China Jinmao (817 HK) China Jinmao

China Financials 26 July 2016

Target price: HKD2.97 Share price (25 Jul): HKD2.26 | Up/downside: +31.4%

Initiation: access to prime assets Cynthia Chan (852) 2773 8243  One of the few to have exposure to primary development in tier-2 cities [email protected]  A proven brand in high-end housing; growing rentals in tier-1 cities Jonas Kan, CFA (852) 2848 4439  Initiating with Buy (1) rating and 12-month target price of HKD2.97 [email protected]

Investment case: We initiate coverage of China Jinmao, the real estate Share price performance flagship of stated-owned Sinochem Corporation, with a Buy (1) call. We (HKD) (%) see China Jinmao as one of the few China developers with a differentiated 2.7 120 2.5 110 and sustainable business model, proven expertise in the primary land 2.2 100 development business in major tier-2 cities (Nanjing and Changsha), and a 2.0 90 sound reputation for high-end residential projects in upper-tier cities 1.7 80 (especially Beijing and Shanghai). Moreover, earnings should be backed by Jul-15 Oct-15 Jan-16 Apr-16 solid and growing recurrent income from several prime rental properties Franshion (LHS) Relative to HSI (RHS) and hotels, many of which are located in core areas of tier-1 cities. 12-month range 1.74-2.66 We believe China Jinmao’s primary development business differentiates it Market cap (USDbn) 3.10 3m avg daily turnover (USDm) 1.49 from other developers, especially at a time when property development Shares outstanding (m) 10,672 margins are shrinking and profitability is becoming harder to maintain. With Major shareholder Sinochem Group (54.0%) the recent hot land market in upper-tier cities, rising land costs and potentially lucrative margins brought about by its Changsha and Nanjing Financial summary (HKD) primary development projects, we see China Jinmao as well placed to Year to 31 Dec 16E 17E 18E benefit through its differentiated approach to primary development, which Revenue (m) 32,789 40,947 49,044 Operating profit (m) 9,443 12,129 14,036 we believe presents high entry barriers. Hence, we forecast 311% YoY Net profit (m) 3,831 4,466 5,176 growth in primary development revenue in 2016 to HKD6.5bn. Core EPS (fully-diluted) 0.337 0.403 0.468 EPS change (%) 53.6 19.6 15.9 Daiwa vs Cons. EPS (%) 0.4 (0.2) 10.3 The company has built up its own brand, which we think will continue to PER (x) 6.7 5.6 4.8 support premium ASPs for its housing projects in tier-1 cities – we forecast Dividend yield (%) 4.8 5.6 6.4 it to sustain its 20%-plus contract sales growth in 2016-18, along with a DPS 0.108 0.126 0.146 property development gross margin of 30%-plus. We expect its prime and PBR (x) 0.5 0.5 0.5 EV/EBITDA (x) 8.7 7.1 6.5 growing investment property and hotel portfolio to provide it with rental ROE (%) 9.0 9.6 10.3 income and hotel revenue of HKD3.8-5.0bn in 2016-18. Source: FactSet, Daiwa forecasts

Catalysts: We highlight the following potential share-price catalysts: 1) increased market recognition that China Jinmao has a differentiated business model that can drive sustained profitability (we look for a 50% rebound in underlying profit in 2016 after disappointing earnings in 2015); 2) greater visibility on the company’s ambitions, given that chairman Ning Gaoning joined the company in early 2016; and 3) robust sales for forthcoming major launches in Shanghai, Guangzhou and Hangzhou.

Valuation: Our 12-month TP of HKD2.97 is set at a 40% discount to our end-2016E NAV of HKD4.96, of which some 47% is from tier-1 cities. Our TP translates into PERs of 8.8x for 2016E and 7.4x for 2017E. The stock offers a current dividend yield of 4.8% in 2016E, rising to 6.4% in 2018E.

Risks: The key risks to our call include: 1) a major contraction in demand for land in tier-2 cities, 2) inability to sell tier-1 city projects at premium ASPs, and 3) a major deterioration in China’s economy.

See important disclosures, including any required research certifications, beginning on page 36

China Jinmao (817 HK): 26 July 2016

Table of contents

Differentiated primary land development business ...... 6 Why we believe China Jinmao stands out ...... 6 A niche player specialising in high-end residential ...... 9 High property development margins due to strategic locations and high-end focus ...... 9 Annual contract sales growth of 20%-plus in 2016-18E ...... 11 Steady recurring income to lead to high margins ...... 14 1.18m sq m of investment properties ...... 14 Stable earnings growth ...... 18 Earnings outlook ...... 18 Steady gearing and declining borrowing costs ...... 21 Valuation ...... 23 Initiating with a Buy (1) call and TP of HKD2.97 ...... 23 Risks ...... 27 Appendix I: company background ...... 28 Mid-range to high-end property developer ...... 28 Appendix II: primary land development projects ...... 31 Changsha Meixi Lake International New City Phase I, II and Land Block A ...... 31

China Jinmao (817 HK): 26 July 2016

How do we justify our view? Growth outlook Valuation Earnings revisions

Growth outlook China Jinmao: property & primary land contract sales We think that China Jinmao’s sales CAGR of 23.4% for (CNY m) 2010-15 is sustainable, given its ample saleable resources 60,000 55,280 strategically located in upper-tier cities, and its strong sales 45,586 execution ability as proven by its track record. Based on 40,000 36,802 the company’s current landbank, we forecast property and 30,102 primary land sales growth of 22.3% YoY to CNY36.8bn in 20,994 21,503 20,000 16,100 2016, 23.9% YoY to CNY45.6bn in 2017 and 21.3% YoY to 13,000 CNY55.3bn in 2018. We think there is upside to our forecasts depending on how aggressively the company 0 acquires new projects in coming years. 2011 2012 2013 2014 2015 2016E 2017E 2018E Property sales Land sales

