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CUHK Business School LEE, Chun Ho Angus [email protected] November 7, 2013 Financials (GICS) | Real Estate NG, Sheung Yiu Boris [email protected] Top Spring International (3688 HK) TSE, Pui Kei Peggy [email protected] Buy YIP, Tsz Chung Alan [email protected] Small-cap dark horse in real estate with solid growth engine

We initiate coverage with a Buy rating and HK$4.29 target price, Key Data which offers a 34% potential upside. We believe Top Spring is a solid small-cap pick with a visible high-growth path over the next Bloomberg: 3688 HK Reuters: 3688.HK few years and a pragmatic management team. We see multiple China Real Estate positives including the strategic focus in project selection, fast Price target HK$4.29 asset turnover and low land cost. We forecast a 20.4% earnings Up/downside to price target (%) 34% CAGR over FY12-15E, and a strong 40.8% yoy contracted sales Share price, close (Nov 6, 2013) HK$3.20 growth that is highly achievable in FY13E. 52-Week Range HK$3.03 - 6.72 Share outstanding, diluted, current (m) 1,155.30 Strategic edges in location and land cost Market capitalization, current (m) HK$3,697 EV, current (m) HK$15,975 Specialized in the development of urban mixed-use communities Average daily trading value (m) 1.13 and highlighting the proximity to high speed railway network, Top Spring’s strategic focus brings strong appreciation potential and Price Performance convenience premium for pricing. Anti-cyclical land banking Price Adjusted Price strategy also allows the Group to sustain low land cost at 6-8% 7 of sales, compared to 19-33% of the industry peers. These grant 6 Top Spring high potential in outcompeting its peers. 5 4 Protection from downside 3 2 We see two factors protecting the downside to valuation from 1 macro headwinds: 1) high lock-in ratio of contract sales target 0 achieved YTD (92.6% in first 3Q) which will enable Top Spring to meet its full-year guidance of HK$8.0bn without much pressure;

2) secured land reserves with relatively low cost averaging at *Price adjusted for 2-for-5 bonus issue on 20 May 2013 HK$3,340/sqm, at strategic locations along the high speed Source: Bloomberg railway; 3) anti-cyclical and prudent land banking strategy, avoiding over-expansion under overheated market conditions. Forecasts and Valuation FY (HK$m) 2012 2013E 2014E 2015E Catalysts ahead with visibility Revenue 6,064 6,667 8,160 12,303 EBITDA 2,525 2,881 3,440 5,044 Given the recent sales figures, we are confident in the remaining Net Profit 1,193 1,167 1,370 2,084 phases of the successful projects such as Nanchang Fashion EPS (HK$) 1.03 1.01 1.19 1.80 Mark, with saleable GFA of 730,000 sqm, which is expected to P/E (X) 3.1 3.2 2.7 1.8 P/BV (X) 0.81 0.68 0.57 0.45 be completed by 2016. Besides, Shenzhen Fashion Mark is a ROE (%) 29.5 23.3 22.9 28.2 highlighted old town redevelopment program with EV/EBITDA (X) 6.3 5.5 4.6 3.2 saleable/leasable GFA of over 1.2 million sqm. Despite Div yld (%) 8.1 7.9 9.3 14.1 uncertainties on government approval, this large-scale project is Assets/Equity (X) 5.4 5.0 4.9 4.7 expected to bring in significant amount of sales and drive the EPS growth.

Downside risks Refer to important disclosures at the end of Lower-than-expected presales and profitability, slower-than- this report expected delivery, NAV dilutive injection, and general slowdown in the market

November 7, 2013 Top Spring International (3688 HK)

Business Description

Incorporated in Hong Kong in 1993 and entering the real estate market in 2001, Top Spring International Holdings Limited (“Top Spring”) is a real estate property developer in the PRC, specializing in the development and operation of urban mixed-use communities and the development and sale of residential properties. Top Spring was listed on the (3688) on 23 March 2011.

Sources of revenue include sale of properties, rental income, hotel operations and property management and related services income, while sale of properties contribute over 90% of the total revenue. The revenue is fluctuating across reporting periods, depending on the booking schedule of property sales, thus contracted sales is an appropriate forecast of the company’s recognized revenue.

Top Spring is a small-sized developer focusing on brand recognition, profitability and high asset turnover. As of 30 June 2013, it has a total of 18 property projects over 10 cities at various stages of development in Shenzhen, Nanjing, Nanchang, Chengdu, Huizhou, Hangzhou, Dongguan, Tianjin and Changzhou with a net saleable and leasable GFA of approximately 4.77 million square meters.

Exhibit 1: Revenue highly depends on booking Exhibit 2: Diversified landbank with 16 current and schedule of projects, mainly attributable to the sale upcoming property development projects along High of properties speed railway Revenue (HKD billion)

Sale of properties Rental income Others 4,500 3,869 4,000

3,500 3,103 HKD HKD mn 3,000 2,758

2,500 2,195

2,000

1,500 1,219

1,000

500

0 1H11 2H11 1H12 2H12 1H13

Source: Interim and annual reports Source: Company data

Industry Overview and Competitive Positioning

Overview: Resume buoyance in property market, fanning bubble concerns Hitting GDP targets and retaining growth is of utmost priority in Chinese government’s agenda. Given the 15% major GDP contribution and strong spillover effect in 1/3 of the country’s economy, real estate developers are less likely to receive tough property curbs in near future for ensuring the stable and progressive economic growth.

(1) Active land sales will take place to ease high debt levels of local governments and supply shortage in 1H National auditing report in 10 June showed 16 out of 24 regional governments’ debt levels exceeded 100% of income last year. It also highlighted the decreasing income from land sales in 2012 on a regional and provincial level. Thus, local governments are tempted to boost land sales to bring income and ease their debt burdens. We expect more frequent land auctions will take place in near term, targeting property developers for residential purposes. We are confident that land sales will resume from its depressed levels in 1H2012. And that, in turn, will result in a rising trend of inventory supply to support this year’s pricing stability on the supply side. CUBA Research 2 November 7, 2013 Top Spring International (3688 HK)

Exhibit 3: Debt levels of Chinese local governments Exhibit 4: Land sales volume, yoy change and accumulated at startling pace, inducing urgency for inventory in major cities show steady improvements land auctions to increase income of supply Debt levels (RMB billion) Land sales, total sellable GFA (million sqm) and yoy Debt levels of 36 local governments growth (%) 25 Debt estimates of all local governments 8 cities land sales 8 city total sellable GFA 60 2.5 19.70 8 cities land sales yoy growth rate 20 50 2 14.1 1.5 15 40 10.72 1 30 10 0.5 20 0 5 3.85 3.63 3.41 10 -0.5

0 -1 0 2012 2011 2010

Source: National Auditing Report & CNN Source: Soufun/CIA, CUBA Research estimates

(2) Urgency of stabilizing Chinese economy overrides interventions to cool property market Other than the widely anticipated property taxes, little progress is expected in the discussion of China’s property market at the Third Plenary Session of 18th CPC Central Committee held this November. The central government is not likely to introduce major tightening measures in the foreseeable term. Market-based measures such as curtailing bank lending to property speculators do not cause any threats to the property sector, as the maintaining of stable growth is still the key priority for Chinese economic growth in general. Demand for residential housing would resume from 1H as investors take advantage from the looser regulation, compared to March when the new central government first announced the 3-year plan to cool down housing market.

