July 1, 2016
COMPANY UPDATE China Overseas Land (0688.HK)
Buy Equity Research Acquisition of CITIC assets would be accretive to valuation and EPS
What's changed Investment Profile On June 29, 2016 COLI provided more details around the proposed Low High acquisition of CITIC’s property assets (see our March 14, 2016 report, Growth Growth Returns * Returns * “Substantial scale uplift from acquisition of CITIC property assets”). Multiple Multiple
Volatility Volatility Implications Percentile 20th 40th 60th 80th 100th The proposed asset package includes 126 projects (by phases) located in 25 China Overseas Land & Investment (0688.HK) Chinese cities. If successful, COLI would expand its presence to 55 cities from Asia Pacific Property Peer Group Average * Returns = Return on Capital For a complete description of the investment 48 currently (including COGO) and would also increase its exposure to tier-3 profile measures please refer to the disclosure section of this document. cities. We believe this acquisition would be a timely replenishment of COLI’s land bank. While we take no view on the likelihood of the deal closing, for Key data Current Price (HK$) 24.50 illustrative purposes we estimate: 1) gross asset value of HK$119bn compared 12 month price target (HK$) 29.20 to HK$131bn as forecasted by DTZ |Cushman & Wakefield (the valuer) at the end Market cap (HK$ mn / US$ mn) 200,226.7 / 25,809.2 Foreign ownership (%) -- of April, 2016; 2) 4% accretion to end-16E NAV (to HK$33.68) after factoring in net debt and a larger share capital; 3) a 16%/20%/20% increase in COLI’s 2016E- 12/15 12/16E 12/17E 12/18E EPS (HK$) 2.91 3.37 3.89 3.52 2018E contract sales but a lower boost to underlying profit (6%/14%/16%) EPS growth (%) 1.9 15.8 15.4 (9.5) given the lower margins of CITIC’s property assets (although we would expect EPS (diluted) (HK$) 3.38 3.37 3.89 3.52 EPS (basic pre-ex) (HK$) 3.61 3.37 3.89 3.52 margins to improve in later years as COLI has superior expense control and a P/E (X) 8.6 7.3 6.3 7.0 P/B (X) 1.3 1.1 1.0 0.9 lower cost of financing). In terms of EPS, we forecast 5% dilution in 2016 EV/EBITDA (X) 6.4 4.5 2.7 1.5 followed by accretion of 2% in 2017 and 4% in 2018; 4) net gearing at end-16E Dividend yield (%) 3.7 2.8 3.2 2.9 ROE (%) 20.5 16.2 16.4 13.2 of 12% vs. our current 7% estimate. If we applied the same 10% discount to NAV as we do to derive our target price this would imply a 2016E-17E average Price performance chart P/B of 1.4X (vs. a 17.8% underlying ROE), which would still be a 30% premium 28 15,000 to our off-shore coverage target price-implied PB/ROE trend line. 27 14,000 26 13,000 25 12,000 Valuation 24 11,000 Without incorporating the proposed transaction in to our estimates, COLI trades 23 10,000 at a 29% discount to end-16E NAV, a historical low P/B (ex. revaluation gains) of 22 9,000 21 8,000
1.2X (2016E) and a P/E of 6.8X. We continue to view valuation as attractive and we 20 7,000 maintain our Buy rating and 12-month NAV based price target of HK$29.2. Jul-15 Oct-15 Jan-16 Apr-16 China Overseas Land & Investment (L) Hang Seng China Ent. Index (R) Key risks Weaker than expected margins / sales; a macro hard landing. Share price performance (%) 3 month 6 month 12 month Absolute (0.2) (9.9) (7.8) INVESTMENT LIST MEMBERSHIP Rel. to Hang Seng China Ent. Index 3.1 (0.1) 37.4 Asia Pacific Buy List Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 6/30/2016 close.