Source: Company, Daiwa forecasts

Valuation China Jinmao: discount to NAV China Jinmao is currently trading at a 54.4% discount to (%) our end-2016E NAV forecast of HKD4.96, more than 1SD (10) below its 2010-15 mean discount of 33.0%. Compared with (20) its peers’ 55.5% NAV discount, China Jinmao’s NAV +1SD -19.0% valuation does not look appealing. Nonetheless, we believe (30) Mean -33.0% China Jinmao merits a premium valuation, especially to its (40) mid-cap peers, given its SOE status, differentiated primary development business, its reputable brand and premium (50) -1SD -46.9% products, sales execution ability, as well as expectations of (60) growing recurring income. (70) 2010 2011 2012 2013 2014 2015 2016 Source: Bloomberg, Daiwa

Earnings revisions China Jinmao: revisions to Bloomberg consensus EPS forecasts Our 2016 and 2017 earnings forecasts are largely in line (HKD) with those of the Bloomberg consensus, but our 2018 1.0 earnings forecast is around 10% above consensus due to 0.8 our higher forecast of revenue booking for that year. We believe that China Jinmao will see revenue growth of 0.6

19.8% YoY in 2018 on 20%-plus contract sales growth in 0.4 2016-17, a large proportion of which should be booked in 2018. 0.2

0.0 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 2016E consensus EPS 2017E consensus EPS

Source: Bloomberg, Daiwa forecasts

China Jinmao (817 HK): 26 July 2016

Financial summary Key assumptions Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E Recognized GFA ('000 sqm) n.a. 186 220 689 646 1,497 1,575 1,829 Recognized ASP (CNY/sqm) n.a. 50,822 37,018 25,660 22,219 17,053 20,499 21,284 Contract property sales (CNY m) 10,300 10,900 14,591 18,545 27,807 27,757 36,337 45,770 Contract land sales (CNY m) 2,700 5,100 6,404 2,959 2,295 9,045 9,249 9,510

Profit and loss (HKDm) Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E Property development 2,996 13,445 16,868 25,545 17,897 28,459 35,996 43,397 Property investment & hotel operations 3,122 3,117 3,310 3,525 3,749 3,819 4,388 5,028 Other Revenue 474 614 541 478 465 512 563 619 Total Revenue 6,592 17,176 20,719 29,548 22,110 32,789 40,947 49,044 Other income 2 29 75 181 509 587 646 711 COGS (3,017) (9,977) (11,519) (17,989) (13,561) (20,130) (24,673) (29,784) SG&A (1,158) (1,407) (1,785) (2,593) (2,517) (3,804) (4,791) (5,934) Other op.expenses 0 0 0 0 0 0 0 0 Operating profit 2,419 5,820 7,490 9,146 6,541 9,443 12,129 14,036 Net-interest inc./(exp.) (664) (817) (1,137) (854) (44) 87 123 158 Assoc/forex/extraord./others 2,343 1,720 2,075 2,247 1,477 (208) (238) (269) Pre-tax profit 4,097 6,723 8,428 10,540 7,973 9,322 12,013 13,925 Tax (1,187) (2,783) (3,393) (3,884) (2,871) (3,640) (5,279) (6,050) Min. int./pref. div./others (566) (563) (807) (1,360) (1,313) (1,524) (1,824) (2,255) Net profit (reported) 2,344 3,378 4,227 5,296 3,789 4,158 4,909 5,620 Net profit (adjusted) 1,329 1,842 2,593 3,293 2,557 3,831 4,466 5,176 EPS (reported)(HKD) 0.256 0.369 0.461 0.579 0.381 0.390 0.460 0.527 EPS (adjusted)(HKD) 0.145 0.201 0.283 0.360 0.257 0.359 0.418 0.485 EPS (adjusted fully-diluted)(HKD) 0.123 0.170 0.240 0.304 0.220 0.337 0.403 0.468 DPS (HKD) 0.040 0.070 0.095 0.115 0.080 0.108 0.126 0.146 EBIT 2,419 5,820 7,490 9,146 6,541 9,443 12,129 14,036 EBITDA 2,419 5,820 7,490 9,146 6,541 9,443 12,129 14,036

Cash flow (HKDm) Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E Profit before tax 4,097 6,723 8,428 10,540 7,973 9,322 12,013 13,925 Depreciation and amortisation 218 223 269 312 373 448 515 592 Tax paid (1,110) (1,137) (2,365) (2,465) (2,772) (3,640) (5,279) (6,050) Change in working capital (8,836) (4,337) (10,707) (15,910) 4,624 (6,050) (739) (1,545) Other operational CF items (1,489) (773) (811) (1,423) (1,502) (3,699) (2,838) (3,146) Cash flow from operations (7,120) 699 (5,186) (8,946) 8,696 (3,619) 3,671 3,776 Capex (206) (307) (806) (1,466) (1,171) (1,909) (2,122) (2,360) Net (acquisitions)/disposals 1,595 3 (218) (1,940) (1,123) (1,383) (863) (972) Other investing CF items 1,694 (1,165) 19 (6,867) (9,822) 81 247 260 Cash flow from investing 3,083 (1,469) (1,004) (10,273) (12,117) (3,211) (2,738) (3,071) Change in debt 5,073 3,119 4,622 15,680 3,616 7,738 4,349 4,697 Net share issues/(repurchases) 0 0 0 (208) 4,357 0 0 0 Dividends paid (846) (367) (1,599) (1,056) (1,579) (1,149) (1,340) (1,553) Other financing CF items 502 (1,488) 4,731 2,808 (1,768) (2,118) (2,242) (2,264) Cash flow from financing 4,728 1,264 7,754 17,224 4,626 4,471 768 881 Forex effect/others 0 0 0 0 0 0 0 0 Change in cash 692 494 1,563 (1,995) 1,205 (2,359) 1,701 1,585 Free cash flow (7,326) 392 (5,992) (10,412) 7,525 (5,527) 1,549 1,416 Source: FactSet, Daiwa forecasts