Exhibit 5: Sales outlook expects to recover from Exhibit 6: Property sales volume growth lags behind previously tightening credit and home supply China quarterly GDP, showing high correlation conditions National GFA sold mom change (%) and China GDP qoq GFA sold (million sqm) change (%) 70 2012 2013 150% National GFA sold mom change 3.0% 60 China GDP qoq change 2.5% 100% 50 40 2.0% 50% 30 1.5% 20 0% 10 1.0%

0

3/1/11 5/1/11 7/1/11 9/1/11 1/1/12 3/1/12 5/1/12 7/1/12 9/1/12 1/1/13 3/1/13 5/1/13 7/1/13 9/1/13

-50% 1/1/11 11/1/12

11/1/11 0.5%

1HJul 2HJul

1HApr 2HApr 1HOct 2HOct

1HJan 2HJan 1HJun 2HJun

1HFeb 2HFeb 1HMar 2HMar

1HAug 2HAug 1HSep 2HSep 1HNov 2HNov 1HDec 2HDec 2HMay 1HMay -100% 0.0% Source: National Bureau of Statistics Source: National Bureau of Statistics

(3) Developers benefit from cheap liquidity and now sit on cash for delayed CAPEX plans $16 billion was raised through offshore bonds and domestic loans to property companies increased by 50% in 1H13, allowing real estate developers to resume CAPEX plans that halted earlier this year due to US tapering and credit tightening in China. This creates solid demand for land that matches with upcoming land auctions held by local governments. We expect land prices and sales value will spike up accordingly. In medium term, a strong development pipeline will emerge in a majority of cities due to this replenishment of landbank by property developers. CUBA Research 3 November 7, 2013 Top Spring International (3688 HK)

Key segment analysis: Strong sales from mass-market strides and expects to continue the momentum Over next 12 months, 10% yoy growth is expected in the value of residential property sales, underpinned by solid demand for residential houses and better sentiments. Sources of the real demand are as below, along with propensity of central planning, preference of owning real estate and favorable mortgage financing for first-time homebuyers.

Exhibit 7: Urbanization is rising steadily with 100 million more population moving into cities in next decade Urban population in China (%)

80% 2.85% Annual Growth 67.19% 70% 60% 49.95% 51.27% 52.08% 45.89% 46.99% 48.34% 50% 44.34% 40% 30% 20% 10% 0% 2006 2007 2008 2009 2010 2011 2012 2023E

Source: National Bureau of Statistics

Exhibit 8: Sustained city income growth due to new land reforms for villagers turning into urbanites Urban per capita income (RMB) and yoy growth (%) 30000 10% Urban per capita income % growth 26,960 24,565 10% 25000 22,413 10% 20,619 18,924 9% 20000 17,361 9% 15000 9% 9% 10000 9% 8% 5000 8% 0 8% 2008 2009 2010 2011 2012 2013E Source: CIA Factbook, National Bureau of Statistics, CUBA Research estimates

. Relaxed monetary policy: After the credit crunch in May, monetary policy is relaxed slightly and, indirectly, has helped to support the real estate sector by providing cheaper financing means to homebuyers. Home prices increase 9.5% last month, which is the biggest gain since December. And the value of home sales in a nationwide level has increased by 34%. . Lower home prices as investment demand declines: Harsh on speculators only, Chinese government is lenient to genuine homebuyers. The 3-year campaign launched this March to cool housing market has effectively clamped down speculations and thus, slowed down price increase in the last quarter. More home buying is anticipated due to upward land prices and the fear of consequential future home price increases.

City tier analysis: Key locations with Top Spring projects are generally in favorable conditions, except there are cues of over-supply in tier-2 cities Looking into the land and GFA sales data to deduce the development pipeline and inventory in different places of China, we can see all tier-2 and 3 cities present a larger than 1 multiple of land sold to GFA sold, indicating a possible oversupply of houses. Wuhan, Dalian, Qingdao and Ningbo are some of the most worrying cities. Tier-1 cities though remain unscathed in this analysis; the multiples of all 4 tier-1 cities have also gone up. This infers a slowdown in land selling compared to land purchasing in these places as well.

CUBA Research 4 November 7, 2013 Top Spring International (3688 HK)

Exhibit 9: Land sold against sales volume in 2010-12 is generally lower in tier-1 but higher in other cities 2006-2008 average land sold/ 2007-2009 average GFA sold 2010-12 average land sold/2011-13E average GFA sold Tier-1 Beijing 0.60x 0.68x Shanghai 0.53x 0.90x Guangzhou 0.50x 0.52x Shenzhen 0.42x 0.45x

Tier-2 Changsha 1.60x 1.23x Suzhou 1.22x 1.53x Tianjin 1.20x 1.7x Shenyang 0.95x 1.25x Wuhan 0.93x 2.70x Nanjing 0.88x 1.10x Hangzhou 0.85x 1.48x Xiamen 0.75x 0.99x Chongqing 0.60x 1.05x Dalian 0.48x 2.20x Qingdao 0.43x 2.15x Chengdu 0.38x 1.10x

Tier-3 Taiyuan 2.00x 1.49x Jinan 1.95x 1.48x Wuxi 1.20x 1.90x Nanchang 0.99x 1.18x Ningbo 0.70x 3.20x

Source: CEIC, Soufun/CIA (1) Tier-1 cities: Shenzhen at its best in terms of demand and supply outlook Top Spring only engages with Shenzhen among all tier-1 cities in China. Shenzhen has been historically selling less land and thus having fewer competitive projects. However, the sustainable high property prices in Shenzhen have provided support for us to determine – Demand is very likely to exceed supply in medium term. Its strategic positioning near Hong Kong enables Shenzhen development projects to cater an extra customer group in Hong Kong. The only drawback would be intense competition between Chinese and Hong Kong property developers.

