Sell Evergrande

Deutsche Bank Markets Research

Rating Company Date 16 November 2015 Sell Evergrande Company Update Asia Hong Kong Reuters Bloomberg Exchange Ticker Price at 13 Nov 2015 (HKD) 6.27 Property 3333.HK 3333 HK HSI 3333 Price target - 12mth (HKD) 2.40 Property 52-week range (HKD) 7.90 - 2.96

HANG SENG INDEX 22,396

Operational strategies unclear; high Jason Ching, CFA Tony Tsang leverage continues to hurt profitability Research Analyst Research Analyst (+852) 2203 6205 (+852) 2203 6256 Maintain Sell on lack of clear operational strategies and high leverage [email protected] [email protected] Given the aggressive share buyback, continued significant investment in non- core businesses and recent acquisition of off-shore assets, Evergrande has no clear operational strategies, in our view. In particular, while Evergrande raised Key changes a total of Rmb40bn from issuance of public and non-public domestic Rmb Price target 2.45 to 2.40 ↓ -2.0% corporate bonds at markedly lower coupons YTD, we believe there is marginal Source: Deutsche Bank benefit in reducing funding costs as the company has spent about Rmb36bn in additional acquisitions/share buy-backs YTD, implying little scope left for debt Price/price relative refinancing. Moreover, the aggressive share buy-back YTD could further 9 worsen its financial position, where excessive leverage is hurting profitability. 8 Non-core businesses highlight a lack of clear operational strategies 6 On top of an estimated Rmb29bn in land acquisitions in China in 10M15, 5 Evergrande has acquired projects in Chongqing/Chengdu/Hong Kong from CC 3 Land/Chinese Estates/Sino-Land for an aggregate value of Rmb27bn. 2 Moreover, the company has committed Rmb2bn in investment in non-core 11/13 5/14 11/14 5/15 businesses in FY15 (following Rmb6.4bn spent in FY13/14) and aggressive Evergrande HANG SENG INDEX (Rebased) share buy-back YTD amounted to HK$8.8bn (Rmb7.2bn). These additional items (amounting to Rmb36bn) are expected to result in a net cash outflow of Performance (%) 1m 3m 12m Rmb33bn in FY15 (versus guidance Rmb25bn inflow). Consequently, we Absolute 27.4 28.2 109.0 expect effective net gearing (adjusted for perpetual) to worsen to 286% (238% HANG SENG INDEX -0.9 -6.8 -6.8 as of mid-15) or 329% excluding MI (280% as of mid-15) by end-15. Source: Deutsche Bank

Share buyback YTD amounted to HK$8.8bn; further mandate of 449m shares By referencing the new repurchase mandate dated July 28, wherein the company seeks (and recently approved by shareholders) additional mandate of 575m shares, Evergrande has total mandate to repurchase up to 2,140m shares until the next AGM in Jun-16. Since July 8, Evergrande has repurchased a total of 1.69bn shares (10.8% of issued capital) in the market for HK$8.8bn, at an average price of HK$5.2. In another words, Evergrande has mandate to repurchase a further 449m shares. In our view, the aggressive share buy-back is negative as: 1) it exhausts cash; 2) it increases net gearing on smaller equity base; 3) buy-backs above NAV represent value destruction to shareholders. Target price at a 40% discount to our NAV estimate of HK$4/share We base our target price on a 40% discount to our NAV estimate of HK$4/share, implying a 2015E PER of 6x. Our target discount reflects the higher risk profile associated with higher leverage, where net gearing stood at a high 280% by mid-15 (industry average of 80%). Key upside risks: loosening in government policy/financing. Forecasts And Ratios Year End Dec 31 2013A 2014A 2015E 2016E 2017E Sales (CNYm) 93,671.8 111,398.1 127,388.6 140,499.2 163,561.3 EBITDA(CNYm) 18,763.3 17,798.2 25,214.5 26,196.1 28,364.4 Reported NPAT(CNYm) 12,454.5 12,761.3 4,938.4 5,443.8 6,130.7 DB EPS FD (CNY) 0.53 0.06 0.35 0.39 0.44 PER (x) 5.1 42.0 14.9 13.3 11.8 Source: Deutsche Bank estimates, company data

______Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015.

16 November 2015

Property Evergrande

Model updated:15 November 2015 Fiscal year end 31-Dec 2013 2014 2015E 2016E 2017E

Running the numbers Financial Summary Asia DB EPS (CNY) 0.53 0.06 0.35 0.39 0.44 Reported EPS (CNY) 0.87 0.91 0.35 0.39 0.44 Hong Kong DPS (CNY) 0.54 0.53 0.12 0.13 0.15 BVPS (CNY) 3.5 3.7 4.7 5.0 5.3 Property Weighted average shares (m) 14,241 13,956 14,241 13,956 13,956 Evergrande Average market cap (CNYm) 38,022 35,982 76,777 76,777 76,777 Enterprise value (CNYm) 137,474 223,458 289,908 313,116 342,582 Reuters: 3333.HK Bloomberg: 3333 HK Valuation Metrics P/E (DB) (x) 5.1 42.0 14.9 13.3 11.8 Sell P/E (Reported) (x) 3.1 2.8 14.9 13.3 11.8 Price (13 Nov 15) HKD 6.27 P/BV (x) 0.67 0.68 1.10 1.04 0.98

Target Price HKD 2.40 FCF Yield (%) nm nm nm nm nm Dividend Yield (%) 20.2 20.6 2.3 2.6 2.9 52 Week range HKD 2.96 - 7.90 EV/Sales (x) 1.5 2.0 2.3 2.2 2.1 Market Cap (m) HKDm 93,356 EV/EBITDA (x) 7.3 12.6 11.5 12.0 12.1 EV/EBIT (x) 7.3 12.6 11.5 12.0 12.1 USDm 12,045 Income Statement (CNYm) Company Profile Sales revenue 93,672 111,398 127,389 140,499 163,561 Evergrande is a Guangzhou-based developer established in Gross profit 27,649 31,784 35,915 38,700 43,248 1996. It focuses on mass residential property EBITDA 18,763 17,798 25,214 26,196 28,364 developments in tier-2 and tier-3 cities. As of June 15, the Depreciation 0 0 0 0 0 company has a total landbank of 144m sqm GFA, and 335 Amortisation 0 0 0 0 0 projects with a presence in 154 cities. EBIT 18,763 17,798 25,214 26,196 28,364 Net interest income(expense) 89 -703 201 206 220 Associates/affiliates 0 0 0 0 0 Exceptionals/extraordinaries 0 0 0 0 0 Other pre-tax income/(expense) 6,387 14,253 0 0 0 Profit before tax 25,239 31,348 25,415 26,402 28,584 Price Performance Income tax expense 11,687 13,175 13,744 13,762 14,976 Minorities 1,097 5,412 6,733 7,196 7,478 9 Other post-tax income/(expense) 0 0 0 0 0 8 Net profit 12,455 12,761 4,938 5,444 6,131

6 DB adjustments (including dilution) -4,933 -11,905 0 0 0 5 DB Net profit 7,521 856 4,938 5,444 6,131 3 Cash Flow (CNYm) 2 Nov 13Feb 14May 14Aug 14Nov 14Feb 15May 15Aug 15 Cash flow from operations -38,871 -38,345 -158,794 -6,830 -12,384 Net Capex -8,895 0 -734 0 0 Evergrande HANG SENG INDEX (Rebased) Free cash flow -47,766 -38,345 -159,528 -6,830 -12,384 Equity raised/(bought back) 0 0 -528 0 0 Margin Trends Dividends paid 0 0 -1,160 -2,170 -1,718 Net inc/(dec) in borrowings 0 0 0 0 0 21.0 Other investing/financing cash flows 21,419 -22,729 128,072 323 -8,186 20.0 Net cash flow -26,347 -61,074 -33,144 -8,677 -22,288 19.0 Change in working capital -45,178 -41,764 -183,403 -28,989 -34,019 18.0 17.0 Balance Sheet (CNYm) 16.0 Cash and other liquid assets 40,118 29,847 30,857 34,963 36,919 15.0 Tangible fixed assets 11,378 15,504 15,504 15,504 15,504 13 14 15E 16E 17E Goodwill/intangible assets 0 0 0 0 0 EBITDA Margin EBIT Margin Associates/investments 0 0 0 0 0