China Jinmao (817 HK): 26 July 2016

Financial summary continued … Balance sheet (HKDm) As at 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E Cash & short-term investment 12,592 13,464 14,793 14,053 16,417 14,058 15,759 17,344 Inventory 10,525 20,188 21,823 29,419 36,378 43,116 47,611 51,956 Accounts receivable 1,711 4,404 9,488 8,067 9,879 11,285 12,721 14,527 Other current assets 139 143 615 4,119 11,088 11,112 11,137 11,163 Total current assets 24,968 38,199 46,720 55,658 73,763 79,571 87,228 94,990 Fixed assets 6,891 6,956 10,909 12,423 14,608 16,068 17,675 19,443 Goodwill & intangibles 27 22 30 42 41 41 41 41 Other non-current assets 37,885 37,325 63,184 69,902 70,488 82,949 92,264 102,749 Total assets 69,771 82,502 120,843 138,026 158,900 178,630 197,209 217,223 Short-term debt 6,028 8,952 6,139 4,072 8,575 11,960 15,853 19,024 Accounts payable 10,577 14,468 26,253 23,239 36,452 43,742 52,491 61,359 Other current liabilities 1,005 2,306 7,212 6,592 9,179 9,405 9,654 9,928 Total current liabilities 17,610 25,726 39,604 33,903 54,206 65,108 77,998 90,311 Long-term debt 19,171 19,323 29,667 42,687 40,403 42,405 42,862 44,388 Other non-current liabilities 2,442 2,950 4,353 5,103 5,388 5,658 5,941 6,238 Total liabilities 39,224 47,999 73,624 81,693 99,997 113,171 126,800 140,937 Share capital 9,161 9,161 9,161 15,271 19,631 19,631 19,631 19,631 Reserves/R.E./others 17,009 19,716 24,400 22,379 20,411 25,444 28,570 32,193 Shareholders' equity 26,171 28,878 33,562 37,650 40,043 45,075 48,201 51,824 Minority interests 4,377 5,625 13,658 18,682 18,860 20,384 22,208 24,462 Total equity & liabilities 69,771 82,502 120,843 138,026 158,900 178,630 197,209 217,223 EV 41,066 44,516 58,747 73,646 72,642 81,826 86,209 91,483 Net debt/(cash) 12,607 14,811 21,013 32,707 32,561 40,307 42,955 46,068 BVPS (HKD) 2.857 3.152 3.663 4.113 4.029 4.224 4.517 4.856

Key ratios (%) Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E Sales (YoY) 3.8 25.8 20.6 42.6 (25.2) 48.3 24.9 19.8 EBITDA (YoY) 0.6 140.6 28.7 22.1 (28.5) 44.4 28.4 15.7 Operating profit (YoY) 0.6 140.6 28.7 22.1 (28.5) 44.4 28.4 15.7 Net profit (YoY) 24.5 21.4 40.8 27.0 (22.4) 49.8 16.6 15.9 Core EPS (fully-diluted) (YoY) 9.7 21.4 40.8 26.9 (27.8) 53.6 19.6 15.9 Gross-profit margin 54.2 41.9 44.4 39.1 38.7 38.6 39.7 39.3 EBITDA margin 36.7 35.6 36.2 31.0 29.6 28.8 29.6 28.6 Operating-profit margin 36.7 35.5 36.2 31.0 29.6 28.8 29.6 28.6 Net profit margin 20.2 10.7 12.5 11.1 11.6 11.7 10.9 10.6 ROAE 5.4 19.8 8.3 9.2 6.6 9.0 9.6 10.3 ROAA 2.2 7.8 2.6 2.5 1.7 2.3 2.4 2.5 ROCE 4.8 17.6 10.3 9.8 6.2 8.3 9.7 10.4 ROIC 4.6 14.6 14.6 7.3 4.6 5.8 6.2 6.7 Net debt to equity 41.3 42.9 44.5 58.1 55.3 61.6 61.0 60.4 Effective tax rate 29.0 41.4 40.3 36.9 36.0 39.0 43.9 43.4 Accounts receivable (days) 54.9 65.0 122.4 108.4 148.1 117.8 107.0 101.4 Current ratio (x) 1.4 2.2 1.2 1.6 1.4 1.2 1.1 1.1 Net interest cover (x) 1.8 3.4 3.7 3.6 2.4 4.0 5.0 5.6 Net dividend payout 27.6 34.8 33.6 31.7 33.4 27.6 27.3 27.6 Free cash flow yield n.a. 1.6 n.a. n.a. 31.2 n.a. 6.4 5.9 Source: FactSet, Daiwa forecasts

Company profile

China Jinmao is the real estate flagship of state-owned Sinochem Group. Specialising in the development of and investment in mixed-use residential and commercial projects, as well as primary land development, the company had a total primary and secondary landbank of 33.6m sq m GFA in 15 cities in China as of end-March 2016.