Coverage View: Neutral Yi Wang, CFA +86(21)2401-8930 [email protected] Beijing Gao Hua Securities Company Limited Goldman Sachs does and seeks to do business with companies Jill Guan covered in its research reports. As a result, investors should be +86(21)2401-8921 [email protected] Beijing Gao Hua Securities Company Limited aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment
decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non- US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc. Global Investment Research July 1, 2016 China Overseas Land (0688.HK)
China Overseas Land: Summary Financials
Profit model (HK$ mn) 12/15 12/16E 12/17E 12/18E Balance sheet (HK$ mn) 12/15 12/16E 12/17E 12/18E
Total revenue 148,074.4 165,287.0 194,755.0 185,733.4 Cash & equivalents 102,445.6 125,095.0 147,805.2 199,401.9 Cost of goods sold (105,762.8) (112,145.2) (129,663.3) (126,092.6) Accounts receivable 17,238.4 19,242.2 22,672.8 21,622.5 SG&A (4,125.2) (3,783.5) (4,456.7) (4,341.5) Inventory 210,894.1 203,499.0 157,994.3 96,511.5 R&D ------Other current assets 10,972.2 12,069.4 13,276.3 14,604.0 Other operating profit/(expense) 538.4 0.0 0.0 0.0 Total current assets 341,550.3 359,905.6 341,748.7 332,139.9 EBITDA 38,724.8 49,358.3 60,635.0 55,299.3 Net PP&E 1,223.0 1,584.8 2,002.7 2,372.3 Depreciation & amortization (87.9) (99.3) (125.5) (148.7) Net intangibles 64.5 64.5 64.5 64.5 EBIT 38,636.9 49,259.0 60,509.5 55,150.6 Total investments 17,036.8 23,906.1 31,225.3 37,664.9 Interest income 985.9 1,024.5 1,251.0 1,478.1 Other long-term assets 67,362.1 74,026.9 76,132.2 77,476.1 Interest expense (574.0) (539.9) (403.6) (228.8) Total assets 427,236.7 459,488.0 451,173.4 449,717.7 Income/(loss) from uncons. subs. 976.6 1,277.3 1,474.1 1,400.9 Others 8,797.7 2,331.0 0.0 0.0 Accounts payable 36,222.5 38,408.4 44,408.2 43,185.2 Pretax profits 48,823.1 53,351.8 62,830.9 57,800.7 Short-term loans 7,269.5 7,269.5 7,269.5 7,269.5 Income tax (14,772.3) (18,851.1) (22,983.7) (21,347.5) Other current liabilities 70,200.9 87,038.4 80,556.1 80,817.4 Minorities (738.8) (1,227.5) (1,451.2) (1,717.1) Total current liabilities 113,692.9 132,716.4 132,233.8 131,272.1 Long-term debt 108,186.8 93,568.6 53,568.6 23,568.6 Net income pre-preferred dividends 33,312.1 33,273.2 38,396.0 34,736.1 Other long-term liabilities 8,744.0 8,744.0 8,744.0 8,744.0 Preferred dividends 0.0 0.0 0.0 0.0 Total long-term liabilities 116,930.8 102,312.6 62,312.6 32,312.6 Net income (pre-exceptionals) 33,312.1 33,273.2 38,396.0 34,736.1 Total liabilities 230,623.7 235,028.9 194,546.4 163,584.7 Post-tax exceptionals 0.0 0.0 0.0 0.0 Net income 33,312.1 33,273.2 38,396.0 34,736.1 Preferred shares 0.0 0.0 0.0 0.0 Total common equity 191,557.5 218,176.1 248,893.0 276,681.8 EPS (basic, pre-except) (HK$) 3.61 3.37 3.89 3.52 Minority interest 5,055.4 6,282.9 7,734.1 9,451.1 EPS (basic, post-except) (HK$) 3.61 3.37 3.89 3.52 Total liabilities & equity 427,236.7 459,488.0 451,173.4 449,717.7 EPS (diluted, post-except) (HK$) 3.38 3.37 3.89 3.52 BVPS (HK$) 19.43 22.13 25.24 28.06 DPS (HK$) 0.920.670.780.70RNAV (HK$ mn) -- 319,846.0 342,757.9 -- Dividend payout ratio (%) 25.6 20.0 20.0 20.0 RNAVPS (HK$) -- 32.44 34.76 -- Free cash flow yield (%) 16.3 24.4 32.7 38.5
Growth & margins (%) 12/15 12/16E 12/17E 12/18E Ratios 12/15 12/16E 12/17E 12/18E Sales growth 6.9 11.6 17.8 (4.6) ROE (%) 20.5 16.2 16.4 13.2 EBITDA growth 5.6 27.5 22.8 (8.8) ROA (%) 8.0 7.5 8.4 7.7 EBIT growth 5.7 27.5 22.8 (8.9) ROACE (%) 17.5 16.7 21.2 24.7 Net income growth 22.5 (0.1) 15.4 (9.5) Inventory days 790.3 674.4 508.8 368.4 EPS growth 8.5 (6.5) 15.4 (9.5) Receivables days 39.7 40.3 39.3 43.5 Gross margin 28.6 32.2 33.4 32.1 Payable days 208.8 121.5 116.6 126.8 EBITDA margin 26.2 29.9 31.1 29.8 Net debt/equity (%) 6.6 (10.8) (33.9) (58.9) EBIT margin 26.1 29.8 31.1 29.7 Interest cover - EBIT (X) NM NM NM NM