Other assets 296,652 429,111 481,227 529,957 584,010 Growth & Profitability Total assets 348,148 474,462 527,588 580,424 636,433 Interest bearing debt 108,817 156,065 175,997 196,116 220,060 20 35 Other liabilities 159,988 206,019 218,080 239,791 260,087 30 Total liabilities 268,806 362,084 394,077 435,907 480,147 15 25 Shareholders' equity 48,590 51,120 65,520 69,331 73,622 20 10 15 Minorities 30,753 61,258 67,991 75,187 82,665 5 10 Total shareholders' equity 79,343 112,378 133,511 144,517 156,287 5 Net debt 68,699 126,218 145,141 161,153 183,141 0 0 13 14 15E 16E 17E Key Company Metrics Sales growth (%) nm 18.9 14.4 10.3 16.4 Sales growth (LHS) ROE (RHS)

DB EPS growth (%) na -88.4 464.2 11.8 12.6 Solvency EBITDA Margin (%) 20.0 16.0 19.8 18.6 17.3 EBIT Margin (%) 20.0 16.0 19.8 18.6 17.3 140 30 Payout ratio (%) 61.5 58.1 33.9 33.9 33.9 120 25 ROE (%) 28.7 25.6 8.5 8.1 8.6 100 20 Capex/sales (%) 13.1 0.0 0.6 0.0 0.0 80 15 Capex/depreciation (x) nm nm nm nm nm 60 40 10 Net debt/equity (%) 86.6 112.3 108.7 111.5 117.2 20 5 Net interest cover (x) nm 25.3 nm nm nm

0 0 Source: Company data, Deutsche Bank estimates 13 14 15E 16E 17E

Net debt/equity (LHS) Net interest cover (RHS)

Jason Ching, CFA +852 2203 6205 [email protected]

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Property Evergrande

Investment thesis

Outlook

We have a Sell rating on Evergrande due to the relatively high risk profile associated with its high leverage. In particular, effective net gearing adjusted for perpetual securities stood at a high 280% by mid-15, versus an industry average of 80%. We believe de-leveraging remains a top priority for the company as excessive leverage constrains its growth prospects. Indeed, excessive leverage is hurting profitability, with 22% of reported new profit/48% of core net profit being paid to holders of perpetual securities.

Valuation

We base our target price on a 40% discount to our revised NAV estimate of HK$4/share. Our target discount reflects the higher risk profile associated with higher leverage, where net gearing stood at a high 280% by mid-15 (versus industry average of 80%). Our target discount is also higher than that of industry leaders due to the high leverage. As a cross check, our target price implies 2015E PER of 6x.

Risks

 Policy loosening, leading to strong market recovery – If government policies are loosening, leading to strong market recovery in which ASPs/volume rebound markedly, Evergrande may be able to achieve much stronger profit margins than our current projections, enabling it to achieve healthier profit growth.  Significant improvement in credit environment – If the credit environment improves significantly, Evergrande would be a beneficiary, i.e., bank lending would become more readily available and buyers would be able to obtain mortgages in a more timely manner and at lower interest rates, leading to a continued improvement in the cash collection rate, hence the cash flow position would improve, lowering its risk profile.

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Property Evergrande

Marginal funding cost reduction on additional acquisitions/buybacks

Estimated Rmb36bn YTD spent on additional acquisitions/non-core assets/share buybacks

Evergrande has raised a total of Rmb40bn from the issuance of public and non-public domestic Rmb corporate bonds since Jun-15 at coupon rates ranging from 5.3% to 7.88%; these coupon rates are markedly lower than the 12% coupon for the offshore USD bond issued in Feb-15. However, we believe there is marginal benefit in reducing funding cost as the company has spent about Rmb36bn in additional acquisitions/share buybacks YTD, implying little scope left for debt refinancing.

Figure 1: Summary of bond issuances YTD Issue date Issue format Currency Coupon Tenure (yrs) Amount (Local currency m) Amount (Rmb m) 10-Feb Euro-dollar bond USD 12.00% 5 1,000 6,370 18-Jun Public domestic corporate bond RMB 5.38% 5 5,000 5,000 7-Jul Public domestic corporate bond (Puttable) RMB 5.30% 4 6,800 6,800 7-Jul Public domestic corporate bond (Puttable) RMB 6.98% 7 8,200 8,200 19-Oct Non-public domestic corporate bond (Puttable) RMB 7.38% 5 17,500 17,500 19-Oct Non-public domestic corporate bond (Straight) RMB 7.88% 5 2,500 2,500 Source: Company; Deutsche Bank

Figure 2: Summary of outstanding bonds Issue Date Type Coupon p.a. Currency Size in local currency (m) Amount (US$m) Maturity Jan-11 Senior Notes 9.25% RMB 3,700 596 Jan-16 Oct-13 Senior Notes 8.75% USD 1,000 1,000 Oct-18 Nov-13 Senior Notes 8.75% USD 500 500 Oct-18 Feb-15 Senior Notes 12.00% USD 1,000 1,000 Feb-20 Jun-15 Domestic Corporate Bond 5.38% RMB 5,000 806 Jun-20 Jul-15 Domestic Corporate Bond 5.30% RMB 6,800 1,096 Jul-19 Jul-15 Domestic Corporate Bond 6.98% RMB 8,200 1,321 Jul-22 Oct-15 Domestic Corporate Bond 7.38% RMB 17,500 2,819 Oct-20 Oct-15 Domestic Corporate Bond 7.88% RMB 2,500 403 Oct-20 Source: Company; Deutsche Bank

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Property Evergrande

On top of an estimated Rmb29bn in attributable land acquisitions in China in 10M15 (total of 46 projects with total GFA of 11.8m sqm), Evergrande has acquired projects in Chongqing/Chengdu/Hong Kong from CC Land/Chinese Estates/Sino-Land for an aggregate value of Rmb27bn.

Figure 3: Summary of land acquisitions in FY15 YTD Project City GFA (sqm) Total cost Attr Land cost Unit land price (Rmb m) (Rmb m) (Rmb m) 1 Shenzhen South Oil Building Project (深圳南油大廈項目) Shenzhen 117,010 2,355 2,355 20,125 2 Evergrande Royal Scenic Peninsula (恒大御景半島) Dongguan 299,586 926 926 3,090 3 Evergrande Royal Scenic Bay Shantou Project (汕頭御景灣項目) Shantou 404,666 434 360 1,072 4 Evergrande Metropolis Yangjiang (陽江恒大名都) Yangjiang 346,673 309 309 892 5 Evergrande Royal View Garden Xiamen (廈門恒大帝景) Xiamen 208,240 3,094 3,094 14,858 6 Evergrande Royal Scenic Peninsula Putian (莆田恒大御景半島) Putian 324,075 1,456 1,456 4,493 7 Evergrande Royal Scenic Bay Quanzhou (泉州恒大御景灣) Quanzhou 134,680 439 439 3,260 8 Jinan Evergrande East Mountain Forest Jinan (濟南恒大東山林語) Jinan 102,244 176 106 1,721 9 Evergrande Emerland Court Jinan (濟南恒大翡翠華庭) Jinan 607,351 768 768 1,721 10 Evergrande Longao Regency Jinan (濟南恒大龍奧御苑) Jinan 385,519 663 663 1,721 11 Evergrande East Longao New Metropolis Jinan (濟南恒大奧東新都) Jinan 240,317 414 414 1,721 12 Evergrande Emerald Court Zhengzhou (鄭州恒大翡翠華庭) Zhengzhou 308,002 961 961 3,120 13 Evergrande Metropolis Zhumadian (駐馬店恒大名都) Zhumadian 324,432 193 193 595 14 Evergrande Royal Scenic Bay Xinxiang (新鄉恒大御景灣) Xinxiang 271,777 160 160 588 15 Evergrande Royal Palace Chongqing (重慶恒大御府) Chongqing 254,542 1,153 1,038 4,531 16 Evergrande Century City Chongqing (重慶恒大世紀城) Chongqing 657,871 2,981 2,683 4,531 17 Evergrande Royal View Garden Chaohu(巢湖恒大帝景) Chaohu 197,355 76 76 384 18 Evergrande Emerald Court Bengbu (蚌埠恒大翡翠華庭) Bengbu 347,573 150 150 431 19 Evergrande Central Plaza Chengdu (成都恒大中央廣場) Chengdu 362,158 2,076 2,076 5,732 20 Evergrande Royal Scenic Bay Luzhou (瀘州恒大御景灣) Luzhou 178,333 392 392 2,198 21 Evergrande Metropolis Ziyang (資陽恒大名都) Ziyang 193,529 232 232 1,200 22 Evergrande Metropolis Ganzhou (贛州恒大名都) Ganzhou 310,075 779 397 2,512 23 Evergrande Emerald Court Ganzhou (贛州恒大翡翠華庭) Ganzhou 122,884 309 309 2,515 24 Evergrande Emerald Court Taiyuan (太原恒大翡翠華庭) Taiyuan 223,750 407 285 1,817 25 Evergrande Left Bank Riverfront Taiyuan (太原恒大濱河左岸) Taiyuan 552,326 1,004 1,004 1,817 26 Evergrande Royal Palace Wuhan (武漢恒大御府) Wuhan 248,490 1,058 635 4,258 27 Evergrande Metropolis Jingzhou (荊州恒大名都) Jingzhou 361,697 451 270 1,246 28 Evergrande Nanhu Peninsula Yueyang (岳陽恒大南湖半島) Yueyang 560,452 792 523 1,413 29 Evergrande Bay Changchun (長春恒大江灣) Changchun 299,870 467 467 1,557 30 Evergrande Emerald Court Harbin (哈爾濱恒大翡翠華庭) Harbin 94,600 278 278 2,939 31 Evergrande Bay Xian (西安恒大江灣) Xian 152,586 236 236 1,547 32 Evergrande City Nanning (南寧恒大城) Nanning 351,446 751 751 2,137 33 Evergrande Royal View Garden Nanning (南寧恒大帝景) Nanning 130,340 206 206 1,580 34 Evergrande Metropolis Nanning (南寧恒大名都) Nanning 90,228 194 194 2,150 35 Evergrande City Liuzhou (柳州恒大城) Liuzhou 255,764 347 347 1,357 36 Expansion Land of Evergrande Emerald Court Jinan (Phase II) 恒大翡 Jinan 130,197 224 224 1,721 翠華庭（二期） 37 Expansion Land of Evergrande Splendor Pengshan (Phase III) 恒大金 Pengshan 47,735 17 17 358 碧天下（三期） 38 Expansion Land of Ningbo Xiangshan Project (Phase III) 象山項目 Ningbo 126,922 656 656 5,169 （三期） 39 Expansion Land of Evergrande Splendor Danzhou (Phase III) 恒大金 Danzhou 120,000 180 180 1,500 碧天下（三期） 1H15 10,445,295 27,762 25,829