China Jinmao (817 HK): 26 July 2016

Differentiated primary land development business Why we believe China Jinmao stands out We believe China Primary land development is the process of transforming raw land into saleable cultivated Jinmao, with its SOE land resources as delegated by the local government. The delegated party is usually status, expertise in responsible for land requisitioning, demolition, the relocation of occupants, site planning mixed-use project and construction of urban utilities such as roads, all of which would enable secondary development and solid development (ie, development of properties, factories and amenities) on the cultivated track record, is one of land. Then, the primary land developer returns the cultivated land to the local government the few developers and receives a portion of land sale proceeds from the relevant land authorities when the eligible to carry out the land plots are sold to third-party property developers through public auctions, tenders or primary development listings. business Landbank of 20.6m sq m in Changsha, Nanjing and Sanya China Jinmao started its primary land development business in 2011 in Changsha, Hunan Province. As at end-March 2016, it has 20.6m sq m of primary development landbank in Changsha (78%), Nanjing (17%) and Sanya (4%). For more details on its individual primary development projects, refer to Appendix II.

We believe the company’s primary development business differentiates it from other developers, especially when property development margins are shrinking and profitability is becoming harder to maintain. With the recent hot land market in the upper-tier cities, rising land costs and potentially lucrative margins brought about by its Changsha and Nanjing primary development projects, we view China Jinmao as well placed by virtue of its differentiated business which serves as a high entry barrier.

One of the few developers eligible to carry out primary development As primary land development is not an easy task and could affect the long-term development of an area, local governments usually have strict requirements for developers. First and foremost, the developer has to be a state-owned enterprise (SOE) in order to participate in local government projects. Second, as the areas where primary land development is required are usually developed into mixed-use regions suitable for residence, business and leisure; careful and precise urban planning is crucial. Thus, developers that are capable of developing mixed-use projects, including residences, offices, malls and hotels, are favoured. Finally, we believe that it would be a plus if the developer itself has a good track record in the primary land development business.

We believe that not many China developers would qualify given the above-mentioned pre- requisites and that China Jinmao is one of the few developers to meet all 3 requirements. First of all, it is an SOE. It has capacity to develop residential, office, retail and hotel space, given its past experience and renowned projects. Also, the company started participating in primary development in Changsha in 2011, giving it a decent length of time to prove its execution ability in primary development. Through planning optimisation, China Jinmao’s Changsha Meixi Lake New City Phase I project diversified the area’s urban land planning and rationalised the use of the land, thereby increasing the land value in the area as a whole.

Capitalising on recent hot land market We think that the Alongside the strong home sales growth so far this year, many cities have witnessed company’s primary robust land sales growth, especially tier-2 cities where housing inventory and housing development business duration are at low levels. As developers have become eager to replenish landbank in tier- will continue to benefit 2 cities, many “land kings” have emerged in recent months, pushing up land costs. from the hot land market

China Jinmao (817 HK): 26 July 2016

Changsha land sales likely to accelerate on strong home sales and declining inventory turnover In 1H16, Changsha saw a 9% YoY decline in residential land sales value to CNY4.1bn, and its average land cost of CNY1,597/sq m during the period fell substantially compared with the whole of 2015, largely due to the availability of land in different areas at different land costs. However, looking at residential land sales in Yuelu District, where China Jinmao’s Meixi Lake project is located, the aggregate sales value of CNY621m in the district in 1H16 has far surpassed the CNY219m land sales value for the whole of 2015. Hence, the land market around the Meixi Lake project area looks robust so far this year.

Moreover, Changsha recorded a 45% YoY rise in new home sales in 1H16 to CNY52.3bn, and its housing inventory duration has dropped to 10.1 months in June 2016 from a peak of 22.2 months in September 2014. We think that the city’s strong home sales and declining inventory duration will lead to increased land sales in the short to medium term.

Changsha: residential land sales and prices Changsha: residential sales and inventory turnover ('000 sqm) (CNY/sqm) (CNYm) (No. of months) 30,000 5,000 12,000 25

10,000 25,000 4,000 20 20,000 8,000 3,000 15 15,000 6,000 2,000 10 10,000 4,000 1,000 5,000 2,000 5

0 0 0 0 2010 2011 2012 2013 2014 2015 1H16 Jan-14 Jul-1 4 Jan-15 Jul-1 5 Jan-16 Residential land sales area Residential land cost (RHS) Residential sales value Inventory turnover (RHS)

Source: CREIS, Daiwa Source: CREIS, Daiwa

Nanjing’s hot land market likely to continue in short to medium term We expect Changsha Unlike Changsha, Nanjing’s land sales have been robust so far this year. Its 1H16 and Nanjing to continue residential land sales value was up by 229% YoY and numerous “land kings” in terms of to see strong land sales total land premium and average land cost have emerged during the period. In the due to quickly declining Jiangning District where China Jinmao’s Nanjing Qinglong Mountain project is located, housing inventory total land sales proceeds of CNY21.65bn in 1H16 already surpassed land sales of CNY15.46bn in full-year 2015.

We think that Nanjing’s strong new home sales in 1H16 and very low housing inventory duration will continue to support the robust land market in the short to medium term. The city saw a 157% YoY rise in new home sales in 1H16 to CNY161.8bn, and thanks to the strong sales, its inventory duration in June 2016 reached a low 2.0 months, well below the 12.5-month duration seen in September 2014.