Exhibit 10: Shenzhen sells the fewest land for Exhibit 11: Yet it is still able to capture a higher than property development among 4 tier-1 cities… average property price Land GFA Sold (‘000sqm) Average Sales Price (RMB/sqm) 10000 30000 Beijing Shanghai Beijing Shanghai 9000 Guangzhou Shenzhen 8000 Guangzhou Shenzhen 25000 7000 20000 6000 Average 5000 15000 A v 4000 10000 3000 e 2000 5000 r a 1000 0 g 0

e

1/1/11 3/1/11 5/1/11 7/1/11 9/1/11 1/1/12 3/1/12 5/1/12 7/1/12 9/1/12 1/1/13 3/1/13 5/1/13 7/1/13 9/1/13

1/1/2011 1/3/2011 1/5/2011 1/7/2011 1/9/2011 1/1/2012 1/3/2012 1/5/2012 1/7/2012 1/9/2012 1/1/2013 1/3/2013 1/5/2013 1/7/2013 1/9/2013

11/1/11 11/1/12

1/11/2011 1/11/2012

Source: CRIC Source: CRIC (2) Tier-2 cities: Oversupply situations can still be resolved by high population growth in cities Though the assessment of supply and demand does not present favorably for tier-2 Chinese cities. Yet, we see a strong growth engine of urbanization. If urban populations in such cities grow steadily, there is high chance for them to build in stronger demand for the oversupply situations. For instance, Tianjin’s 6% annual urban population growth underpins its potential in larger demand to take hold of the seemingly excessive supply in housing, inferred from the third highest land sold to GFA sold multiple at the moment. Top Spring has several significant projects in Tianjin.

CUBA Research 5 November 7, 2013 Top Spring International (3688 HK)

Exhibit 12: Concerns over potential oversupply in medium term for tier-2 cities with slow urban population growth but a large upcoming development pipeline 2012-12 average land sold to 2011-2013E average GFA sold multiple (x) and 2010, 2025 urban populations (millions) 16 2010 Urban Population 2025 Urban Population Multiple 3

14 2.5 12 2 10

8 1.5

6 1 4 0.5 2 % Change 54% 80% 40% 36% 43% 50% 63% 80% 40% 36% 48% 56% 0 0

Source: Asia Pacific Urban Land Institute and CRIC

Competitive positioning (1) Top quality integrated property developer in core cities Top Spring focuses on developing mid-to-high end mixed-use communities for retail and residential purposes. Projects are distributed mainly across 1st- and 2nd-tier cities, with expansion into potential 3rd-tier cities, with 4.76 million sqm saleable/leasable GFA in total. The mixed-use concept differentiates itself from other competitors and the location strategy with proximity to high speed railway system also grants Top Spring higher sales potential for the prospects.

Exhibit 13: Market positioning of small/mid-sized property developers Project locations 3rd-tier cities

C C Land

Poly Property Shanghai Industrial Top Spring Intl

Type of property projects Yuzhou Properties Commercial Residential Minmetals Land Powerlong Beijing Capital Land Sino-Ocean Kaisa KWG Property

SOHO China Hopson

1st-tier cities Note: The size of the bubles represents the total saleable or leasable GFA of the respective company

Source: Company data

CUBA Research 6 November 7, 2013 Top Spring International (3688 HK)

(2) Lower-than-average land cost as % of sales Mainly due to the anti-cyclical land banking strategy, Top Spring acquires land at a very low cost. Its land cost as % of sales remains 6-8% in past years, compared to 19-33% of the industry peers. This does not only provide flexibility for pricing and cost control for Top Spring, but also generate higher profit margin for the sale of properties.

Exhibit 14: Top Spring has a very low land cost as % of sales

Top Spring Greentown CR Land Shimao Poly property KWG COLI Longfor Sino Ocean CIFI

0% 5% 10% 15% 20% 25% 30% 35%

Source: Company data

(3) Corporate governance with confidence Top Spring believes effective corporate governance practices to be fundamental in safeguarding interests of shareholders and other stakeholders and enhancing shareholder value. The Group has adopted and applied sound corporate governance principles that emphasize a quality Board, effective internal controls, stringent disclosure practices and transparency and accountability. Despite the Chairman and CEO, Mr. Chun Hong Wong, holding the majority of shares, there is no relationship among the members of the Board which ensures the objectivity and independence. Investment Summary

Growing small-sized developer with strategic focus and strong execution capability Top Spring is specialized in the development and operation of urban mixed-use communities, highlighting its proximity to high speed railway network and strategically capturing the growth in satellite areas of first-tier cities and core locations within second/third-tier cities. The superior location grants the projects with strong appreciation potential and convenience premium for pricing. Integrating international design style under the leadership of its Chief Architect, who has over 20 years of experience and previously worked for SHK Properties (16.HK) and Henderson Land (12.HK), Top Spring has received wide brand recognition in the PRC, especially in Shenzhen.

The management team has a mix of international experiences and local execution expertise in real estate development. The Chairman and CEO, Mr. Chun Hong Wong, is the founder of the Group and has over 20 years of experiences in the HK and PRC real estate development sector as well as the PRC retail sector. Together with the strategic relationship with Rainbow, one of the largest department stores in the PRC, it sets the solid base for Top Spring’s strategic focus in development of mix-used communities integrating retail and residential concepts.

Top Spring has a positive track record of strong execution, with project development cycle of 18-24 months on average from land acquisition to completion. The Spring Land-Nanjing, which was acquired in June 2012 and launched for pre-sale in April 2013, demonstrated the Group’s capability in attaining fast asset turnover.

CUBA Research 7 November 7, 2013 Top Spring International (3688 HK)

Anti-cyclical land banking strategy securing relatively low land cost and guaranteeing profit margin As at 30 June 2013, Top Spring had a land bank with approximately 4,764,794 sqm net saleable/leasable GFA, sufficient for its business development over the next few years. Anti- cyclical land banking strategy allows the Group to sustain low land cost and avoid land acquisitions in overheated market conditions. The strategy is subject to identification of correct market timing, but we are confidence with the management amid the track record of previous land acquisitions, where most of the land or their neighborhoods have already appreciated. Top Spring’s land cost was kept at around 6-8% of sales, compared to 10-20% of the industry peers.