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Property Evergrande

40 谈固北大街（现状高营大街）西、城垣路（规划路）北 Shijiazhuang 83,700 257 257 3,070 41 房山区拱辰街道 16-03-04、16-01-05 等地块 Beijing 176,400 1,570 1,570 8,900 42 万柏林区太原锅炉厂北侧 Taiyuan 242,500 367 367 1,513 43 日出路与北张路交口东北角 Hefei 225,600 270 270 1,197 44 晓塘路以南、月华路以西 Xiangyan 266,200 280 280 1,052 45 恒大御景湾小区用地以西 Shuzhou 261,800 230 230 879 46 琼海市博鳌乐城国际医疗旅游先行区 3 号-2 Qionghai 81,200 93 93 1,145 Total for 10M15: 11,782,695 30,829 28,896 Source: Company; Soufun; Deutsche Bank

Figure 4: Summary of additional acquisitions from CC Land/Chinese Estates/Sino-Land Date Seller Project City Type Attributable Total Total A.V. GFA (sqm) consideration consideration (Rmb/sqm) (HK$bn) (Rmb) Nov-15 China Estates MassMutual Tower Hong Kong Office 32,091 12.50 10.28 320,184 Oct-15 China Estates Chongqing Jiangbei Project (25% Chongqing Residential/Co 345,000 1.75 1.44 4,170 Stake) mmercial Oct-15 CC Land Chongqing Jiangbei Project (25% Chongqing Residential/Co 345,000 1.75 1.44 4,170 Stake) mmercial Oct-15 Sino Land Chongqing Jiangbei Project (50% Chongqing Residential/Co 690,000 3.50 2.88 4,170 Stake) mmercial Jul-15 China Estates Splendid City, The Metropolis, Chengdu Residential/Co 652,650 6.50 5.34 8,187 Chinese Estates Plaza and other mmercial investment of Rmb300m Jun-15 CC Land Chongqing Zhong Yu Property Chongqing Residential/Co 3,146,400 6.97 5.50 1,748 Development Co. Ltd. (92% Stake) mmercial Total: 32.97 26.87 Source: Company; Deutsche Bank

Moreover, the company has committed Rmb2bn to investment in non-core businesses in FY15 including Spring Water, Grain & Oil, Dairy and Health (following Rmb6.4bn spent in FY13/14).

Figure 5: Summary of capex budget on non-core businesses Year Capex budget (Rmb m) 2013 580 2014 5,840 2015E 2,000 2016E 1,500 2017E 1,000 Source: Company; Deutsche Bank

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Property Evergrande

These additional items (amounting to Rmb36bn) should result in a net cash outflow of Rmb33bn in FY15 (versus guidance Rmb25bn inflow). Consequently, we expect effective net gearing (adjusted for perpetual) to worsen to 286% (238% as of mid-15) or 329% excluding MI (280% as of mid- 15) by end-15. The increase in effective net gearing is also a consequence of the aggressive share buyback YTD, wherein the repurchased shares are canceled and therefore resulted in a substantial decline in equity base.

Figure 6: Cashflow projection for FY15 Rmb bn 1H15 2H15 FY15 Cash collection from sales 62.4 63.6 126.0 Other income 8.9 4 12.9 Proceeds from bond issuances 11.37 35 46.4 Proceeds from share placement 3.6 0 3.6 Cash Inflows 86.27 102.6 188.9

Land premium -20.1 -13 -33.1 Construction cost -28 -28 -56 Interest expenses -9.2 -11 -20.2 Share buybacks - -7.2 -7.2 Acquisition from CC Land/Chinese Estates - -18 -18 Dividend - -5.8 -5.8 SG&A -7.8 -9 -16.8 Tax/other expenses -24.7 -27.5 -52.2 Perpetual bonds 0 -13 -13 Cash outflows -89.8 -132.5 -222.3

Net cashflow -3.53 -29.9 -33.43 Source: Deutsche Bank estimates

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Property Evergrande

Moreover, if we further adjust for the aggressive revaluation gains (i.e., the implied rental yield on the stated value of investment properties in the balance sheet was only 0.2% as of mid-15) that if we apply a 5% gross cap rate on latest full-year gross rental income and accounting treatment for project-level perpetual loans (PCSs), average effective net gearing was much higher than reported.

Figure 7: DB effective net gearing on Chinese developers vs. gearing numbers reported by management Net Gearing numbers reported by management Effective Net Gearing (adjusted for PCS, IP valued at 5% gross yield) Company End-1H15 End-2014 End-1H14 End-2013 End-1H15 End-2014 End-1H14 End-2013 COLI 13.4% 28.0% 37.2% 28.4% 17.6% 38.6% 46.0% 33.0% CR Land 39.4% 39.0% 55.4% 39.2% 39.5% 39.0% 48.1% 31.2% China Vanke 15.8% 5.4% 36.4% 30.7% 21.5% 7.2% 49.9% 44.8% Poly – A 98.4% 140.7% 158.6% 126.2% 115.9% 126.5% 136.1% 108.7% Joy City 63.4% 62.5% -19.3% -20.6% 79.6% 88.1% -30.0% -36.5% Country Garden 56.3% 66.0% 67.1% 67.3% 75.8% 71.9% 82.3% 70.1% Longfor 61.1% 57.1% 66.2% 57.9% 89.7% 89.9% 121.9% 89.0% Gemdale 80.6% 77.7% 86.4% 57.2% 80.2% 79.2% 87.6% 59.2% Shimao 57.5% 58.6% 58.4% 57.4% 117.4% 114.3% 133.3% 114.8% Evergrande 85.8% 86.3% 89.6% 69.5% 16281777.0% 14977859.8% 48027.2% 532.1% Wanda 73.7% 57.0% 87.8% 53.0% 85.6% 78.7% NA 94.4% R&F 119.4% 91.7% 92.3% 110.8% 198.6% 184.2% 194.9% 123.9% Sino-Ocean 63.0% 76.0% 60.0% 44.0% 71.2% 75.1% 71.4% 56.9% Agile 72.4% 75.2% 82.0% 72.4% 120.9% 121.1% 136.3% 127.0% Greentown 78.0% 76.7% 78.1% 60.1% 127.4% 123.0% 132.4% 91.4% China Jinmao 49.0% 56.0% 58.0% 41.0% 93.7% 106.0% 103.1% 80.1% Yuexiu 65.5% 63.1% 62.7% 61.6% 90.0% 89.3% 90.5% 66.7% Sunac 70.7% 44.5% 66.7% 69.7% 84.0% 57.2% 86.2% 90.8% COGO 85.9% 74.3% 72.7% 47.8% 56.0% 55.7% 68.9% 49.2% Yanlord 39.9% 45.3% 52.3% 37.5% 69.8% 73.7% 79.2% 57.6% KWG 69.8% 66.8% 70.4% 56.3% 86.5% 83.6% 87.0% 68.9% Kaisa NA NA 72.5% 62.1% NA NA 169.8% 108.0% CIFI 72.5% 58.2% 71.1% 67.6% 131.3% 125.5% 170.3% 126.4% Central China 64.2% 54.5% 50.3% 38.0% 41.8% 40.3% Poly HK 112.6% 105.9% 106.4% 82.1% 96.1% 93.7% 90.4% 69.3%