Nanjing: residential land sales and price Nanjing: residential sales and inventory turnover ('000 sqm) (CNY/sqm) (CNYm) (No. of months) 20,000 16,000 30,000 15

25,000 12 15,000 12,000 20,000 9 10,000 8,000 15,000 6 10,000 5,000 4,000 5,000 3

0 0 0 0 2010 2011 2012 2013 2014 2015 1H16 Jan-14 Jul-1 4 Jan-15 Jul-1 5 Jan-16 Residential land sales area Residential land cost (RHS) Residential sales value Inventory turnover (RHS)

Source: CREIS, Daiwa Source: CREIS, Daiwa

China Jinmao (817 HK): 26 July 2016

We expect high primary land development gross margins in 2016-18 We forecast China Thanks to the rapidly increasing ASPs of land sales from the Changsha Meixi Lake project, Jinmao’s 2016-18 China Jinmao saw its primary development gross margin widen from 22% in 2012 to 46% primary development in 2014. In 2015, the company realised an even higher primary development gross margin gross margins to remain of 55% due to the booking of the high-margin Nanjing Qinglong Mountain project. at high levels of 59-62% For 2016-18, we expect continued high primary development gross margins on higher ASPs for the Changsha and Nanjing projects. For 2016, we forecast the gross margin to reach 59% (up 4.3pp YoY) due to the much higher land prices that can be realised at the Changsha and Nanjing projects. For 2017 and 2018, we expect slightly higher primary development gross margins of 61% and 62%, respectively.

China Jinmao: gross margin of primary land development business 100%

80%

61% 60% 62% 59% 55% 40% 46% 36% 20% 22%

0% 2012 2013 2014 2015 2016E 2017E 2018E

Source: Company, Daiwa estimates

Primary land sales expected to rise in 2016 We estimate a 294% YoY As a result of a slowdown in land sales in 2014-15, China Jinmao saw a slump in primary rise in land-sale land sales proceeds in those years. However, on the land sales resumption in Changsha, a proceeds for the pickup in land sales in Nanjing, and higher land prices that can be realised at both projects, company in 2016 we expect a 294.1% YoY rise in primary land development sales proceeds in 2016 to CNY9.0bn. We forecast this figure to rise to CNY9.2bn in 2017 (up 2.3% YoY) and CNY9.5bn in 2018 (up 2.8% YoY).

China Jinmao: primary land development sales proceeds (CNYm) 9,510 10,000 9,045 9,249

8,000 6,404

6,000 5,100

4,000 2,700 2,959 2,295 2,000

0 2011 2012 2013 2014 2015 2016E 2017E 2018E Source: Company, Daiwa estimates

China Jinmao (817 HK): 26 July 2016

A niche player specialising in high-end residential High property development margins due to strategic locations and high-end focus Consistent focus on upper-tier cities Since its inception in 2004, China Jinmao has been specialising in the development of high-end properties, mainly in China’s upper-tier cities. Over the years, we think it has been disciplined in its landbank expansion and has not over-expanded into the lower-tier cities, even when the home purchase restrictions (HPR) were in place in most of the upper-tier cities between 2011 and 2015 (HPR is still in place in 4 tier-1 cities and Sanya). As at end-March 2016, China Jinmao had 97% of its secondary development landbank in upper-tier cities, while the remaining 3% was in tier-3 cities, ie, Lijiang and Sanya.

China Jinmao: secondary development landbank breakdown

China Jinmao had 97% 100% 5% 4% 3% 12% 7% of its secondary 80% development landbank 36% 50% 53% 57% 56% in the upper-tier cities as 60% at end-March 2016 40%

52% 20% 43% 42% 39% 41%

0% 2011 2012 2013 2014 End-March 2016 Tier-1 cities Tier-2 cities Tier-3 cities

Source: Company, Daiwa

Also adheres to development of high-end properties Besides adhering to its development strategy of focusing on upper-tier cities over the years, China Jinmao has stuck with its strategy of developing high-end properties, even when the HPR was implemented in 2011, leading to the property market being largely supported by first-home buyers. Indeed, China Jinmao is one of the few China developers that kept its focus on high-end property development even as a handful of developers switched to developing smaller mid-end units after the introduction of HPR.

The company has developed 6 major product series: Jinmao Palace, Jinmao Residence, Jinmao Noble Manor, Jinmao Mountain, Jinmao Lake and Jinmao Harbour. Of these, Jinmao Palace is the most high-end, while Jinmao Residence is more geared towards the mid-end. The Jinmao Noble Manor product series usually includes townhouses and low- rise residential buildings. The names of the remaining 3 product series — Jinmao Mountain, Jinmao Lake and Jinmao Harbour — include the scenery where the projects are located, with either a mountain or a lake or a harbour present, and cater to the mid- to high end.

10-20% premium in project ASPs compared with nearby projects Thanks to its perseverance in developing high-end projects and its top-quality products, we think China Jinmao has built a reputation for its high-end focus and enjoys a high brand premium. As a result, it has been able to command a premium of some 10-20% in its project ASPs compared with nearby projects developed by smaller local developers, depending on the product series.

China Jinmao (817 HK): 26 July 2016

China Jinmao: comparison of project ASPs with nearby project ASPs China Jinmao has seen Project City Current ASP ASP of nearby project around 10-20% (CNY/sq m) (CNY/sq m) Beijing Guangqu Jinmao Palace Beijing 120,000 100,000 premiums for project Shanghai Daning Jinmao Palace Project Shanghai 95,000 78,000 ASPs compared with Ningbo Nantang Jinmao Palace Ningbo 30,000 25,000 nearby projects Suzhou Gusu Jinmao Palace Suzhou 33,000 28,000 Beijing YiZhuang Jinmao Residence Beijing 46,000 38,000 Chongqing Panlong Jinmao Residence Chongqing 8,200 7,500 Hangzhou Huanglong Jinmao Residence Hangzhou 33,000 29,000 Changsha Meixi Lake Jinmao Residence Changsha 13,000 12,000

Source: Company, Soufun, Daiwa

High sell-through achieved despite higher ASPs Despite usually setting higher ASPs for its projects than nearby projects, China Jinmao has generated decent sales and achieved high sell-through rates for many of its projects. In 2015, the company achieved an overall sell-through rate of 77%, which we consider to be a high level. It is not unusual for the company’s brand-new projects to achieve sell-through rates of 80-90%.