Cash flow statement (HK$ mn) 12/15 12/16E 12/17E 12/18E Valuation 12/15 12/16E 12/17E 12/18E Net income pre-preferred dividends 33,312.1 33,273.2 38,396.0 34,736.1 P/E basic (X) 8.6 7.3 6.3 7.0 D&A add-back 87.9 99.3 125.5 148.7 P/B (X) 1.3 1.1 1.0 0.9 Minorities interests add-back 738.8 1,227.5 1,451.2 1,717.1 EV/EBITDA (X) 6.4 4.5 2.7 1.5 Net (inc)/dec working capital 16,026.0 7,577.2 48,073.8 61,310.2 Dividend yield (%) 3.7 2.8 3.2 2.9 Other operating cash flow (11,514.4) 18,788.9 (5,929.8) (633.7) Cash flow from operations 38,650.4 60,966.2 82,116.7 97,278.3 Underlying valuation 12/15 12/16E 12/17E 12/18E Capital expenditures (113.0) (461.2) (543.4) (518.2) Underlying profit (HK$ mn) 28,722.6 33,273.2 38,396.0 34,736.1 Acquisitions 0.0 0.0 0.0 0.0 Underlying EPS (HK$) 2.91 3.37 3.89 3.52 Divestitures 88.8 0.0 0.0 0.0 Others 806.6 (12,256.9) (7,950.4) (6,382.6) Underlying ROE (%) 17.7 16.2 16.4 13.2 Cash flow from investments 782.4 (12,718.1) (8,493.8) (6,900.8) Underlying ROA (%) 6.9 7.5 8.4 7.7 Underlying ROACE (%) 15.1 16.7 21.2 24.7 Dividends paid (common & pref) (5,423.3) (6,654.6) (7,679.2) (6,947.2) Underlying P/E (X) 8.6 7.3 6.3 7.0 Inc/(dec) in debt 19,052.2 (14,618.2) (40,000.0) (30,000.0) Underlying dividend payout (%) 31.7 20.0 20.0 20.0 Common stock issuance (repurchase) 42,800.1 0.0 0.0 0.0 Underlying EPS growth (%) 1.9 15.8 15.4 (9.5) Other financing cash flows (53,263.7) (4,325.9) (3,233.5) (1,833.5) Cash flow from financing 3,165.3 (25,598.7) (50,912.7) (38,780.7) Total cash flow 42,598.1 22,649.4 22,710.2 51,596.7 Note: Last actual year may include reported and estimated data. Source: Company data, Goldman Sachs Research estimates.
Analyst Contributors
Yi Wang, CFA [email protected]
Jill Guan [email protected]
Goldman Sachs Global Investment Research 2 July 1, 2016 China Overseas Land (0688.HK)
Significant increase in land bank; more exposure to tier-3 cities
The proposed asset package from CITIC comprises 126 projects (by phases) located in 25 cities with total GFA of 31mn sqm and attributable GFA of 23.5mn sqm. By combining CITIC’s asset package with COLI and COGO’s existing land bank:
1. Attributable land bank size would increase 55% to GFA65.9 mn sqm. The number of cities in China in which COLI has a presence would increase to 55 from 48 currently (including HK and Macau as well as COGO’s city exposure);
2. Land bank exposure in tier-1/tier-2/tier-3 cities as % of total attributable land bank would be 11%/59%/29% (including COGO) from 11%/66%/23% as at the of end-15.
3. In terms of GFA, Jinan and Shenyang currently account for 12% and 11%, respectively of COLI’s total land bank. Following the proposed acquisition, Chengdu and Tianjin would each account for around 6% of COLI’s total land bank, the highest among all cities, while exposure to Shenyang and Jinan would fall to 7% each.
4. Of CITIC’s total land bank, around GFA6.6mn is already under construction and is largely expected to be completed before 2017. According to COLI there is limited flexibility in terms of adjusting products and reducing costs for this portion of CITIC’s land bank. However, COLI has indicated it would apply stringent expense control to CITIC’s remaining land bank developments. To that end we note that CITIC’s average construction cost is around Rmb5,000/sqm, consistent with around Rmb5,000/sqm for COLI’s high-tier cities but above Rmb3,000-4,000/sqm for COLI’s lower-tier cities.
