.1 6.5 77.7 73.2 4.1 7.6 5.7 18.7 KWG 1813 HK 1,257 1,711 515 467 36.1 41.0 27.3 76.3 55.4 16.0 13.0 15.7 -6.4 Shui On Land 272 HK 975 1,994 202 249 26.1 20.7 12.5 96.8 75.4 2.0 3.9 3.3 1.4 Greentown 3900 HK 3,926 4,324 123 261 20.8 3.1 6.0 82.1 103.0 2.2 6.8 6.1 -19.2 Hopson 754 HK 1,656 N/A 212 N/A 24.6 12.8 N/A 74.2 N/A 3.0 N/A 4.8 -4.1 CIFI 884 HK 2,748 3,405 322 400 22.7 11.7 11.8 59.4 30.7 18.2 18.9 14.4 28.3 Poly HK 119 HK 3,215 3,623 -346 32 11.5 -10.8 0.9 120.8 98.7 -10.2 0.2 4.0 -8.3 COGO 81 HK 2,142 2,342 110 158 15.6 5.1 6.7 76.1 25.4 7.3 11.1 5.1 -24.4

Average 28.8 16.2 12.1 72.1 58.3 10.9 10.7 8.8 -1.2 Source: RHB, Bloomberg

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Longfor Properties Co Hong Kong Results Review

18 August 2016 Property | Real Estate

Financial Exhibits

Financial model updated on : 2016-08-17.

Asia Financial summary Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Hong Kong Recurring EPS (CNY) 1.21 1.19 1.45 1.58 1.79 Property EPS (CNY) 1.53 1.54 1.68 1.58 1.79 Longfor Properties Co DPS (CNY) 0.28 0.36 0.42 0.47 0.54 Bloomberg 960 HK BVPS (CNY) 8.8 9.5 10.7 11.8 13.1 Buy Weighted avg adjusted shares (m) 5,458 5,821 5,827 5,827 5,827

Valuation basis Valuation metrics Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F 25% discount (+1.5SD of 5-year mean) to our end- Recurring P/E (x) 8.33 8.45 6.94 6.39 5.65 FY16F ENAV of HKD18.50 P/E (x) 6.59 6.54 6.00 6.39 5.65

P/B (x) 1.15 1.07 0.94 0.85 0.77 Key drivers FCF Yield (%) (9.9) (7.1) (0.2) 4.7 11.4 i. GPM recovery; Dividend Yield (%) 2.8 3.5 4.2 4.7 5.3 ii. Sustainable contracted sales; and iii. Rental growth. EV/EBITDA (x) 3.93 4.95 3.95 3.62 3.01 EV/EBIT (x) 3.95 4.98 3.97 3.64 3.02 Key risks Higher-than-expected inventory sales booking Income statement (CNYm) Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Total turnover 50,991 47,423 59,348 62,810 70,934 Company Profile Gross profit 13,516 13,015 16,428 17,746 19,604 Longfor Properties (Longfor) was established in EBITDA 11,208 10,622 13,563 14,617 16,357 Chongqing in 1993. The company has spread its Depreciation and amortisation (55) (60) (60) (60) (60) presence across 24 cities in Western China, the Operating profit 11,153 10,562 13,503 14,557 16,297 Yangtze River Delta, the Bohai Rim, as well as Net interest 123 195 (25) (44) (55) Southern and Central China. Its brand is well-known in the country’s south-western region. Besides property Income from associates & JVs 276 248 147 181 286 development, Longfor is also engaged in property Exceptional income - net 2,075 2,933 1,838 70 84 investment and management businesses through its Pre-tax profit 13,627 13,938 15,464 14,763 16,612 Paradise Walk and Starry Street series. It was listed Taxation (4,876) (4,574) (5,103) (4,872) (5,482) on the HKEx in 2009. Minority interests (397) (376) (553) (680) (714)

Recurring net profit 6,610 6,950 8,473 9,211 10,416 Valuation chart

Cash flow (CNYm) Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Change in working capital 6,782 11,096 16,816 22,595 25,549 Cash flow from operations 10,539 13,892 21,936 28,825 32,771 Capex (16,019) (18,050) (22,050) (26,050) (26,050) Cash flow from investing activities (17,457) (18,050) (22,050) (26,050) (26,050) Dividends paid (1,232) (1,241) (1,654) (2,452) (2,763)

Cash flow from financing activities 11,313 3,284 1,215 (87) (280)

Balance sheet (CNYm) Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Total cash and equivalents 19,037 18,160 19,262 21,950 28,390 Tangible fixed assets 20,089 16,832 17,258 17,695 18,144 Total investments 36,665 44,623 52,111 58,747 65,717 Total other assets 1,465 2,456 2,456 2,456 2,456 Total assets 168,156 184,089 207,974 234,610 262,855 Short-term debt 7,973 6,178 7,139 7,501 7,881 Other liabilities 2 0 0 0 0 Total liabilities 117,884 121,621 137,544 156,978 177,179 Shareholders' equity 47,764 55,125 62,480 68,928 76,219 Minority interests 2,508 7,343 7,950 8,704 9,457 Total equity 50,272 62,468 70,430 77,632 85,677 Net debt 28,705 34,106 35,873 35,550 31,592 Total liabilities & equity 168,156 184,089 207,974 234,610 262,855

Key metrics Dec-14 Dec-15 Dec-16F Dec-17F Dec-18F Revenue growth (%) 22.8 (7.0) 25.1 5.8 12.9 Recurrent EPS growth (%) 6.0 (1.4) 21.8 8.7 13.1 Gross margin (%) 26.5 27.4 27.7 28.3 27.6 Operating EBITDA margin (%) 22.0 22.4 22.9 23.3 23.1 Net profit margin (%) 16.4 19.0 16.5 14.7 14.7 Dividend payout ratio (%) 14.9 18.4 25.0 30.0 30.0 Capex/sales (%) 31.4 38.1 37.2 41.5 36.7 Interest cover (x) 495 245 79 81 87

Source: Company data, RHB

See important disclosures at the end of this report 9

Longfor Properties Co Hong Kong Results Review

18 August 2016 Property | Real Estate

SWOT Analysis

 Well-established brand reputation in Chongqing and  Keen Chengdu competition in the land market  Commercial properties portfolio is going through a in Tier-1&2 harvest period cities

 More balanced demand- supply dynamics in Tier- 1&2 cities

 Increasing average land cost for its landbank

Recommendation Chart

Date Recommendation Target Price Price Price Close 2016-04-01 Buy 13.9 11.0 17

Recommendations & Target Price 2015-08-23 Neutral 10.5 9.6

2 2 5 1 1 5 4 9

......

9 9

10 10 13 16 10 2015-07-31 Neutral 10.4 11.1 15 2015-03-19 Neutral 10.4 10.2 14 2014-08-05 Neutral 10.2 10.8 13 2014-03-24 Neutral 9.5 10.2 12 2014-01-28 Sell 9.1 10.6 11 10 Source: RHB, Bloomberg

9 8 7 Buy Neutral Sell Trading Buy Take Profit Not Rated Aug-11 Nov-12 Feb-14 Jun-15

Source: RHB, Bloomberg

See important disclosures at the end of this report 10

Longfor Properties Co Hong Kong Results Review

Property | Real Estate

RHB Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage

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