Top Spring focuses on projects of HKD2-3bn with internal investment guideline requiring a minimum of 20% IRR based on current ASP pricing. The guideline is relatively strict but it guarantees rich profit margin for individual projects. In the past three years, annual new land acquisitions stayed around 1.2 million sqm, reflecting the Group’s prudent policy under the current market environment. In our view, this prevents Top Spring from over-expansion and ensures healthy risk management.

In future, the Group will continue to follow its anti-cyclical land acquisition strategy. Given the significant surge in land prices across the major PRC cities with repeated occurrences of record breaking land prices, the Group will become more cautious on land acquisitions. Moreover, as the residential property control measures such as purchase restriction and mortgage restriction are still in place, priorities will therefore be given to projects in the first- tier and major second-tier cities in the and Yangtze River Delta which are targeted mainly at the first-time home buyers and first-time upgraders whose demand represents the bulk of the purchasing power for residential properties in the near term.

Visible medium-term growth prospects with diversification of investment portfolio Given the exciting pre-sale results in Nanchang Fashion Mark (Phase 1), we are positive on the potential of the remaining phases of the retail-and-residential project with a total saleable/leasable GFA of 730,000 sqm which will be launched in next few years. In the medium-term, the Group has three other major projects in place, namely Huizhou Hidden Bay (Phase 2-4), Hangzhou Hidden Valley (Phase 3-7) and Hangzhou The Spring Land, with a total saleable GFA of 690,000 sqm, which are expected to be pre-sold and completed by 2016.

Another highlight will be the newly planned old town redevelopment program, Shenzhen Fashion Mark, with total saleable/leasable GFA of over 1.2 million sqm. The project is expected to start in mid-2014 and completed by 2020, launching in 8 phases in between. This large-scale project provides significant amount of saleable/leasable GFA in attaining the targets in the coming years, while it also marks the Group’s first attempt in old town redevelopment, which we believe more will be coming if proven successful. Moreover, a higher portion of retail GFA in this project will be reserved for rental purpose, which will double the existing property base for rental income and further diversify the investment portfolio of the Group. However, the old town redevelopment program has some uncertainties in execution and construction schedule, as part of the project has not yet entered land grant contracts and the redevelopment plan is subject to government’s approval. Valuation

To value the equity of Top Spring, we use the sum-of-parts approach to value different businesses in Top Spring and add them together to obtain the enterprise value.

There are 4 businesses in Top Spring, namely property development, investment properties, hotel, and property management services.

We use the discounted cash flow method to value the property development business and the property management services. For the property development business, we calculate the net asset value of each project, and we sum them up together. A WACC of 11.3% is used.

CUBA Research 8 November 7, 2013 Top Spring International (3688 HK)

A rental capitalization method is used for valuing the investment properties and the hotel businesses of Top Spring. Different discount rates are used for projects in different cities.

Our calculation for the NAV per share of the equity of Top Spring is HK$8.58. The stock price in the past 3 months was traded in a range of 3.03 – 3.97, corresponding to an NAV discount of 64.7% to 53.7%. Given the strong execution and an anti-cyclical strategy of Top Spring, we believe the company deserves an NAV discount of 50%, which is the target price of HK$4.29 per share.

Exhibit 15: Valuation Business Valuation Method Property Development Discounted Cash Flow Investment Properties Rental Capitalization Hotel Rental Capitalization Property Management Services Discounted Cash Flow

Value (HK$m) WACC 11.3% Value of Property Development 13,242 Value of Investment Properties 2,674 Value of Property Management 15 Value of Hotel 42 Enterprise Value 15,974 Net Debt 6,061 NAV 9,912 Market Cap 3,700 Current Discount 62.7% Number of Share Outstanding 1,155 NAV per share (HK$) 8.58 Target Discount 50% Target Price (HK$) 4.29

Financial Analysis

Revenue The revenue of Top Spring in the financial year of 2012 HK$6,065m, a 3.4% increase from 2011. Within the HK$6,065 revenue throughout the year, $2,195m was recognized in the first half. The 2013 interim result revealed a revenue of HK$1,219m, a 44.5% down from the previous year, due to a lower-than-expected booking schedule. In the second half of 2013, we expect the booking schedule will be caught up and a number of completed projects in 2013 will help fuel the revenue in the second half. We expect the yoy change of revenue in FY13, FY14, FY15 would be 43.8%, 15.8% and 18.6% respectively.

Profitability The gross profit margin of Top Spring in 2012 was 52.4%, down from 66.2% in 2011. In the first half of 2013, the gross profit margin was 41.8%, a 2 percentage point increase from the first half of 2012. For the 2013 financial year, we expect the gross profit margin would be slightly higher than 2012, at 54%. Looking forward, although we expect a continuing strong growth in the real estate market, the ever increasing land cost will certainly compress the gross profit margin of real estate developers across the country. With its large and quality land bank, however, we are confident that Top Spring is able to stick to its anti-cyclical land banking strategy. We also see no pressure on Top Spring to boost the asset turnover. Therefore, we expect the pressure on the gross profit margin would be mild to Top Spring.

In 2012, Top Spring reported a net profit of HK$1,193m, a 16.7% increase from 2011. HK$259m profit was booked in the first half of 2012. In the first half of 2013, the net profit was HK$221m, a 14.7% down from 2012. We expect the net profit in 2013 to be HK$1,167m, a slight 2% decrease from 2012, mainly caused by a slow sale recognition and we expect that will catch up in 2014 and 2015.

The return on average equity of Top Spring in 2012 was 29%, down from the 48% in 2011, due to the dilution in per share earnings after the IPO. Our forecast of ROE in FY13, FY14 and FY15 are 23%, 23% and 28% respectively. CUBA Research 9 November 7, 2013 Top Spring International (3688 HK)

Exhibit 16: Turnover and profits Exhibit 17: Average contracted and recognized sale (HK$ m) price (HK$) 14000 12,303 12000 30000 25,296 23,734 22,776 10000 25000 8,160 19,184 19,101 18,985 19,844 17,025 8000 6,667 20000 16,849 5,862 6,064 6,397 14,302 4,995 18,373 6000 4,325 15000 3,880 3,600 3,395 15,377 2,760 3,211 3,174 2,840 10000 4000 2,482 2,084 1,686 1,193 1,167 1,370 2000 1,246 1,022 5000 495 0 0 2010 2011 2012 2013E 2014E 2015E 2010 2011 2012 2013E 2014E 2015E