Exhibit 1: If successful, COLI would increase its presence Exhibit 2: …although more land bank would be derived to 55 cities in China from 48 currently… from tier-3 cities No. of city exposure City-tier breakdown
COLI COGO COLI+COGO CITIC COLI + COGO + CITIC Tier-1 Tier-2 Tier-3 HK Macau
60 Pre-transaction 100%
55 90% 50 48 80%
40 70%
60% 34 30 50%
25 40% 20 30%
15 20% 10 10%
0 0% COLI COGO COLI+COGO CITIC COLI + COGO + COLI COGO COLI+COGO CITIC COLI + COGO + CITIC CITIC
Source: Company data, Gao Hua Securities Research. Source: Company data.
Goldman Sachs Global Investment Research 3 July 1, 2016 China Overseas Land (0688.HK)
Exhibit 3: The acquisition of CITIC’s property assets would increase COLI’s exposure to the YRD and mid-China Land bank exposure by regions, pre- and post-transaction
Source: Company data, Gao Hua Securities Research.
Exhibit 4: Chengdu and Tianjin would significantly increase as a position of COLI’s total land bank, as would several tier-3 cities Land bank breakdown by cities, pre and post transaction
(mn sqm) COLI+COGO pre-transaction Include CITIC post-transaction 6.0 Tier 1 cities Tier 2 cities Tier 3 cities 5.0
4.0
3.0
2.0
1.0
0.0
Source: Company data, Gao Hua Securities Research.
Assessing the impact of proposed deal to financials and valuation
According to COLI’s management, the total price (HK$37.1bn plus attributable debt) implies CITIC’s land bank cost an average of Rmb3,550/sqm, which compares to Rmb3,030/sqm for COLI. However, we note that 1) 40% of CITIC’s land banks is located in tier-3 cities, 2) the size of projects in some of CITIC’s lower-tier cities is relatively large (see Appendix for details).
Assuming (1) an average Rmb12,395/sqm selling price for CITIC’s land bank (based on comparable projects) vs. Rmb12,726/sqm for COLI in 2016; and (2) a 5% yoy decline in property price in tier-1/2 cities in 2017 and flattish afterwards (our industry-wide assumption),
Goldman Sachs Global Investment Research 4 July 1, 2016 China Overseas Land (0688.HK)
we estimate HK$119bn in total gross asset value for CITIC’s land bank vs. HK$131bn as appraised by DTZ|Cushman & Wakefield (the valuer). The difference is explained by 1) the discount rate: we use a WACC of 8.3% to discount the future cash flow of its development properties while for investment properties we use 7.5%-8.2% (vs. 6.5%-7.8% for the valuer); 2) we factor in all tax incurred when sales incur (while the valuer does not).
Exhibit 5-8 summarizes the impact to our end-16E NAV estimate for COLI.
Exhibit 5: NAV exposure to tier-1 and tier-3 cities would Exhibit 6: …as well as to Bohai Bay increase... NAV exposure by region pre/post transaction NAV exposure by city-tier pre/post transaction
YRD PRD Bohai North China Western China Mid China Tier 1 Tier 2 Tier 3 100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0% Pre-transaction Post-transaction Pre-transaction Post-transaction
Source: Company data, Gao Hua Securities Research. Source: Company data, Gao Hua Securities Research.
Exhibit 7: Calculation of Implied NAV Exhibit 8: NAV and implied valuation pre/post-transaction
Post- Pre- Change End-16E valuation (HK$) End-2016E transaction transaction (%) NAV pre-transaction (HK$ bn) 319.8 NAV per share 33.7 32.4 4 NAV discount (%) -10% -10% 0 No. of shares pre-transaction (bn) 9.9 Implied valuation per share 30.3 29.2 4 NAV per share pre-transaction (HK$) 32.4 Valuation implied 16E PE (x) 9.4 8.7 9 Valuation implied 16E PB (x) 1.5 1.5 0 GAV for CITIC projects (HK$ bn) 119.3 Average 16-17E ROE (%) 17.8% 18.1% -0.3 pp --Development properties 100.4 Investment properties 11.5 Hotel 7.4
Deduct portfolio to transfer to CITIC (HK$ bn) 7.4 Net debt added from CITIC (HK$ bn) 62.8 NAV for CITIC projects (HK$ bn) 49.1 NAV post-transaction (HK$ bn) 369.0 No. of shares post-transaction (bn) 11.0 NAV per share post-transaction (HK$) 33.7
--change of NAV per share 4% Discount to NAV as per calculation of TP -10% Implied valuation per share (HK$) 30.3
Source: Gao Hua Securities Research. Source: Gao Hua Securities Research.