Average 67.1% 65.7% 68.9% 57.2% 707988.1% 624159.1% 2092.7% 91.9% Average ex 66.3% 64.8% 68.1% 56.7% 88.6% 85.2% 95.5% 73.5% Evergrande Average ex SOEs 67.8% 62.9% 70.1% 60.2% 1085542.5% 936198.9% 3104.5% 111.5% Average ex SOEs & 65.9% 61.7% 67.6% 60.1% 98.0% 88.9% 109.6% 84.6% Evergrande Source: Company; Deutsche Bank estimates

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Property Evergrande

Figure 8: Deutsche Bank effective net gearing analysis End-1H15 End-2014 Rmb m Value of IP if Adjustment to Adjusted Effective net Value of IP if Adjustment to Adjusted Effective net valued at 5% IP value in shareholders’ gearing valued at 5% IP value in shareholders’ gearing gross yield balance sheet equity gross yield balance sheet equity COLI 36,715.3 (25,310.0) 161,651.3 17.6% 23,698.3 (21,056.4) 112,277.1 38.6% CR Land 105,692.3 19,679.3 133,004.8 39.5% 92,536.8 17,266.2 113,826.7 39.0% China Vanke 4,800.0 (702.2) 86,570.5 21.5% 4,400.0 (672.3) 87,492.2 7.2% Poly – A 15,554.4 8,459.6 72,681.4 115.9% 14,100.8 7,062.0 68,471.5 126.5% Joy City 42,963.2 (165.3) 25,067.5 79.6% 40,173.2 (526.1) 19,190.4 88.1% Country Garden 1,893.6 (6,051.7) 57,195.1 75.8% 1,734.3 (5,301.3) 51,384.9 71.9% Longfor 26,390.5 (13,804.0) 36,149.1 89.7% 17,526.4 (15,835.1) 31,928.8 89.9% Gemdale 12,247.7 931.8 32,423.6 80.2% 10,752.2 (533.1) 30,951.2 79.2% Shimao 14,859.4 (13,504.4) 35,268.8 117.4% 13,740.0 (13,235.8) 33,627.6 114.3% Evergrande 3,199.0 (76,272.9) (18,226.2) 16281777.0% 2,881.2 (58,975.6) (7,855.8) 14977859.8% Wanda 253,800.0 (17,550.0) 138,228.0 85.6% 207,040.0 (41,061.0) 111,753.0 78.7% R&F 15,462.8 (3,392.4) 33,645.3 198.6% 16,545.3 (1,502.4) 34,463.0 184.2% Sino-Ocean 14,588.7 1,977.6 43,754.8 71.2% 13,739.8 1,857.1 42,347.9 75.1% Agile 1,494.2 (4,616.9) 29,234.2 120.9% 1,409.1 (4,437.2) 29,213.8 121.1% Greentown 2,463.2 571.7 24,224.5 127.4% 2,431.2 539.7 24,179.8 123.0% China Jinmao 29,785.6 4,491.0 42,184.4 93.7% 27,969.4 3,613.2 36,675.6 106.0% Yuexiu 6,786.2 (7,369.1) 22,944.1 90.0% 4,896.2 (7,718.1) 21,385.9 89.3% Sunac 120.6 120.6 17,125.0 84.0% 211.9 (27.1) 16,325.9 57.2% COGO 4,131.9 1,098.1 13,612.3 56.0% 3,866.9 834.3 13,135.5 55.7% Yanlord 8,000.0 (2,847.8) 16,444.0 69.8% 8,957.4 (1,286.9) 17,887.9 73.7% KWG 3,188.3 (4,003.4) 16,819.1 86.5% 2,939.4 (4,106.7) 16,309.2 83.6% Kaisa - - - - CIFI 809.1 (4,796.6) 6,976.7 131.3% 833.8 (4,372.4) 5,832.6 125.5% Central China 1,999.7 1,622.7 8,055.8 38.0% Poly HK 20,965.3 9,798.7 39,412.3 96.1% 18,768.8 8,715.4 38,477.7 93.7% Average 707988.1% 624159.1% Source: Company; Deutsche Bank estimates

Deutsche Bank AG/Hong Kong Page 9

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Property Evergrande

Share buyback YTD amounted to HK$8.8bn; further mandate of 449m shares By referencing the new repurchase mandate dated July 28, where the company seeks (and recently approved by shareholders) an additional mandate of 575m shares, Evergrande has total mandate to repurchase up to 2,140m shares until the next AGM in Jun-16. Since July 8, Evergrande has repurchased a total of 1.69bn shares (10.8% of issued capital) on the market for HK$8.8bn, at an average price of HK$5.2. In another words, Evergrande has mandate to repurchase a further 449m shares. By considering the majority shareholder’s stake of 69.9% currently, or 10.162bn shares, the maximum number of shares Evergrande can repurchase is 981m shares (of which it has a mandate for 449m shares) to maintain the minimum free-float requirement of 25%.

In our view, aggressive share buyback is negative as: 1) it exhausts cash resources; 2) it increases net gearing on a smaller equity base (shares are cancelled upon repurchase); 3) buyback above NAV represents value destruction to shareholders (average repurchase price of HK$5.2 versus our NAV estimate of HK$4/share).

Figure 9: Summary of share-buyback in FY15 YTD Date Number of Shares repurchased Average price Total paid HK$ YTD cumulative share buyback Repurchase as of % of total turnover volume 11/13/2015 67,050,000 6.27 420,372,070 1,690,633,900 42% 11/12/2015 45,937,000 6.55 300,857,150 1,623,583,900 59% 11/11/2015 46,247,000 6.55 302,784,150 1,577,646,900 52% 11/10/2015 108,069,000 6.39 691,099,270 1,531,399,900 70% 11/9/2015 34,783,900 6.24 217,031,020 1,423,330,900 62% 11/6/2015 30,510,000 6.25 190,654,390 1,388,547,000 55% 11/5/2015 42,408,000 6.24 264,678,080 1,358,037,000 50% 11/4/2015 21,139,000 6.18 130,604,400 1,315,629,000 35% 11/3/2015 18,110,000 6.06 109,662,190 1,294,490,000 34% 11/2/2015 9,937,000 5.94 59,025,570 1,276,380,000 19% 10/29/2015 14,423,000 5.68 81,987,200 1,266,443,000 19% 10/28/2015 15,991,000 5.59 89,327,640 1,252,020,000 38% 10/27/2015 32,679,000 5.47 178,758,370 1,236,029,000 51% 10/26/2015 13,234,000 5.47 72,328,640 1,203,350,000 29% 10/20/2015 39,500,000 5.26 207,693,410 1,190,116,000 50% 7/31/2015 94,673,000 5.18 490,279,120 1,150,616,000 48% 7/30/2015 20,000,000 5.34 106,710,500 1,055,943,000 22% 7/29/2015 103,569,000 5.38 557,240,580 1,035,943,000 58% 7/28/2015 127,652,000 5.32 679,524,820 932,374,000 47% 7/27/2015 167,443,000 5.15 862,962,420 804,722,000 50% 7/24/2015 90,431,000 5.27 476,573,200 637,279,000 54% 7/23/2015 23,811,000 5.16 122,814,210 546,848,000 23% 7/22/2015 59,709,000 5.05 301,805,700 523,037,000 48% 7/21/2015 439,000 4.94 2,168,660 463,328,000 1% 7/20/2015 2,570,000 4.86 12,490,200 462,889,000 4% 7/17/2015 789,000 4.76 3,758,760 460,319,000 1% 7/16/2015 9,936,000 4.65 46,240,380 459,530,000 7% 7/15/2015 40,351,000 4.55 183,449,550 449,594,000 39% 7/9/2015 34,987,000 4.29 150,147,740 409,243,000 15% 7/8/2015 374,256,000 3.94 1,475,350,740 374,256,000 57% 2015 YTD 1,690,633,900 5.20 8,788,380,130 Source: Company; Deutsche Bank