Turnover Gross Profit Average Contracted Sale Price Operating Profit Net Profit Average Recognized Sale Price

Exhibit 18: Margins Exhibit 19: Return on equity

70% 66% 61% 60% 55% 60% 52% 54% 53% 52% 48% 50% 45% 50% 45% 41% 43% 42% 41% 40% 40% 30% 29% 28% 20% 30% 18% 17% 18% 17% 23% 20% 17% 23% 20% 10%

0% 10% 2010 2011 2012 2013E 2014E 2015E 0% Gross Margin Operating Profit Margin Net Profit Margin 2010 2011 2012 2013E 2014E 2015E

Source: Company data, CUBA Research estimates

Balance Sheet The net gearing (including restricted cash) of Top Spring in 2011 and 2012 were 34% and 68% respectively. The increase in gearing was mainly due to an increase in land acquisition in 2012. In the first half of 2013, the net gearing increased to 97.6%. Top Spring has slowed down the land acquisition due to the heated land auctions in China and is taking the chance to reduce the gearing of the company, and wait for the opportunities of land acquisitions in the future. By the year end, we expect the gearing will come down to 49%. Investment Risks

Fundamentally, Top Spring is exposed principally to the property market in Mainland China. With regard to economic risks, any weaker-than-expected GDP growth for the global economy and China could negatively affect buying sentiment in the China property market, which could render our sales and earnings estimates for Top Spring inaccurate. At the macro level, a stronger-than-expected pickup in inflation and property prices could affect housing affordability for such homebuyers, despite of the fact that Top Spring mainly targets first home owners and first-time home upgraders.

On the policy front, any tightening measures and policy changes by the central government with regard to mortgage applications and approvals, project financing, and property pre-sales could adversely affect the bottom line and cash flow of property developers, and homebuyer sentiment.

Company-specific risks include growing hurdles on landbank expansion, difficulties in obtaining funding for development or rising financing costs. Other risks impacting the profitability include potential margin slippage due to rising costs and any delays in completion or delivery. CUBA Research 10 November 7, 2013 Top Spring International (3688 HK)

Appendix 1: Ownership Structure

Mr. Wong Chun Hong, founder and chairman of Top Spring, is the major shareholder of the company. Chance Again is his associated corporation, 100% owned by him.

Exhibit A1: Ownership structure

Bank of Nova Scotia Sai Kai Lee 0.69% 1.24% Feng Yang Chen APG All Pensions 0.24% Group 6.65% Crown Investments Limited 7.75%

Scarborough International Holdings 14.86%

Chance Again 68.57%

Source: Company Annual Report

CUBA Research 11 November 7, 2013 Top Spring International (3688 HK)

Appendix 2: Management Team

Top Spring is led by visionary top leaders with a diversity of professional experience. The team brings international exposure, world-class corporate governance and strong local execution capability.

Exhibit A2: Management team

Mr. Wen Jun LOU Ms. Ning SHI Mr. Da Chuan HE Vice President Vice President Vice President • 25 years of project, retail • Over 20 years of senior • Previously worked as GM and hotel management management experience of Chengdu business experience • Previously worked as department of Greenland • Previously worked as GM deputy GM at Shenzhen Group and VP of Rong of Shanghai Xin Xin Investment Limited, GM of Qiao Group Department Store and China Projects at Sino Land Shanghai Tomorrow Company Ltd. Square Company

Mr. Rui Chi LIANG Ms. PO Chun LUK, CFA, ACCA Mr. Johnson CHEUNG Vice President Vice President Chief Architect • Previously worked as the • Over 11 years of company • Over 20 years of branch manager of secretarial, accounting and experience in architecture Shenzhen Development financial management design Bank and assistant to GM • Previously worked as chief • Previously worked for Sun of Shenzhen Dongjiang accountant at China Water Hung Kai Properties Group Environmental Company Affairs Group Limited and Henderson Land Limited

Local Execution Expertise

Mr. Chun Hong Wong Ms. Yan Jie LI Mrs. Sai Kai LEE Mr. Jim LAM Mr. Tian Ye WANG Chairman, CEO Executive Director David Executive Director, Executive Director • Founder of Group • Extensive sales Executive Director CFO • Former CEO and • Member of and management • Over 20 years of • Former CFO of Executive Director Guangzhou experience in experience in of Central China Chinese People’s China property Hong Kong and Holdings Real Estate Political market China property • 20 years of • Former Deputy Consultative • Previously worked • Currently director experience in GM of Bank of Conference as GM of of Rainbow financial China, Sydney • Vice chairman of Shenzhen Land & • Previously worked management, branch Hong Kong Real Real Estate as financial investment Estate Association Exchange Centre controller at two banking and red-chip Hong auditing Kong listed companies

Mr. Feng Yang CHEN Mr. Charles Nicholas Mr. Yuk Wo CHENG Prof. Si Zong WU Executive Director, BROOKE Independent Non- Independent Non- COO Independent Non- executive director executive director • Previously worked executive director • Co-founder of • Doctoral tutor, in China Bao’an • Ex-director of Centurion Secretary of the Group as VP Swire Properties • Sole proprietor of Party Committee • Previously took up Group and Erik Cheng & Co., and Vice Dean of position as Chairman of Certified Public the Economic and Chairman of Professional Accountants Management Hengan Property Property Services School at Tongji Development • Chairman of Hong University (Shenzhen) Kong Science and Limited Technology Parks

International Experiences, Best Practices, Standards and Governance

Source: Company Annual Report

CUBA Research 12 November 7, 2013 Top Spring International (3688 HK)

Appendix 3: Corporate Structure

Chart below shows the ownership of Top Springs in different development projects across all cities.

Exhibit A3: Corporate structure

Top Spring

100% 100% 100% 100% 100% 100%

Changzhou Shenzhen Changzhou Hangzhou Dongguan Chengdu Le Leman Water Flower Fashion Mark Landmark Landmark Fashion Mark City Garden

100% 100% 92% 100% 70% 100%

Shenzhen The Spring Shenzhen Shenzhen Shenzhen Nanchang The Spring Land - Hidden Valley Blue Bay Fashion Mark Fashion Mark Land Hangzhou

100% 100% 100% 58%

The Spring Hangzhou Huizhou Tianjin Le Land - Hidden Valley Hidden Bay Leman City Nanjing

*Entire or certain parts of the projects has not entered into land grant contracts

Source: Company Investor Presentation

CUBA Research 13 November 7, 2013 Top Spring International (3688 HK)

Appendix 4: Strategic Alliances and Partnerships

Table below identifies key strategic relationships Top Spring has formed in order to expand its capacity and capabilities in selected development projects. With such a strong track record, more synergy and potential collaboration are expected to arise in the growth of Top Spring.