Goldman Sachs Global Investment Research 5 July 1, 2016 China Overseas Land (0688.HK)
Exhibit 9: Financial summary of COLI, CITIC’s portfolio of property assets and 2015 pro forma balance sheet post-acquisition
CITIC's COLI+CITIC 2015 financial summary (HKD mn) COLI property Pro Forma assets Income statement Total revenue 148,074 21,487 n.a. COGS (97,819) (1,279) n.a. Gross profit 42,312 3,808 n.a. GPM 28.6% 17.7% n.a. SG&A (4,125) (1,782) n.a. SG&A as % of revenue 2.8% 8.3% n.a. Total financing cost (4,326) (5,983) n.a. Total financing cost as % of revenue 2.9% 27.8% n.a.
Balance sheet Total inventory 210,894 94,355 305,249 Total asset 427,237 155,011 582,248 Inventory as % of asset 49% 61% 52% Inventory as % of COGS 2.2 73.8 n.a. Cash and equivalents 102,446 20,355 122,801 Short-term debt 7,269 24,201 58,488 Long-term debt 108,187 63,274 140,100 Net debt 13,011 67,119 75,787 Total shareholders equity 196,613 18,967 212,540 Net gearing 7% 354% 36% Total liability 230,624 136,045 369,708
Total leverage 54% 88% 63%
Source: Company data.
Goldman Sachs Global Investment Research 6 July 1, 2016 China Overseas Land (0688.HK)
Exhibit 10: Key financial metrics for COLI pre/post-transaction
Post- Pre- Change transaction transaction (%)
1. End-16E NAV NAV per share (HK$) 33.68 32.44 4
2. Financials Revenue (HK$ bn) 2016E 199 165 21 2017E 238 195 22 2018E 225 186 21
Underlying profit (HK$ bn) 2016E 35.2 33.3 6 2017E 43.7 38.4 14 2018E 40.3 34.7 16
Underlying EPS (HK$) 2016E 3.21 3.37 -5 2017E 3.99 3.89 2 2018E 3.68 3.52 4
Gross margin (%) 2016E 31% 32% -1 pp 2017E 32% 33% -1 pp 2018E 32% 32% 0 pp
Underlying margin (%) 2016E 18% 20% -2 pp 2017E 18% 20% -1 pp 2018E 18% 19% -1 pp
3. Net gearing (%) 2016E 12% -11% 23 pp 2017E -16% -34% 17 pp 2018E -36% -59% 23 pp 4. Contracted sales (Rmb bn) 2016E 222 191 16 2017E 232 194 20 2018E 226 189 20
Source: Gao Hua Securities Research.
Goldman Sachs Global Investment Research 7 July 1, 2016 China Overseas Land (0688.HK)
Appendix: CITIC project details; pre- and post-transaction shareholder structure
Exhibit 11: Valuation details for development projects from CITIC portfolio
Completion Est. land End-16E Est. ASP Contract sales Gross profit booked Development properties Location Interest Attrl. GFA year cost GAV (Rmb/sqm) (Rmb mn) (Rmb mn)
% (k sqm) Rmb/sqm Rmb mn 2016E 2016E 2017E 2018E 2016E 2017E 2018E Completed Beijing CITIC New Town Development Project Beijing 80% 15 Completed 2,167 206 38,000 207 459 0 184 406 0 Changchun CITIC City Changchun 60% 29 Completed 1,063 77 7,500 18 14 14 15 11 11 CITIC New Town‧City Plaza Changsha 100% 169 Completed 2,405 480 5,401 46 35 35 23 16 16 Triumph Riverside Changsha 100% 69 Completed 1,758 239 7,000 24 206 229 17 141 156 CITIC City West Bank Chengdu 100% 122 Completed 1,125 309 7,000 43 32 32 33 25 25 CITIC Harbour City Dalian 80% 173 Completed 3,737 1,314 20,000 216 165 165 164 123 123 CITIC Fuchun Resort Dongguan 40% 11 Completed 900 54 12,500 165 165 0 144 144 0 CITIC Yuyuan Dongguan 40% 3 Completed 2,754 31 26,460 90 90 0 76 76 0 Forest Lake Lanxi Valley Dongguan 100% 1 Completed 2,741 7 16,526 