Some expensive land acquisitions made so far this year China Jinmao has been aggressive on land acquisitions in 1H16, having spent CNY27.0bn on purchasing 6 land plots comprising a total saleable GFA of 1.2m sq m. Of these 6 plots, 3 were named “land kings” (namely: Nanjing Hexi District Project, Shenzhen Longhua Project and Hangzhou Gongshu District Project) at the time of purchase, meaning that the average land cost of these 3 plots hit a new high for the district. While the market did not react well to China Jinmao’s “land king” acquisitions, we are neutral on them for the following reasons:

Firstly, from the following table, we can see that China Jinmao’s land costs/sq m for these 3 plots are still lower than the ASP/sq m of its peers’ nearby highest-priced projects. This indicates to us that, based on current market conditions, China Jinmao could still generate a profit on these plots.

Second, as we have said previously in this report, China Jinmao’s project ASPs are typically at least 10-20% higher than those of its peers’ nearby projects, which we attribute to its top-quality products and brand premium. Hence, we believe the company should be able to recognise an ASP premium for the 3 “land kings” projects, which should mean satisfactory gross margins.

China Jinmao: land acquisitions in 1H16 Saleable Total land Average land ASP of nearby highest- GFA premium cost priced primary project Acquisition date Project City Stake (sq m) (CNYm) (CNY/sq m) (CNY/sq m) Jan-16 Qingdao China-Europe International City Project - second batch Qingdao 100% 279,889 448 1,600 15,000 Feb-16 Ningbo Yaofeng Project Ningbo 100% 128,035 794 6,200 15,000 Mar-16 Tianjin Thermal Power Plant Project Tianjin 100% 284,900 4,100 14,554 40,000 May-16 Nanjing Hexi District Project Nanjing 50% 188,000 6,960 36,962 50,000 Jun-16 Shenzhen Longhua Project Shenzhen 70% 146,000 8,289 56,774 85,000 Jun-16 Hangzhou Gongshu District Project Hangzhou 49% 194,000 6,410 33,106 46,000 Total 1,220,824 27,001 22,176

Source: Company, Daiwa

Keeps a keen eye on project locations We think China Jinmao possesses a good eye for the longer-term development of its project locations, and hence has chosen projects that offer good margins and returns. For example, its Beijing Guangqu Jinmao Palace project was acquired in 2009 for CNY4.06bn, or CNY14,500/sq m, and was considered a new “land king” in Beijing. When the project was first launched in 2011, it realised ASPs of CNY40,000-50,000/sq m. Its ASPs have continued to go up since 2011, and currently the last remaining units are selling for CNY120,000/sq m, thus generating lucrative margins for the company.

China Jinmao (817 HK): 26 July 2016

Another example is Shanghai Daning Jinmao Palace. This project was acquired by China Jinmao for CNY10.1bn, or CNY47,609/sq m, in 2014, which at the time became the new “land king” in Shanghai. It was launched in 2015 with an ASP of CNY75,000/sq m. Currently, the project is selling for above CNY95,000/sq m.

Property development margins maintained at high levels As a result of China Jinmao’s carefully chosen project locations and high-end focus, it has seen decent property development margins in recent years. Even though its gross margin for property development declined from 48% in 2011 to 34% in 2015, which we think is in line with the overall downtrend in margins in the property sector, we believe that a property development gross margin of 34% is still at a high level, and indeed is above the sector average.

For 2016-18, we expect China Jinmao’s property development gross margins to remain at high levels of 36-37%.

China Jinmao: property development gross margin We forecast around 36- 50% 48% 41% 37% property 38% 36% 36% 37% 37% development gross 40% 34% margins in 2016-18 30%

20%

10%

0% 2011 2012 2013 2014 2015 2016E 2017E 2018E Source: Company, Daiwa forecasts

Annual contract sales growth of 20%-plus in 2016-18E 2019 contract sales target of CNY80bn Over 2011-15, China Jinmao achieved a contract sales (including both property and land sales) CAGR of 23.4%, and its contract sales went up from only CNY13.0bn in 2011 to CNY30.1bn in 2015. Also, its contracted ASP expanded to CNY25,211/sq m in 2015 from CNY22,000/sq m in 2011. In the coming years, China Jinmao is planning to maintain its high annual sales growth and targeting to achieve contract sales of CNY80bn in 2019.

To achieve the contract sales target in 2019, China Jinmao plans to more aggressively acquire new projects in 2016-18 and targets to acquire around >CNY15bn of land each year to accumulate sufficient saleable resources.

Sales of CNY36.8bn in 2016E, CNY45.6bn in 2017E and CNY55.3bn in 2018E Contract sales growth of We forecast CNY36.8bn of contract sales (including both property and land sales) in 2016, 22% YoY in 2016E, 24% up 22.3% YoY. We expect sales of CNY45.6bn in 2017 (+23.9% YoY) and CNY55.3bn YoY in 2017E and 21% (+21.3% YoY) in 2018, on its current landbank. Alongside its growing contract sales value, YoY in 2018E we expect the company’s contracted ASP to see gradual increases to CNY26,930/sq m in 2016, CNY30,281/sq m in 2017 and CNY34,189/sq m in 2018.