Exhibit A4: Strategic alliances and partnerships Rainbow Shenzhen Agricultural Scarborough Group Metro Holdings Products Co. Ltd. (SAP) International

Partner Co-founded by Mr. WONG Leading agricultural UK leading property Leading property and retail Overview Chun Hong and CATIC company in China development, investment group in Asia and leisure companies • Long-term strategic • Long-term strategic shareholders of Top Spring shareholders of Top Spring Leverage • One of the largest • Only engagement in • Global investment • Connections in retail department chain development, portfolio with strong and property stores with over 54 operations and presence in UK and management stores in China as of management of large- Europe June 2012 scaled integrated agricultural product exchange centers in China Collaboration • As anchor tenant at • JV for Top Spring to • Co-developed projects • Co-invest in Nanchang with Top Spring Chengdu Fashion Mark develop a food with Top Spring in 9 project with a 30% stake • Strategic partnership products exchange years in a joint-venture for Top Spring to have center and property • Top Spring as the through its indirect sole discretion to invite development in Jinghai flagship vehicle for wholly-owned Rainbow as anchor county, Tianjin Scarborough Group to subsidiary, Metro tenant in retail • Residential buildings property development shanghai HQ Pte. Ltd. properties and may are built around the in China • Metro owns 5.1% stake negotiate with Rainbow center for workers • Achieve high corporate in Top Spring on a priority basis on • GFA of project is governance standards any potential sale of 730,278spm with Top Spring commercial projects • Top Spring owns 58% and urban mixed-use stake in the JV and communities SAP owns 42% developed by Top Spring

Other long-term business partnerships:

Source: Company Investor Presentation

CUBA Research 14 November 7, 2013 Top Spring International (3688 HK)

Appendix 5: Key Market Indicators of Major Cities with Top Spring Projects

Exhibit A5: Average sales price of home property Exhibit A6: Home property sales value (RMB/sqm) (RMB million)

30000 Shenzhen Tianjin Nanjing 35000 Shenzhen Tianjin Nanjing Hangzhou Chengdu Hangzhou Chengdu

25000 30000

25000 20000

20000 15000 15000 10000 10000

5000 5000

0 0

Source: CRIC Source: CRIC

Exhibit A7: Gross floor area of home property sold Exhibit A8: Residential land sales value (‘000 sqm) (RMB million)

1800 Shenzhen Tianjin Nanjing 40000 Shenzhen Tianjin Nanjing Hangzhou Qingdao Hangzhou Chengdu 1600 35000

1400 30000

1200 25000

1000 20000

800 15000

600 10000

400 5000

200 0 0

Source: CRIC Source: CRIC

Exhibit A9: Residential land gross floor area sold Exhibit A10: Nation-wide residential market sentiment index (‘000 sqm) Shenzhen Tianjin Nanjing (100 as base) 14000 Hangzhou Chengdu 108 12000 106 104 10000 102 8000 100 98 6000 96 4000 94 92 2000 90

0 88

2/1/07 6/1/07 2/1/08 6/1/08 2/1/09 6/1/09 2/1/10 6/1/10 2/1/11 6/1/11 2/1/12 6/1/12 2/1/13 6/1/13

10/1/06 10/1/07 10/1/08 10/1/09 10/1/10 10/1/11 10/1/12

Source: CRIC Source: CRIC CUBA Research 15 November 7, 2013 Top Spring International (3688 HK)

Appendix 6: Key Competitors

Yuzhou Properties (1628 HK) Yuzhou Properties is a property developer focusing on commercial, residential and mixed- used property projects in Mainland China. It enjoys a leading position in West Strait Economic Zone and has been aggressively expanding to the Yangtze River Delta Region and the Bohai Rim Region. As at September 2013, it was operating 39 projects with a total saleable GFA of 8.53 million sqm, ranging from small-scale residential units, offices, hotels, villas and industrial projects to large-scale urban complexes. The company has been trying to keep its land cost low, with the weighted average unit cost of land bank standing at RMB 1,609/sqm.

During 2009-2012, Yuzhou Properties’s revenue and gross profit grew at a CAGR of 25.0% and 16.0% respectively. Over the same period, its net income declined by a CAGR of 12.8%. In 2012, sales of properties contributed 97.2% of total revenue, followed by 1.6% from property management fees and 1.2% from rental income.

Yuzhou Properties is listed on the Hong Kong Stock Exchange (Stock code: 1628).

Minmetals Land (230 HK) Minmetals Land is an investment holding company principally engaged in property development within Mainland China. It is the sole listed real estate flagship of China Minmetals Corporation in Hong Kong. It operates in four segments: real estate development, specialized construction, property investment and securities investment. For real estate development, the company specializes in the development of residential and commercial properties, covering the Pearl River Delta, Yangtze River Delta and Pan Bohai Rim regions. As at June 2013, it was operating 11 projects with a total saleable GFA of 3.76 million sqm.

During 2009-2012, Minmetals Land’s revenue and gross profit grew at a CAGR of 51.3% and 65.4% respectively. Over the same period, its net income rose by a CAGR of 40.3%. In 2012, real estate development contributed 79.2% of total revenue, followed by 19.5% from specialized construction and 1.3% from property investment.

Minmetals Land is listed on the Hong Kong Stock Exchange (Stock code: 0230).