Page 10 Deutsche Bank AG/Hong Kong

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Property Evergrande

Figure 10: Summary of share-buyback in FY14 Date Number of shares repurchased Average price Total paid HK$ YTD cumulative share buyback Repurchase as of % of total turnover volume 7/24/2014 73,187,000 3.50 255,869,070 1,763,128,100 46% 7/23/2014 11,856,000 3.41 40,402,520 1,689,941,100 23% 7/22/2014 17,000,000 3.35 57,029,900 1,678,085,100 31% 7/16/2014 31,229,000 3.32 103,729,740 1,661,085,100 54% 7/8/2014 27,010,000 3.27 88,292,989 1,629,856,100 46% 2/28/2014 8,543,100 3.31 28,267,623 1,602,846,100 23% 2/27/2014 12,000,000 3.35 40,143,600 1,594,303,000 44% 2/26/2014 24,000,000 3.34 80,126,400 1,582,303,000 62% 2/25/2014 21,000,000 3.28 68,955,600 1,558,303,000 41% 2/21/2014 84,706,000 3.46 292,857,380 1,537,303,000 70% 2/20/2014 56,000,000 3.52 197,360,250 1,452,597,000 57% 2/19/2014 196,064,000 3.63 711,273,060 1,396,597,000 81% 2/18/2014 107,278,000 3.55 380,754,380 1,200,533,000 72% 2/17/2014 103,935,000 3.51 365,257,270 1,093,255,000 76% 2/14/2014 79,339,000 3.44 272,751,470 989,320,000 79% 2/13/2014 30,740,000 3.36 103,262,100 909,981,000 63% 2/12/2014 21,531,000 3.35 72,082,050 879,241,000 35% 2/11/2014 50,208,000 3.31 166,348,690 857,710,000 71% 2/10/2014 130,203,000 3.26 424,334,977 807,502,000 82% 2/7/2014 115,135,000 3.24 373,553,920 677,299,000 64% 2/5/2014 89,677,000 3.21 287,857,330 562,164,000 83% 2/4/2014 118,040,000 3.15 371,699,560 472,487,000 88% 1/30/2014 51,548,000 3.10 159,780,003 354,447,000 79% 1/29/2014 96,421,000 3.06 295,190,297 302,899,000 73% 1/28/2014 134,549,000 3.01 404,596,407 206,478,000 80% 1/27/2014 71,929,000 2.90 208,896,202 71,929,000 60% 2014 1,763,128,100 3.32 5,850,672,788 Source: Company; Deutsche Bank

Deutsche Bank AG/Hong Kong Page 11

16 November 2015

Property Evergrande

Financial analysis

Figure 11: Income statement (Rmb m) For year ended Dec 31 2012A 2013A 2014A 2015F 2016F 2017F

Sales of properties 63,507 92,235 107,450 122,241 134,132 155,523 Rental income 99 126 144 201 239 404 Property management 507 742 1,259 1,511 1,662 1,828 Others 1,148 569 2,545 3,436 4,467 5,807 Revenue 65,261 93,672 111,398 127,389 140,499 163,561

Cost of sales (47,050) (66,023) (79,615) (91,473) (101,799) (120,313) Gross Profit 18,210 27,649 31,784 35,915 38,700 43,248

Gross interest expenses 5,785 8,115 14,649 15,840 17,650 19,805 Capitalized interest (5,731) (8,081) (13,633) (15,761) (17,562) (19,706) Net interest expense/(income) 54 34 1,015 79 88 99

Interest income 114 122 312 280 294 319 Selling and marketing costs (3,018) (4,310) (9,154) (6,369) (7,727) (9,814) Administrative expenses (2,601) (3,472) (4,038) (4,331) (4,777) (5,070) Others (648) (1,103) (793) - - - SG&A (6,152) (8,763) (13,673) (10,421) (12,211) (14,565)

Revaluation gains 4,460 5,815 9,393 - - - Other adjustments 25 572 4,861 - - - Pre-tax profit 16,489.8 25,239.1 31,348.4 25,415 26,402 28,584

Taxation (7,308) (11,687) (13,175) (13,744) (13,762) (14,976) Post-tax profit before MI 9,181.9 13,551.8 18,173.3 11,671 12,639 13,609

Minority interests (11) (1,097) (5,412) (6,733) (7,196) (7,478) Net attributable profit 9,170.8 12,454.5 12,761.3 4,938 5,444 6,131

Adjustment for non-recurring items (2,971) (4,933) (11,905) - - - Core net profit 6,200 7,521 856 4,938 5,444 6,131

Fully diluted EPS (HK$) 0.492 0.624 0.072 0.386 0.425 0.479 DPS (HK$) 0.180 0.538 0.531 0.118 0.132 0.149 Source: Company, Deutsche Bank estimates

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Figure 12: Balance sheet (Rmb m) As of Dec 31 2012A 2013A 2014A 2015F 2016F 2017F

Non-current assets 38,447 58,415 89,395 90,679 91,420 92,513 Investment properties 24,942 36,039 61,857 61,857 61,857 61,857 Land use rights/properties under dev 2,347 2,796 3,388 4,122 4,122 4,122 Property and equipment 8,559 11,378 15,504 15,504 15,504 15,504 Other assets 2,599 8,202 8,646 9,195 9,937 11,030 Other investments – – 1,062 1,062 1,062 1,062 Property held for development - 355 355 317 368 424

Current assets 200,544 289,378 383,650 435,530 487,574 542,434 Properties under development 133,294 160,544 210,793 250,494 287,384 330,897 Inventories 15,159 24,289 36,261 38,050 40,484 42,423 Debtors & deposits/receivables/others 34,301 64,427 106,749 116,129 124,743 132,195 Bank balances & cash 17,790 40,118 29,847 30,857 34,963 36,919

Current liabilities (150,378) (188,198) (268,237) (296,230) (337,060) (380,299) Bank loans and overdrafts 19,031 35,796 79,663 95,596 114,715 137,658 Forward sales deposits received 44,833 39,000 47,348 56,259 75,577 88,849 Creditors, deposits & accruals/others 77,788 99,895 123,673 140,127 140,499 147,205 Taxation 8,725 13,506 17,553 2,726 5,083 5,280 Proposed dividend - - - 1,522 1,185 1,307

Total assets less current liabilities 88,613 159,951 206,225 231,358 243,364 256,134

Non-current liabilities 41,982 73,892 83,576 87,576 88,576 89,576 Long term bank loans 41,243 73,021 76,401 52,671 53,671 54,671 Other long term loans – – 27,730 27,730 27,730 Others 739 870 7,175 7,175 7,175 7,175 Deferred income tax 4,940 6,716 10,271 10,271 10,271 10,271

Issued share capital 1,043 1,110 1,021 988 988 988 Share premium 2,902 4,228 - 10,976 10,976 10,976 Retained profits 27,772 39,020 44,250 47,707 51,518 55,809 Capital & other reserves 6,547 4,232 5,849 5,849 5,849 5,849 Shareholders' funds 38,264 48,590 51,120 65,520 69,331 73,622 Minority interests 3,428 30,753 61,258 67,991 75,187 82,665

Total capital employed 88,613 159,951 206,225 231,358 243,364 256,134 Source: Company, Deutsche Bank estimates