7 7 0 5 5 0 Dongtai Garden Dongguan 100% 1 Completed 2,630 6 6,854 4 4 0 2 2 0 CITIC Xiangzhang Villa Guangzhou 55% 19 Completed 1,191 82 9,500 327 0 0 268 0 0 CITIC Golden Coast Shantou 100% 58 Completed 3,114 347 10,600 122 367 122 80 239 80 CITIC Mangrove Bay Garden City Shenzhen 100% 128 Completed 836 3,650 97,898 1,257 956 956 1,178 895 895 Suzhou Forest Lake Project Suzhou 100% 74 Completed 3,540 554 20,000 74 56 56 57 43 43 CITIC Juntai Tianjin 70% 4 Completed 3,539 41 20,172 60 45 11 46 34 9 Yantai Yinzhi Residence Yantai 100% 0 Completed 1,725 0 7,403 1 0 0 0 0 0
Under construction Beijing CITIC Villa Beijing 100% 210 2018 4,889 6,819 100,000 2,873 2,184 2,184 2,335 1,759 1,759 Beijing CITIC City Beijing 100% 945 2020 4,704 28,005 109,898 0 4,933 4,933 0 4,045 4,045 CITIC New Town‧Cultural Plaza Changsha 100% 85 2017 454 148 5,401 0 44 44 0 31 31 CITIC Triumph City (West District) Changsha 100% 95 2018 664 72 6,000 114 87 87 47 152 73 CITIC Triumph Town (East District) Changsha 100% 219 2018 417 286 6,000 180 137 137 73 51 51 CITIC City East Bank Chengdu 100% 1,103 2019 703 2,521 7,000 788 599 599 324 230 230 Ecological Health Town Chengdu 100% 1,834 2020 581 3,419 8,000 0 1,393 1,393 0 660 660 CITIC Wanjin City Chengdu 20% 198 2020 123 19 8,000 643 488 488 187 125 125 CITIC Harbour City Dalian Harbour Project Dalian 80% 682 2020 988 5,432 20,000 0 1,619 1,619 0 1,190 1,190 CITIC Harbour City Taigu Project Dalian 80% 284 2020 1,010 1,778 20,000 0 674 674 0 494 494 Huangjiang Plot Dongguan 33% 79 2018 754 170 4,053 135 108 108 -39 -31 -31 CITIC Jinshan Bay Foshan 100% 318 2017 1,443 228 8,500 541 433 379 229 717 154 CITIC Mountainside Lake Foshan 50% 781 2020 579 1,204 9,700 1,515 1,212 1,212 329 379 457 Guangzhou Asian Games City Guangzhou 20% 907 2020 239 1,301 13,000 2,359 1,793 1,793 2,852 1,052 1,052 CITIC Triumph Town Huizhou 100% 565 2020 685 1,871 13,000 735 588 588 458 528 637 CITIC Harbour City Huizhou 100% 839 2020 580 873 6,500 545 436 436 73 85 102 Lushan Xihai Jiujiang 100% 2,034 2020 258 106 6,500 1,322 1,058 1,058 46 56 71 Qingdao CITIC City Qingdao 94% 568 2016 1,599 2,849 14,000 1,696 1,289 1,289 1,077 797 797 Forest Lake Qingdao 100% 1,149 2020 508 1,498 7,971 916 696 696 516 595 669 Shanghai Zhujiege Shanghai 100% 233 2017 2,084 1,712 30,000 698 531 531 1,151 434 434 Shanghai Jiading Nanxiang Chenxiang Road Comp Shanghai 30% 30 2018 1,071 259 30,000 415 316 316 290 216 216 New Westgate Garden Phase Shanghai 100% 210 2020 11,484 4,461 70,027 1,473 1,119 1,119 883 1,019 1,150 CITIC Binjiang Xian Shantou 45% 95 2017 242 221 7,000 309 247 247 166 132 132 CITIC Huating Shantou 51% 166 2020 331 81 5,800 565 452 113 83 95 115 Haojiang Longhu Sands Project Remaining Shantou 100% 1,202 2020 532 1,471 6,000 0 721 721 0 257 257 Shenzhen Baohe Project Shenzhen 80% 276 2020 2,205 3,126 40,000 0 1,309 1,309 0 989 989 Suzhou Huanxiu Lake Garden Suzhou 33% 266 2017 615 1,179 20,000 968 736 736 1,560 587 587 Suzhou Mudu Suzhou 40% 63 2020 1,318 303 17,203 0 257 257 0 159 159 CITIC Park City Tianjin 100% 2,566 2020 629 706 5,500 706 536 536 381 249 161 CITIC