Our 2016-18 sales growth forecasts look aggressive but achievable Given the more difficult operating environment in the China property sector, and with home buyers becoming more rational in home purchases, it is not easy for developers to achieve decent annual home sales growth. While our 2016-18 sales growth forecasts for China Jinmao are more aggressive than our nationwide home sales growth forecasts, we think the company can meet the expectations due to its current ample saleable resources that are strategically located in upper-tier cities. Moreover, we think there is a possibility that the

China Jinmao (817 HK): 26 July 2016

company can achieve even higher sales growth in the coming years, depending on the pace of new project acquisitions.

China Jinmao: annual property and land sales value (CNY m) 60,000 55,280

45,586

40,000 36,802 30,102

20,994 21,503 20,000 16,100 13,000

0 2011 2012 2013 2014 2015 2016E 2017E 2018E Property sales Land sales

Source: Company, Daiwa forecasts

China Jinmao: monthly property and land sales value (CNY m) 10,000

8,000

6,000

4,000

2,000

0 Jan-13 Jan-14 Jan-15 Jan-16

Source: Company, Daiwa

2016 sales target of CNY36bn on CNY50.8bn of saleable resources 6 brand new projects to be launched 3 brand new projects are China Jinmao has a 2016 contract sales target (including both property and land sales) of scheduled for launch in CNY36.0bn, some 20% above its achieved sales of CNY30.1bn in 2015. Saleable 3Q16, while 3 other resources for 2016 should amount to around CNY50.8bn, of which CNY30.5bn has been projects could be brought forward from 2015 and the remaining CNY20.3bn is from new launches. Of its total launched in 4Q16 saleable resources, 87.2% are from properties while the remaining 12.8% are from primary land projects. In terms of geographical location, 30.5% of the saleable resources is located in Shanghai, followed by 12.0% in Beijing, 11.6% in Changsha and 11.2% in Nanjing. China Jinmao requires a 70% sell-through to fully complete its sales target for 2016, which we note is below its achieved 77% sell-through in 2015.

Altogether, the company has 31 key projects available for sale this year, of which 6 are new. No new projects were launched in 1H16. However, according to the company, Guangzhou Zhujiang Jinmao Palace, Ningbo Jiangdong Jin Mao Palace and Hangzhou Binjiang Jinmao Palace are scheduled for launch in 3Q16, while Nanjing Dongcheng Jinmao Residence, Beijing Fengtai Science Park project and Foshan Green Island Lake project could be launched in 4Q16.

We expect the company In 1H16, China Jinmao achieved actual contract sales of around CNY20.7bn, which was to continue seeing up 102% YoY as a result of the low base last year and outperformed the sector average strong contract sales of 54% YoY sales growth during the first half. In terms of target completion, it has locked in above CNY2bn in each 58% of its CNY36bn sales target for the whole of 2016, similar to its peers’ 57% sales of the months in 3Q16 target completion in 1H16. As at end-June 2016, the company had subscribed but uncontracted sales of CNY1.6bn.

China Jinmao (817 HK): 26 July 2016

With the launch of 3 brand-new projects in 3Q16, together with the launch of a new batch of units at Shanghai Daning Jinmao Palace, which sold well in May-June 2016, we believe that China Jinmao will continue to see strong sales of above CNY2.0bn in each of the months of 3Q16.

China Jinmao: breakdown of contract sales target by cities China Jinmao: breakdown of contract sales target by product

Suzhou Chongqing Lijiang 4% 3% 0.3% Land sales Qingdao 18% 5% Hangzhou Shanghai 6% 27% Ningbo 7% Property sales 82% Guangzhou 10% Nanjing 15%

Beijing 11% Changsha 12%

Source: Company, Daiwa Source: Company, Daiwa

China Jinmao: 2015 and 2016 contract sales breakdown by project 2015 contract sales 2016 saleable resources 2016 contract sales target (CNY bn) (CNY bn) (CNY bn) Beijing Guangqu Jinmao Palace 1.2 0.1 0.1 Beijing Wangjing Jinmao Palace & Ya'ao Jinmao Residence 1.4 0.0 0.0 Beijing Yizhuang Jinmao Residence and Jinmao Noble Manor 2.9 5.0 3.4 Beijing Fengtai Science Park Project 0.0 1.0 0.6 Beijing total 5.5 6.1 4.1 Shanghai International Shipping Service Center 5.9 9.3 4.3 Shanghai Dongtan Jinmao Noble Manor 0.0 0.2 0.1 Shanghai Daning Jinmao Palace 5.6 6.0 5.3 Shanghai total 11.4 15.5 9.7 Guangzhou Nansha Jinmao Harbour 1.5 2.3 2.0 Guangzhou Zhujiang Jinmao Palace 0.0 1.5 1.2 Foshn Green Island Lake Project 0.0 0.4 0.2 Guangdong total 1.5 4.2 3.4 Suzhou Gusu Jinmao Palace 1.2 2.0 1.5 Ningbo Nantang Jinmao Palace 1.4 2.0 1.5 Ningbo Jiangdong Jinmao Palace 0.0 1.5 0.9 Hangzhou Huanglong Jinmao Residence 1.6 2.0 1.6 Hangzhou Binjiang Jinmao Palace 0.0 1.0 0.6 Nanjing Xuanwu Lake Jinmao Plaza Phase 1 0.1 0.2 0.1 Nanjing Dongcheng Jinmao Residence 0.0 0.7 0.4 Nanjing Qinglong Mountain International Ecological New City 2.3 4.8 4.8 Yangtze River Delta region (excluding Shanghai) total 6.6 14.2 11.4 Qingdao Shinan Jinmao Harbour 1.2 1.6 1.2 Qingdao China-Europe International City 0.4 1.2 0.7 Qingdao total 1.6 2.8 1.9 Chongqing Daping Jinmao Residence 0.8 0.3 0.3 Chongqing Panlong Jinmao Residence 0.3 0.5 0.3 Chongqing Jinmao International Ecological New City 0.1 0.8 0.5 Chongqing total 1.2 1.6 1.1 Changsha Yuelu Jinmao Landscape Metropolis 0.8 0.4 0.4 Changsha Meixi Lake Jinmao Residence 0.7 1.2 0.7 Changsha Meixi Lake Jinmao Plaza 0.8 2.5 1.5 Changsha Meixi Lake International New City Project Phase I 0.0 1.7 1.7 R&D Centre 0.0 0.1 0.1 Changsha total 2.2 5.9 4.3 Lijiang Jinmao Whisper of Jade Dragon and Jinmao Noble Manor 0.1 0.5 0.1 Lijiang total 0.1 0.5 0.1 Total 30.1 50.8 36.0