Deutsche Bank AG/Hong Kong Page 13

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Valuation

Our NAV estimate is HK$4/share

Figure 13: NAV breakdown (Rmb m) (HK$ m) (HK$/share) % Development property Guangdong 21,491 24,294 1.70 42.5% Chongqing 8,321 9,406 0.66 16.5% Tianjin 6,042 6,830 0.48 12.0% Hubei 7,656 8,654 0.61 15.1% Sichuan 13,139 14,853 1.04 26.0% Liaoning 16,057 18,151 1.27 31.8% Shaanxi 8,609 9,731 0.68 17.0% Jiangsu 13,577 15,348 1.08 26.9% Yunnan 163 184 0.01 0.3% Inner Mongolia 3,687 4,168 0.29 7.3% Shanxi 8,108 9,165 0.64 16.0% Guizhou 3,973 4,491 0.31 7.9% Anhui 12,239 13,835 0.97 24.2% Hunan 9,514 10,755 0.75 18.8% Guangxi 3,752 4,241 0.30 7.4% Henan 11,056 12,498 0.88 21.9% Jiangxi 11,033 12,472 0.87 21.8% Hebei 8,054 9,104 0.64 15.9% Hainan 5,247 5,931 0.42 10.4% Shandong 14,592 16,495 1.16 28.9% Shanghai 10,816 12,227 0.86 21.4% Jilin 7,396 8,360 0.59 14.6% Gansu 5,313 6,006 0.42 10.5% Ningxia 3,547 4,010 0.28 7.0% Qinghai 833 942 0.07 1.6% Zhejiang 3,011 3,403 0.24 6.0% Heilongjiang 6,456 7,298 0.51 12.8% Xinjiang 2,232 2,523 0.18 4.4% Others 48,364 54,672 3.83 95.7% 274,276 310,051 21.73 542.7% Investment property Retail 10,903 12,325 0.86 21.6% Office 1,140 1,289 0.09 2.3% Hotel 6,513 7,363 0.52 12.9% Other 418 472 0.03 0.8% 18,974 21,449 1.50 37.5% Gross asset value (GAV) 293,250 331,500 23.23 580.2% Net cash / (debt) (184,749) (208,847) (14.64) -365.5% Outstanding land premium (20,200) (22,835) (1.60) -40.0% Tax payable/others (37,757) (42,682) (2.99) -74.7% Net asset value (NAV) – fully diluted 50,543 57,136 4.00 100.0% Source: Deutsche Bank estimates

Page 14 Deutsche Bank AG/Hong Kong

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Property Evergrande

We use NAV as our primary valuation metric, in line with residential-focused peers under our coverage. Our approach is based on a sum-of-the-parts, where we use DCF for property developments for sale and a direct capitalization approach for investment properties. We generally assume ASP to rise by 5- 10% for projects in Tier-1 cities and stay flat for projects in Tier-2/3 cities in 2015. However, we have made project-specific adjustments, stemming from product mix/phase differences. We use a US$:Rmb exchange rate of 6.9 and discount rate of 11%, in line with our estimated WACC. Our NAV estimate is HK$4/share.

Our target price of HK$2.4 is based on 40% discount to our estimated NAV We base our target price of HK$2.4 on a 40% discount to our NAV estimate of HK$4/share. Our target discount reflects the higher risk profile associated with higher leverage, where net gearing stood at a high 280% by mid-15 (versus industry average of 80%). Our target discount is also higher than that of industry leaders due to the high leverage. As a cross check, our target price implies 2015E PER of 6x. Evergrande is currently trading at a 57% premium to our estimated NAV.

Figure 14: Historical discount to NAV

80% 60% 40% 20% 0% -20% -40% -60% -80%

-100%

11 13 15 10 12 14

10 11 12 13 14 15

09 10 10 11 11 12 12 13 13 14 14 15 15

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Feb Feb Feb Feb Feb Feb

Aug Aug Aug Aug Aug Aug

Nov Nov Nov Nov Nov Nov Nov

May May May May May May Discount to NAV -1SD Average +1SD

Source: Deutsche Bank; Bloomberg Finance LP

Figure 15: P/E band for Evergrande Figure 16: P/B band for Evergrande 47 5.0 42 4.5 37 4.0 32 3.5 27 3.0 22 2.5 17 2.0 12 1.5 7 1.0

2 0.5

10 11 12 13 14 15

11 10 12 13 14 15

10 11 12 13 14 15

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- - - - -

- 0.0

Jul Jul Jul Jul Jul Jul

Jan Jan Jan Jan Jan Jan

Oct Oct Oct Oct Oct Oct

Apr Apr Apr Apr Apr Apr

12 10 11 13 14 15

12 13 14 09 10 10 11 11 12 13 14 15 15

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PE -1SD Average +1SD

Feb Feb Feb Feb Feb Feb

Aug Aug Aug Aug Aug Aug

Nov Nov Nov Nov Nov Nov Nov

May May May May May May PB -1SD Average +1SD

Source: Deutsche Bank; Bloomberg Finance LP Source: Deutsche Bank; Bloomberg Finance LP