City Plaza Tianjin 51% 524 2020 1,461 102 15,000 771 586 586 406 265 171 Shenzou Peninsula (Jixin Part) Wanning 80% 32 2016 3,994 129 7,000 0 141 141 0 -15 -15 Shenzou Peninsula (Renxin Part) Wanning 100% 413 2020 937 0 7,000 722 578 578 77 89 108 Shenzou Peninsula (Renhe Part) Wanning 80% 661 2020 851 169 7,000 470 376 376 86 68 68 Shenzou Peninsula (Ruian Part) Wanning 80% 289 2020 635 792 14,000 0 506 506 0 212 212 Yangzhou Jiajing Yangzhou 70% 190 2017 568 158 8,000 435 348 348 86 187 66 Yangzhou Jinyuan Yangzhou 100% 106 2017 937 0 11,019 234 187 163 147 460 99 Jiangdu Plot Yangzhou 100% 215 2020 14 481 10,000 0 215 215 0 128 128 Yantai CITIC Plaza Yantai 100% 67 2020 212 171 8,000 0 266 266 0 45 29 CITIC Southern Airlines International Plaza Zhuhai 51% 40 2016 937 0 23,000 360 0 0 477 716 0 CITIC Mangrove Bay City Zhuhai 100% 425 2019 3,816 5,382 37,000 1,605 1,284 1,284 1,199 959 959
Total 21,630 86,902 26,756 33,084 31,686 17,789 22,328 19,949
Source: Company data, Gao Hua Securities Research.
Goldman Sachs Global Investment Research 8 July 1, 2016 China Overseas Land (0688.HK)
Exhibit 12: Valuation details for investment and hotel projects from CITIC portfolio
Attri. GFA Completion End-16E Rental rate Investment properties (Commercial) Location Gross rental (Rmb mn) year GAV (Rmb/sqm/mth)
(k sqm) (Rmb mn) 2016E 2017E 2018E 2016E 2017E 2018E Completed Chongqing CITIC Tower Chongqing 17 Completed 319 120 120 120 9.7 12.1 14.5 CITIC Sunshine Aoyuan Dongguan 0 Completed 8 100 100 100 0.2 0.2 0.2 CITIC La Defense Dongguan 1 Completed 26 100 100 100 0.5 0.6 0.7 Dongguan CITIC Commerical Plaza Dongguan 5 Completed 125 100 100 100 2.3 2.9 3.4 CITIC Triumph Residence Dongguan 0 Completed 5 100 100 100 0.2 0.2 0.3 CITIC Guanlan Triumph Town Dongguan 2 Completed 54 100 100 100 3.3 4.1 4.9 CITIC Triumph Riverside Zhongshan 0 Completed 9 120 120 120 0.4 0.4 0.5 CITIC West Bank Garden Zhongshan 2 Completed 44 120 120 120 0.9 1.1 1.3 Under construction CITIC Southern Airlines Tower Sanya 26 2016 689 100 100 100 0.0 24.6 30.8 Shanghai Zhujiege Shanghai 14 2016 620 200 200 200 0.0 13.5 16.9 CITIC Cyberport Changsha 446 2019 3,452 100 100 100 0.0 0.0 0.0 Hongzhou Center Haikou 98 2019 1,515 100 100 100 0.0 0.0 0.0 CITIC City Plaza Huizhou 229 2019 2,261 60 60 60 0.0 0.0 0.0 Shanghai Jiading Nanxiang Chenxiang Road Complex Shanghai 49 2019 878 200 200 200 0.0 0.0 0.0 Total 890 10,005 17 60 74
Completion End-16E Hotel Attri. GFA Room rate (Rmb/night) Gross rental (Rmb mn) year GAV
(k sqm) (Rmb mn) 2016E 2017E 2018E 2016E 2017E 2018E Completed Beijing Guotai Hotel Beijing 11 Completed 259 1,200 1,200 1,200 31 35 35 Huizhou Tangquan Huizhou 184 Completed 1,898 800 800 800 225 257 257 Shantou CITIC Nanbing Grand Hotel Shantou 25 Completed 291 900 900 900 34 39 39 Under construction Shenzou Peninsula Jinxin Part Wanning 79 2017 369 1,000 1,000 1,000 0 0 131 Huangshan Taiping Lake Zhongxin Bay Huangshan 404 2018 777 800 800 800 0 0 292 Suzhou Taihu Project Suzhou 305 2018 1,990 1,000 1,000 1,000 0 0 292 Total 1,009 5,584 290 331 1,047
Source: Company data, Gao Hua Securities Research.