Exhibit A11: Top Spring as strong performer among the China real estate development sector Relative change in share price over last twelve months* 180.0% 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Apr-2012 Oct-2012 Apr-2013 Oct-2013 -20.0% -40.0%

Top Spring Intl Yuzhou Properties Minmetals Land

*based on daily close price adjusted for dividends and splits

Source: Bloomberg

CUBA Research 16 November 7, 2013 Top Spring International (3688 HK)

Appendix 7: Financial Analysis

Exhibit A12: Income statement (HK$m) 2011 2012 2013E 2014E 2015E Revenue Sale of Properties 5,618 5,775 6,347 7,767 11,867 Rental Income 105 129 170 217 240 Hotel Operations 94 69 57 64 70 Property Management 45 91 93 113 125 5,862 6,064 6,667 8,160 12,303 COGS (1,982) (2,890) (3,067) (3,835) (5,905) Gross Profit 3,880 3,174 3,600 4,325 6,397 SG&A (668) (692) (760) (930) (1,403) Operating Profit 3,211 2,482 2,840 3,395 4,995 Interest Expense (425) (671) (799) (953) (1,131) Interest Income 56 96 98 141 148 Income from Associates (5) 5 0 0 0 Other Gains/Losses 435 685 268 269 343 PBT 3,272 2,597 2,407 2,829 4,317 Tax (2,250) (1,416) (1,252) (1,471) (2,245) Minority 0 12 12 12 12 Net Profit 1,022 1,193 1,167 1,370 2,084

Source: Company data, CUBA Research Estimates

Exhibit A13: Balance sheet (HK$m) 2011 2012 2013E 2014E 2015E Investment Properties 2,942 4,231 4,249 5,415 6,005 Investment in Associates 82 160 160 160 160 Restricted & Pledged Deposit 346 124 124 124 124 Other Fixed Assets 1,260 1,365 1,502 1,652 1,817 Total Non-current Assets 4,630 5,881 6,035 7,351 8,106 Inventories Completed Properties for Sale 1,362 1,597 2,221 2,718 3,204 Properties under Development for Sale 6,461 7,535 7,616 9,320 12,461 Leasehold Land Held for Development for Sale 1,344 2,497 1,587 1,942 1,187 9,167 11,628 11,425 13,981 16,852 Account Receivables 527 1,520 1,667 2,040 3,076 Cash & cash equivalents 4,661 4,901 7,073 7,409 9,645 Restricted & Pledged Deposit 1,225 989 989 989 989 Other Current Assets 169 10 0 0 0 Total Current Assets 11,129 15,749 21,154 24,419 30,561 Total Assets 14,543 20,378 27,189 31,770 38,667

Long Term Debt 5,473 5,589 7,378 8,754 11,009 Other Long Term Liabilities 597 520 726 759 551 Total Non-current Liabilities 6,070 6,109 8,183 9,625 11,728 Account Payables 1,848 2,863 2,679 3,336 5,115 Tax Payables 3,879 4,512 2,224 2,686 4,172 Short Term Debt 1,720 3,293 3,211 3,810 4,791 Other Current Liabilities 3,341 3,573 4,989 5,216 3,785 Total Current Liabilities 10,788 14,242 13,460 15,434 18,381 Total Equity 3,520 4,579 5,521 6,649 8,458 Total Liabilities and Equity 20,378 24,930 27,189 31,770 38,667

Source: Company data, CUBA Research Estimates

CUBA Research 17 November 7, 2013 Top Spring International (3688 HK)

Exhibit A14: Statement of cash flow (HK$m) 2011 2012 2013E 2014E 2015E Profit before Tax 3,272 2,597 2,407 2,829 4,317 Adjustment for: Depreciation & Amortization 50 44 41 45 50 Net Interest Expense 369 575 701 847 1,043 Change in Net Working Capital (4,070) (2,439) (127) (2,272) (2,127) Valuation Gain on Investment Properties (360) (685) (268) (269) (343) Other Operating Cash Flow (41) (8) 0 0 0 Income Tax (2,250) (1,416) (1,252) (1,471) (2,245) Cash Flow from Operations (3,030) (1,332) 1,502 (304) 673

Capital Expenditure (129) (377) (300) (330) (363) Others (136) (132) 0 0 0 Cash Flow from Investing (265) (508) (300) (330) (363)

Debt Financing 480 1,276 1,963 2,147 3,468 Dividend (150) (300) (292) (343) (521) Net Interest Expense (369) (575) (701) (835) (1,021) Equity Financing 1,515 41 0 0 0 Others 3,020 1,602 0 0 0 Cash Flow from Financing 4,496 2,043 970 970 1,926 Net Increase in Cash 1,201 202 2,172 336 2,235 Foreign Exchange Effects 168 39 0 0 0 Beginning Cash 3,291 4,661 4,901 7,073 7,409 Ending Cash 4,661 4,901 7,073 7,409 9,645

Source: Company data, CUBA Research Estimates

Exhibit A15: Key ratios 2011 2012 2013E 2014E 2015E Gross Margin 61% 66% 52% 54% 53% Operating Profit Margin 45% 55% 41% 43% 42% Net Profit Margin 18% 17% 18% 17% 17% Sales Growth 112% 3% 10% 22% 51% EBIT Growth 158% -23% 14% 20% 47% Net Profit Growth 107% 17% -2% 17% 52% Interest Coverage 8.7 4.3 4.0 4.2 5.1 Net Gearing 27% 63% 49% 69% 69% Assets/Equity 579% 544% 499% 487% 468% ROA 5.0% 4.8% 4.3% 4.3% 5.4% ROE 47.7% 29.5% 23.3% 22.9% 28.2% ROIC 12.5% 12.6% 10.8% 10.8% 12.0%

Source: Company data, CUBA Research Estimates

CUBA Research 18 November 7, 2013 Top Spring International (3688 HK)

Appendix 8: Valuation

Exhibit A16: Assumptions on housing prices growth Exhibit A17: Assumptions on capitalization rate for in China valuation Year 2013E- 2016E- 2019E- Retail Office 4-Star Hotel 2015E 2018E 2021E Tier-1 Cities 7% 7% N/A Tier-1 Cities 8% 7% 6% Tier-2 Cities 8% 9% N/A Tier-3 Cities 8% 10% 11% Tier-2 Cities 6% 5% 4% Tier-3 Cities 5% 4% 3% Source: Knight Frank, Jones Lang LaSalle Source: Knight Frank, Jones Lang LaSalle