Deutsche Bank AG/Hong Kong Page 15

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Figure 17: China property – valuation table DB Trade Report Mkt 12M 13 Nov Target Implied Est. NAV EPS PE(x) Cap Daily T/O Company Ticker Rating Ccy Ccy USDm USDm Price Price Upside NAV Disc 14A 15E 16E 14A 15E 16E Covered COLI 688 HK Buy HKD HKD 32,570 85.6 25.60 30.30 18% 33.7 -24% 3.39 3.16 3.55 7.6 8.1 7.2 CSCEC 601668 CH Buy CNY CNY 32,196 887.5 6.84 10.97 60% 12.2 -44% 0.75 0.83 1.00 9.1 8.3 6.9 Wanda 3699 HK Buy HKD CNY 28,419 40.2 48.65 55.60 14% 85.6 -43% 2.57 3.63 4.42 15.6 11.0 9.1 China Vanke – A 000002 CH Buy CNY CNY 24,359 534.0 13.90 17.30 24% 20.3 -32% 1.20 1.49 1.64 11.6 9.3 8.5 China Vanke – H 2202 HK Buy HKD CNY 24,359 27.4 18.44 19.80 7% 23.3 -21% 1.20 1.49 1.64 12.6 10.2 9.2 CR Land 1109 HK Buy HKD HKD 18,556 48.9 20.75 28.37 37% 35.5 -41% 2.02 2.32 2.39 10.3 8.9 8.7 Poly – A 600048 CH Buy CNY CNY 15,103 492.1 8.95 9.77 9% 12.2 -27% 1.13 1.37 1.74 7.9 6.5 5.1 CMPD 000024 CH Buy CNY CNY 13,692 273.8 35.95 16.42 -54% 23.5 53% 2.04 2.30 2.78 17.6 15.6 12.9 Evergrande 3333 HK Sell HKD CNY 11,753 55.0 6.27 2.40 -62% 4.0 57% 0.06 0.35 0.39 84.1 14.9 13.3 Gemdale 600383 CH Sell CNY CNY 8,726 113.8 12.36 7.50 -39% 11.5 7% 0.78 0.86 0.90 15.9 14.4 13.7 Country Garden 2007 HK Sell HKD CNY 8,481 16.9 2.91 2.60 -11% 4.3 -33% 0.48 0.43 0.47 5.0 5.6 5.1 Longfor 960 HK Buy HKD CNY 8,181 6.7 10.88 15.40 42% 19.2 -43% 1.21 1.19 1.28 7.4 7.5 7.0 GLP GLP SP Buy SGD USD 7,033 31.9 2.11 3.20 52% 2.4 -14% 0.05 0.05 0.06 28.8 31.4 24.5 CSCI 3311 HK Buy HKD HKD 6,228 12.8 11.90 15.30 29% 15.3 -22% 0.88 1.07 1.32 13.6 11.2 9.0 Shimao 813 HK Sell HKD CNY 5,735 21.3 12.80 8.19 -36% 16.4 -22% 2.29 2.30 2.62 4.6 4.6 4.0 Sino-Ocean 3377 HK Buy HKD CNY 3,974 6.4 4.10 6.68 63% 9.5 -57% 0.48 0.56 0.65 7.0 6.1 5.2 R&F 2777 HK Buy HKD CNY 3,334 12.4 8.02 9.99 25% 18.2 -56% 1.20 1.39 1.57 5.5 4.7 4.2 China Jinmao 817 HK Buy HKD HKD 3,167 4.9 2.30 3.40 48% 4.9 -53% 0.36 0.35 0.38 6.5 6.6 6.0 BJ North Star – H 588 HK Buy HKD CNY 2,335 2.2 2.58 8.00 210% 11.4 -77% 0.20 0.21 0.23 10.8 10.2 9.0 BJ North Star – A 601588 CH Hold CNY CNY 2,335 71.5 5.03 7.10 41% 10.2 -51% 0.20 0.21 0.23 25.7 24.1 21.4 Sunac 1918 HK Sell HKD CNY 2,202 17.5 5.02 8.02 60% 14.6 -66% 0.92 1.09 1.12 4.5 3.8 3.7 Yuexiu 123 HK Sell HKD CNY 2,128 7.3 1.33 1.11 -17% 2.2 -40% 0.12 0.12 0.13 9.3 9.0 8.6 Joy City 207 HK Buy HKD CNY 2,112 4.5 1.15 3.50 204% 5.0 -77% 0.08 0.08 0.10 11.9 11.9 9.7 KWG 1813 HK Hold HKD CNY 2,111 7.4 5.46 6.89 26% 11.5 -52% 0.88 1.01 1.11 5.1 4.5 4.0 Agile 3383 HK Sell HKD CNY 2,062 8.9 4.08 3.20 -22% 9.1 -55% 1.12 0.89 0.89 3.0 3.8 3.8 Greentown 3900 HK Buy HKD CNY 1,894 7.6 6.79 14.20 109% 20.3 -67% 1.56 1.50 1.81 3.6 3.7 3.1 Yanlord YLLG SP Sell SGD CNY 1,412 1.4 1.03 0.80 -22% 1.6 -36% 0.25 0.33 0.35 18.3 14.2 13.0 Kaisa 1638 HK Hold HKD CNY 1,034 8.6 1.56 1.80 15% 6.7 -77% 0.64 0.72 0.81 2.0 1.8 1.6 E-House EJ US Buy USD USD 843 10.1 5.92 12.40 109% 0.0 NA 0.43 0.54 0.62 13.7 11.0 9.6 COGO 81 HK Buy HKD HKD 727 2.1 2.47 6.70 171% 9.6 -74% 0.55 0.89 1.28 4.5 2.8 1.9 Central China 832 HK Buy HKD CNY 485 0.4 1.54 2.93 90% 4.5 -66% 0.36 0.49 0.63 3.5 2.6 2.0 Not Rated NWCL 917 HK NR HKD HKD 5,718 0.8 5.10 NA NA NA NA 0.45 0.35 0.39 11.3 14.8 13.2 Hui Xian REIT 87001 HK NR CNY CNY 2,802 1.4 3.32 NA NA NA NA 0.22 0.23 0.24 15.1 14.4 13.7 SOHO China 410 HK NR HKD CNY 2,596 4.9 3.87 NA NA NA NA 0.42 0.15 0.14 7.5 21.9 22.4 Shui On 272 HK NR HKD CNY 2,299 4.6 2.22 NA NA NA NA 0.08 0.26 0.14 22.8 7.1 13.4 Hopson 754 HK NR HKD HKD 1,908 1.7 6.62 NA NA NA NA 0.56 0.56 0.60 11.8 11.8 11.0 BC Land 2868 HK NR HKD CNY 1,442 2.9 3.69 NA NA NA NA 0.76 0.77 0.95 4.0 4.0 3.2 CIFI 884 HK NR HKD CNY 1,438 2.9 1.67 NA NA NA NA 0.34 0.34 0.41 4.0 4.0 3.4 Poly Property 119 HK NR HKD HKD 1,162 10.8 2.46 NA NA NA NA 0.53 0.11 0.14 4.7 22.8 17.1 Greenland HK 337 HK NR HKD CNY 1,143 6.5 3.17 NA NA NA NA 0.11 0.23 0.48 24.8 11.2 5.4 Glorious 845 HK NR HKD CNY 985 1.3 0.98 NA NA NA NA 0.14 0.02 0.04 5.6 40.3 20.1 Yuzhou 1628 HK NR HKD CNY 955 1.4 1.94 NA NA NA NA 0.46 0.39 0.45 3.5 4.1 3.5 Powerlong 1238 HK NR HKD CNY 784 0.7 1.52 NA NA NA NA 0.27 0.30 0.40 4.6 4.2 3.1 C C Land 1224 HK NR HKD HKD 735 0.7 2.20 NA NA NA NA 0.44 0.09 NA 5.0 24.4 Fantasia 1777 HK NR HKD CNY 691 1.6 0.93 NA NA NA NA 0.18 0.22 0.27 4.2 3.5 2.8 Aoyuan 3883 HK NR HKD CNY 596 1.1 1.66 NA NA NA NA 0.34 0.42 NA 4.0 3.3 Far East Global 830 HK NR HKD HKD 345 0.6 1.24 NA NA NA NA 0.09 13.8 NA NA Minmetals 230 HK NR HKD HKD 337 0.4 0.78 NA NA NA NA 0.20 0.18 0.26 3.9 4.3 3.0 Overall average -38% 11.5 9.9 8.8 Source: Deutsche Bank estimates, Company data, Bloomberg Finance LP Consensus estimates for companies NR