Exhibit 13: Shareholder structure pre- and post-transaction
Pre-transaction Post-transaction Shares (mn) % of total Shares (mn) % of total COHL 5,524 56.0% 5,524 50.4% Silver Lot Development Limited 509 5.2% 509 4.6% The CITIC Sellers - 0.0% 1,096 10.0% Public Shareholders 3,827 38.8% 3,827 34.9% Total shares 9,861 100.0% 10,956 100.0%
Note: Silver Lot Development Limited is a direct wholly-owned subsidiary of COHL.
Source: Company data.
Goldman Sachs Global Investment Research 9 July 1, 2016 China Overseas Land (0688.HK)
Disclosure Appendix Reg AC I, Yi Wang, CFA, 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 Goldman Sachs 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. Quantum Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets. GS SUSTAIN GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the environmental, social and governance issues facing their industry). Disclosures Coverage group(s) of stocks by primary analyst(s) Yi Wang, CFA: China Property. China Property: Agile Property Holdings, CFLD, China Jinmao Holdings, China Overseas Grand Oceans Group, China Overseas Land, China Resources Land, China Vanke (A), China Vanke (H), Country Garden Holdings, Dalian Wanda Commercial Properties, Evergrande Real Estate Group, Gemdale Corp., Greentown China Holdings, Guangzhou R&F Properties, Joy City Property Ltd., KWG Property Holding, Longfor Properties Co., Poly Property Group, Poly Real Estate Group, Red Star Macalline Group, Shanghai Shimao Co., Shenzhen Overseas Chinese Town, Shimao Property, Shui On Land, Sino-Ocean Land Holdings, SOHO China, Sunac China Holdings, Yanlord Land. Company-specific regulatory disclosures The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of Goldman Sachs and referred to in this research. Goldman Sachs has received compensation for investment banking services in the past 12 months: China Overseas Land (HK$24.50) Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: China Overseas Land (HK$24.50) Goldman Sachs had an investment banking services client relationship during the past 12 months with: China Overseas Land (HK$24.50) Goldman Sachs had a non-securities services client relationship during the past 12 months with: China Overseas Land (HK$24.50) Goldman Sachs has managed or co-managed a public or Rule 144A offering in the past 12 months: China Overseas Land (HK$24.50) Goldman Sachs makes a market in the securities or derivatives thereof: China Overseas Land (HK$24.50) Distribution of ratings/investment banking relationships Goldman Sachs Investment Research global Equity coverage universe
Rating Distribution Investment Banking Relationships Buy Hold Sell Buy Hold Sell Global 32% 53% 15% 65% 58% 51% As of April 1, 2016, Goldman Sachs Global Investment Research had investment ratings on 3,029 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by the FINRA Rules. See 'Ratings, Coverage groups and views and related definitions' below. The Investment Banking Relationships chart reflects the percentage of subject companies within each rating category for whom Goldman Sachs has provided investment banking services within the previous twelve months.
Goldman Sachs Global Investment Research 10 July 1, 2016 China Overseas Land (0688.HK)
Price target and rating history chart(s)
China Overseas Land (0688.HK) Stock Price Currency : Hong Kong Dollar Goldman Sachs rating and stock price target history 40 90 26.4 32.3 32.6 85 24.5 38.8 35 26.4 80 21.8 27.4 38.7 37.6 75 21.4 30 70 24.8 25.4 65 25 60 55 20 50 27.3 45 15 40 Oct 4 N B M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M 2013 2014 2015 2016 Index Price Stock Price Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 3/31/2016. Rating Covered by Yi Wang, CFA Pric e tar get Price target at removal Not covered by current analyst MSCI China
The price targets show n should be considered in the context of all prior published Goldman Sachs research, which may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.
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Goldman Sachs Global Investment Research 11 July 1, 2016 China Overseas Land (0688.HK)
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Goldman Sachs Global Investment Research 12 July 1, 2016 China Overseas Land (0688.HK)
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