Exhibit A18: Sensitivity analysis of WACC and NAV discount on target price 30.0% 35.0% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0% 70.0% 75.0% 80.0% 7% 6.68 6.21 5.73 5.25 4.77 4.30 3.82 3.34 2.86 2.39 1.91 7.5% 6.60 6.13 5.66 5.18 4.71 4.24 3.77 3.30 2.83 2.36 1.89 8% 6.51 6.05 5.58 5.12 4.65 4.19 3.72 3.26 2.79 2.33 1.86 8.5% 6.43 5.97 5.51 5.05 4.60 4.14 3.68 3.22 2.76 2.30 1.84 9% 6.35 5.90 5.45 4.99 4.54 4.08 3.63 3.18 2.72 2.27 1.82 9.5% 6.28 5.83 5.38 4.93 4.48 4.03 3.59 3.14 2.69 2.24 1.79 10% 6.20 5.76 5.31 4.87 4.43 3.99 3.54 3.10 2.66 2.21 1.77 10.5% 6.12 5.69 5.25 4.81 4.37 3.94 3.50 3.06 2.62 2.19 1.75 11% 6.05 5.62 5.19 4.76 4.32 3.89 3.46 3.03 2.59 2.16 1.73 11.5% 5.98 5.55 5.13 4.70 4.27 3.84 3.42 2.99 2.56 2.14 1.71 12% 5.91 5.49 5.07 4.64 4.22 3.80 3.38 2.96 2.53 2.11 1.69 12.5% 5.84 5.42 5.01 4.59 4.17 3.76 3.34 2.92 2.50 2.09 1.67 13% 5.77 5.36 4.95 4.54 4.12 3.71 3.30 2.89 2.47 2.06 1.65 13.5% 5.71 5.30 4.89 4.49 4.08 3.67 3.26 2.85 2.45 2.04 1.63 14% 5.64 5.24 4.84 4.43 4.03 3.63 3.23 2.82 2.42 2.02 1.61 14.5% 5.58 5.18 4.78 4.38 3.99 3.59 3.19 2.79 2.39 1.99 1.59 15% 5.52 5.12 4.73 4.34 3.94 3.55 3.15 2.76 2.37 1.97 1.58

Exhibit A19: Valuation comparables as at October 30, 2013

3-mth Disc/(Pr P/E Div yld Div yld P/B EV/EBI EV/EBI ROE ROE Sh px Price Mkt cap avg t/o NAV em) to Hist P/E P/E Hist FY1 Hist TDA TDA Hist FY1 3-mth Ticker (HKD) (USDm) (USDm) (HKD) NAV (%) (x) FY1 (x) FY2 (x) (%) (%) (x) Hist FY1 (%) (%) % Top Spring Intl 3688 HK 3.18 547 1.9 8.58 63 3.1 3.2 2.7 8.1 7.9 0.8 6.1 5.3 29.3 23.3 (16.3) HIS HSI HK 22,847 10.7 11.1 10.3 3.3 3.5 1.5 14.3 13.9 6.1 HSCEI HSCEI HK 10,391 8.2 7.9 7.2 3.9 4.0 1.3 16.4 15.4 10.0 CSI300 SHSZ300 HK 2,372 11.4 10.5 8.9 2.4 2.5 1.6 14.9 14.4 10.0 Sector average 6.6 7.1 5.9 3.1 3.9 1.0 9.5 7.9 17.4 14.1 11.1 3383 HK 9.12 3,025 64.5 9.25 1 4.8 5.2 4.7 4.2 4.5 0.9 5.3 5.4 19.4 16.3 17.3 Beijing Capital Land 2868 HK 2.76 525 6.5 4.68 41 3.8 3.6 2.8 7.3 10.1 0.6 12.6 7.9 17.2 12.9 (0.7) 1224 HK 2.07 704 3.0 5.12 60 12.3 7.4 5.5 2.2 2.2 0.4 10.7 7.9 3.1 4.6 6.6 Central China 832 HK 2.54 535 3.5 2.65 4 5.8 4.4 3.4 5.2 6.3 0.9 4.8 3.7 15.5 18.2 11.7 Cifi Holdings 884 HK 1.51 650 12.5 1.41 (7) 3.5 4.8 3.5 3.4 4.5 0.9 5.7 5.4 34.6 20.0 11.9 Fantasia Holdings 1777 HK 1.26 536 4.2 1.58 20 4.3 4.5 4.2 4.3 5.8 0.8 5.1 N/A 20.2 15.2 3.9 Franshion Prop 817 HK 2.70 2,556 13.0 2.65 (2) 6.2 8.6 7.0 2.6 3.0 0.9 6.8 7.6 11.8 10.5 9.3 Greentown China 3900 HK 15.04 2,448 47.5 12.29 (22) 5.1 4.7 4.0 4.2 4.4 1.2 5.1 4.7 21.5 22.7 2.9 Hopson 754 HK 9.41 2,149 12.4 24.30 61 6.7 7.9 6.1 0.0 0.4 0.4 26.6 11.7 5.8 4.6 5.5 Kaisa 1638 HK 2.33 947 35.6 3.64 36 3.8 4.1 3.2 0.0 0.7 0.6 5.4 5.6 17.0 14.6 45.4 KWG Property 1813 HK 4.87 1,354 34.2 6.58 26 3.9 4.7 4.0 3.9 5.0 0.7 9.6 7.2 19.0 14.4 12.5 Minmetals Land 230 HK 1.10 427 2.8 2.10 48 13.5 4.9 4.1 0.9 1.4 0.5 8.0 4.2 3.9 10.5 0.0 Poly Property 119 HK 4.66 2,187 60.8 7.50 38 4.8 6.2 5.2 4.6 4.7 0.6 8.4 9.0 13.4 9.6 15.8 Powerlong 1238 HK 1.62 537 2.3 4.94 67 3.0 4.8 3.8 6.3 6.6 0.3 9.1 N/A 10.9 6.0 5.9 Shanghai Industrial 563 HK 1.86 866 21.9 2.53 26 15.3 12.3 8.3 0.0 2.0 0.7 20.8 24.2 (6.1) 3.1 22.4 Shui On Land 272 HK 2.58 1,810 23.7 6.54 61 6.3 16.0 12.6 2.1 2.8 0.5 25.6 21.2 7.0 2.3 18.5 Sino-Ocean 3377 HK 4.81 2,713 38.1 6.34 24 5.5 8.5 7.1 5.3 4.8 0.6 7.9 7.7 11.1 7.1 25.5 SOHO China 410 HK 6.62 2,542 34.0 7.48 12 2.2 7.7 12.4 4.8 4.7 0.8 3.3 4.5 45.8 11.0 5.4 Sunac 1918 HK 5.10 1,455 91.6 3.92 (30) 4.5 3.9 3.0 1.9 2.7 1.2 6.1 4.1 29.8 27.8 (0.4) Yuexiu Property 123 HK 2.13 1,833 43.0 2.97 28 4.8 9.1 7.1 3.4 4.0 0.7 12.9 9.3 13.1 7.6 13.2 Yuzhou Properties 1628 HK 1.86 521 8.0 2.60 28 6.5 4.6 3.3 4.6 6.3 0.8 7.7 4.2 12.8 16.3 8.8 Source: Bloomberg, CUBA Research estimates

CUBA Research 19

Disclosures: Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as a officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company’s securities. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with the Hong Kong Society of Financial Analysts CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

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