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Figure 18: China property – valuation table (cont.) EPS growth % BVPS PB(x) DPS Dividends yield % Net gearing % Company Ticker 14A 15E 16E 14A 15E 16E 14A 15E 16E 14A 15E 16E 14A 15E 16E 14A 15E 16E Covered COLI 688 HK 46 -7 12 16.3 20.6 23.6 1.6 1.2 1.1 0.6 0.6 0.7 2.1 2.3 2.5 28.5 32.5 15.5 CSCEC 601668 CH 10 10 21 4.6 5.3 6.1 1.5 1.3 1.1 0.2 0.2 0.2 2.5 2.5 2.9 61.1 36.6 25.7 Wanda 3699 HK 24 42 22 33.8 36.2 39.2 1.2 1.1 1.0 1.2 1.3 1.6 3.0 3.3 4.0 57.5 67.7 54.7 China Vanke – A 000002 CH -12 24 10 8.0 9.1 10.2 1.7 1.5 1.4 0.5 0.6 0.6 3.6 4.0 4.5 7.0 NA NA China Vanke – H 2202 HK -12 24 10 8.0 9.1 10.2 1.9 1.7 1.5 0.5 0.6 0.6 3.3 3.6 4.1 7.0 NA NA CR Land 1109 HK 25 15 3 16.6 18.9 20.7 1.3 1.1 1.0 0.5 0.6 0.6 2.4 2.7 2.9 46.0 21.9 22.1 Poly – A 600048 CH 14 21 27 5.7 6.8 8.3 1.6 1.3 1.1 0.2 0.3 0.3 2.4 2.8 3.0 140.3 123.4 88.9 CMPD 000024 CH 25 13 21 12.0 13.9 16.1 3.0 2.6 2.2 0.4 0.5 0.6 1.1 1.3 1.5 39.5 10.7 NA Evergrande 3333 HK -88 464 12 3.7 4.7 5.0 1.4 1.1 1.0 0.5 0.1 0.1 10.3 2.3 2.6 292.3 328.8 221.0 Gemdale 600383 CH 61 10 5 7.0 7.7 8.5 1.8 1.6 1.5 0.1 0.2 0.2 1.1 1.4 1.5 59.0 59.1 55.0 Country Garden 2007 HK 12 -11 10 2.8 2.8 3.2 0.9 0.9 0.8 0.1 0.1 0.1 6.2 5.5 6.0 59.7 54.3 60.7 Longfor 960 HK 7 -1 8 8.2 9.1 10.1 1.1 1.0 0.9 0.3 0.3 0.3 3.2 3.1 3.3 60.1 62.3 56.1 GLP GLP SP -24 -8 28 1.8 1.8 1.8 0.8 0.8 0.8 0.0 0.0 0.0 2.4 2.7 2.9 21.0 12.2 21.4 CSCI 3311 HK 26 22 24 5.0 5.7 6.7 2.4 2.1 1.8 0.3 0.3 0.3 2.2 2.7 2.9 37.1 46.4 41.2 Shimao 813 HK 8 1 14 13.5 15.0 16.8 0.8 0.7 0.6 0.9 0.9 0.8 7.0 6.6 6.3 81.2 80.2 73.0 Sino-Ocean 3377 HK -4 15 17 5.8 6.4 6.9 0.6 0.5 0.5 0.2 0.2 0.3 7.1 7.2 7.8 73.1 67.5 66.8 R&F 2777 HK -34 16 12 11.2 12.6 13.4 0.6 0.5 0.5 0.0 0.7 0.8 0.0 10.6 11.4 176.5 162.4 155.5 China Jinmao 817 HK 22 -2 9 4.1 4.2 4.5 0.6 0.5 0.5 0.1 0.1 0.1 5.0 5.4 6.1 86.9 61.5 41.0 BJ North Star - H 588 HK -17 7 13 4.8 4.9 5.0 0.4 0.4 0.4 0.1 0.1 0.1 3.6 3.6 3.8 73.0 66.2 68.8 BJ North Star - A 601588 CH -17 7 13 4.8 4.9 5.0 1.1 1.0 1.0 0.1 0.1 0.1 1.5 1.5 1.6 73.0 66.2 68.8 Sunac 1918 HK -3 19 3 4.8 5.7 6.7 0.9 0.7 0.6 0.2 0.2 0.2 4.6 5.3 5.6 57.1 102.6 40.3 Yuexiu 123 HK -5 3 5 2.3 2.4 2.5 0.5 0.5 0.4 0.1 0.0 0.1 5.6 4.5 4.6 65.6 75.3 75.6 Joy City 207 HK -57 1 23 2.1 1.8 1.9 0.5 0.5 0.5 0.0 0.0 0.0 1.1 1.1 1.6 56.0 58.2 38.8 KWG 1813 HK 9 14 11 6.9 7.6 8.4 0.6 0.6 0.5 0.3 0.4 0.4 7.3 7.8 7.8 50.9 40.7 13.8 Agile 3383 HK -12 -21 0 8.6 10.4 11.0 0.4 0.3 0.3 0.4 0.3 0.3 11.8 9.0 9.1 75.2 64.7 60.1 Greentown 3900 HK -36 -4 21 12.3 13.8 15.4 0.5 0.4 0.4 0.0 0.2 0.3 0.0 4.3 5.0 100.3 73.2 59.1 Yanlord YLLG SP -50 29 9 9.8 10.1 10.4 0.5 0.5 0.4 0.0 0.0 0.0 0.3 0.3 0.3 44.9 47.5 50.5 Kaisa 1638 HK 50 13 12 4.1 4.8 5.5 0.3 0.3 0.2 0.2 0.2 0.2 14.2 16.1 18.2 73.6 85.6 69.5 E-House EJ US -19 25 15 6.5 6.7 6.9 0.9 0.9 0.9 0.2 0.2 0.2 2.5 2.5 2.5 NA NA NA COGO 81 HK -55 64 43 5.4 6.3 7.5 0.5 0.4 0.3 0.1 0.1 0.1 2.0 2.4 3.2 59.5 62.4 66.8 Central China 832 HK -14 38 28 2.6 2.9 3.4 0.5 0.4 0.4 0.1 0.2 0.2 9.5 15.8 19.0 47.6 63.2 70.1 Not Rated NWCL 917 HK 32 -23 12 6.7 7.0 7.5 0.8 0.7 0.7 0.1 0.1 0.1 1.4 1.0 1.0 37.3 48.2 48.2 Hui Xian REIT 87001 HK 5 5 6 5.3 5.2 5.2 0.6 0.6 0.6 0.2 0.3 0.3 7.5 8.3 8.7 1.2 11.8 12.1 SOHO China 410 HK -41 -66 -2 7.5 7.9 8.1 0.4 0.4 0.4 0.3 0.2 0.1 7.9 5.2 4.2 16.8 31.3 35.3 Shui On 272 HK -4 220 -47 5.4 5.5 5.8 0.3 0.3 0.3 0.0 0.0 0.0 2.3 2.6 2.6 82.9 96.2 92.7 Hopson 754 HK -53 0 7 25.4 26.0 NA 0.3 0.3 0.0 0.0 0.0 0.0 0.0 0.0 NA NA NA BC Land 2868 HK 31 1 24 5.0 5.6 NA 0.6 0.5 0.2 0.2 0.3 7.6 7.7 8.7 NA 234.1 248.4 CIFI 884 HK 28 -1 19 1.7 1.9 2.1 0.8 0.7 0.6 0.1 0.1 0.1 6.0 6.6 7.8 61.0 95.6 22.3 Poly Property 119 HK -28 -79 33 8.8 8.3 8.4 0.3 0.3 0.3 0.2 0.0 0.0 7.0 1.1 1.6 106.3 103.0 85.7 Greenland HK 337 HK -53 122 106 2.1 2.7 3.1 1.2 1.0 0.8 0.0 0.0 0.0 1.5 0.1 1.2 NA -17.6 -142.6 Glorious 845 HK 7 -86 100 2.5 2.0 2.1 0.3 0.4 0.4 0.0 0.0 0.0 0.0 NA 117.9 136.8 141.8 Yuzhou 1628 HK 42 -15 17 2.4 2.7 3.0 0.7 0.6 0.5 0.1 0.1 0.2 7.2 8.3 9.4 79.8 78.2 1.7 Powerlong 1238 HK 1 11 33 NA NA NA 0.1 0.1 0.1 4.2 5.2 6.2 NA NA NA C C Land 1224 HK NA NA -80 6.1 6.1 NA 0.4 0.4 0.1 0.0 NA 4.1 0.9 NA 26.7 NA Fantasia 1777 HK -14 22 23 1.7 2.0 2.2 0.4 0.4 0.3 0.0 0.1 0.1 4.8 6.8 8.5 91.0 85.7 84.9 Aoyuan 3883 HK NA NA 21 3.2 3.5 NA 0.4 0.4 0.1 0.1 NA 7.5 9.2 77.2 76.5 72.3 Far East Global 830 HK 80 NA NA 0.6 2.1 NA NA NA NA NA -3.9 NA NA Minmetals 230 HK -11 -10 44 NA NA NA 0.0 0.0 NA 2.3 3.3 NA NA NA Overall average -3 22 16 0.9 0.8 0.7 4.2 4.5 5.1 67.8 74.1 61.1 Source: Deutsche Bank estimates, Company data, Bloomberg Finance LP Consensus estimates for companies NR

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Appendix 1

Important Disclosures

Additional information available upon request

Disclosure checklist Company Ticker Recent price* Disclosure Evergrande 3333.HK 6.25 (HKD) 13 Nov 15 1,7,14 *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes.

1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees.

7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.

14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year.

Important Disclosures Required by Non-U.S. Regulators Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.

1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees.

7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.

For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=3333.HK

Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Jason Ching

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Historical recommendations and target price: Evergrande (3333.HK) (as of 11/13/2015)

9.00 Previous Recommendations

8.00 Strong Buy Buy 7.00 Market Perform Underperform Not Rated 6.00 Suspended Rating 4 5.00 Current Recommendations 3 4.00 1 2 Buy

Hold Security PriceSecurity 3.00 Sell Not Rated Suspended Rating 2.00 *New Recommendation Structure as of September 9,2002 1.00

0.00 Nov 13 Feb 14 May 14 Aug 14 Nov 14 Feb 15 May 15 Aug 15 Date

1. 31/03/2014: Buy, Target Price Change HKD5.35 3. 30/03/2015: Sell, Target Price Change HKD2.44 2. 06/05/2014: Downgrade to Sell, Target Price Change HKD2.48 4. 31/08/2015: Sell, Target Price Change HKD2.45

Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total 500 share-holder return (TSR = percentage change in 450 52 % share price from current price to projected target price 400 350 38 % plus pro-jected dividend yield ) , we recommend that 300 investors buy the stock. 250 200 Sell: Based on a current 12-month view of total share- 150 23 % 11 % holder return, we recommend that investors sell the 100 15 % 20 % 50 stock 0 Hold: We take a neutral view on the stock 12-months Buy Hold Sell out and, based on this time horizon, do not recommend either a Buy or Sell. Companies Covered Cos. w/ Banking Relationship Notes: Asia-Pacific Universe 1. Newly issued research recommendations and

target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12- month period Sell: Expected total return (including dividends)

of -10% or worse over a 12-month period

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Regulatory Disclosures 1.Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing. 2.Short-Term Trade Ideas Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.

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Additional Information

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness.

Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own account or with customers, in a manner inconsistent with the views taken in this research report. Others within Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those taken in this research report. Deutsche Bank issues a variety of research products, including fundamental analysis, equity-linked analysis, quantitative analysis and trade ideas. Recommendations contained in one type of communication may differ from recommendations contained in others, whether as a result of differing time horizons, methodologies or otherwise. Deutsche Bank and/or its affiliates may also be holding debt securities of the issuers it writes on.

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Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk. The appropriateness or otherwise of these products for use by investors is dependent on the investors' own circumstances including their tax position, their regulatory environment and the nature of their other assets and liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar

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to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the website please contact your Deutsche Bank representative for a copy of this important document.

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16 November 2015

Property Evergrande

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