Source: Company, Daiwa

China Jinmao (817 HK): 26 July 2016

Steady recurring income to lead to high margins 1.18m sq m of investment properties 0.55m sq m currently operating 6% YoY rise in 2015 rental income China Jinmao’s 0.55m sq As at end-March 2016, China Jinmao had an investment property portfolio with a GFA of m investment property 1.18m sq m, of which 0.55m sq m had been completed and was in operation and the portfolio saw 6% YoY remaining 0.62m sq m was under development. These investment properties include both growth in rental income office and retail properties and are mostly in Beijing, Shanghai, Nanjing and Changsha. in 2015 The company’s completed investment properties of 0.55m sq m GFA generated rental income of HKD1,469m in 2015, which was up by 6% YoY due to the lack of rental contribution from new investment properties. Its Shanghai Jinmao Tower and Beijing Chemsunny World Trade Centre, the largest contributors to its rental income, saw steady occupancy and rental income growth of 6.9% YoY and 5.0% YoY, respectively, in 2015.

China Jinmao: info and operating statistics of investment properties Project City Type Stake Date of Leasable Market ------2015 ------2014 ------completion area value* Occupancy Revenue Occupancy Revenue (sqm) (HKD m) (HKD m) (HKD m) Sinochem Tower Beijing Office 100% 1995 49,066 1,514 100.0% 107.7 96.8% 110.0 Jinmao Tower Shanghai Office/retail 66.53% 1999 216,462 9,950 97.6% 597.5 97.9% 558.7 Beijing Chemsunny World Trade Centre Beijing Office 100% 2006 110,760 9,624 99.3% 695.8 98.9% 662.4 Nanjing Xuanwu Lake Jinmao Plaza Phase I Nanjing Office/retail 51% 2011 139,806 3,056 99.9% 54.2 100.0% 40.5 Lijiang J-Life Lijiang Retail 100% 2014 21,893 Changsha Meixi Lake International R&D Centre Changsha Office 80% 14,963 193 97.6% 13.6 100.0% 14.2 Changsha Meixi Lake International R&D Centre Changsha Office 80% 2016 107,595 - - - - - Shanghai International Shipping Service Center Shanghai Retail 50% 2016 23,428 - - - - - Commercial Changsha Jinmao Place Changsha Retail 100% 2016 106,707 - - - - - Qingdao Jinmao Harbour Shopping Center Qingdao Retail 100% 2016 61,295 - - - - - Shanghai Star Harbour International Center Shanghai Office 50% 2017 92,994 - - - - - Shanghai Star Harbour International Center Shanghai Retail 50% 2017 109,964 - - - - - Nanjing Xuanwu Lake Jinmao Plaza Phase II Nanjing Office 51% 2019 72,200 - - - - - Nanjing Jinmao Place Phase II Nanjing Retail 51% 2019 48,500 - - - - - Total 1,175,633 1,469 1,386

Source: Company, Daiwa Note: *As at end-2015

More investment properties expected to commence operations in 2016-17 While China Jinmao did not complete the construction of any investment properties in 2015, it does expect to complete construction and commence operations for 4 of its projects in 2016, namely Changsha Meixi Lake International R&D Centre, Shanghai International Shipping Service Center, Changsha Jinmao Place and Qingdao Jinmao Harbour Shopping Center. With operation commencing for these 4 projects with a total leasable GFA of 0.30m sqm, China Jinmao’s investment property portfolio should reach 0.85m sqm by the end of this year.

By end-2017, with the scheduled completion of both the office and retail portion of Shanghai Star Harbour International, the company estimates that its operating GFA of investment properties will reach around 1.05m sq m.

China Jinmao (817 HK): 26 July 2016

China Jinmao: operating GFA of investment properties (m sqm) 2.0

1.5 1.2 1.1 1.1 1.0 0.9

0.6 0.5

0.0 2015 2016E 2017E 2018E 2019E

Source: Company, Daiwa estimates

Rental income forecast to stay flattish in 2016 due to CNY/HKD impact In 2016, despite our forecast of a larger rental income contribution from newly completed investment properties, we only expect a 1.5% YoY growth in China Jinmao’s rental income to HKD1,514m as a result of CNY/HKD currency translation impact (Daiwa forecasts that the CNY will be at 7.50 against the USD at the end of 2016). We expect the company’s rental income to recover, growing by 24.0% to HKD1,878 in 2017 and 26.9% YoY to HKD2,382m in 2018.

China Jinmao: rental income from investment properties We forecast a 1.5% (HKDm) 2,382 increase in 2016 rental 2,500 income on CNY/HKD 2,000 1,878 translation impact 1,491 1,514 1,399 1,500 1,249 1,106 989 1,000

500

0 2011 2012 2013 2014 2015 2016E 2017E 2018E

Source: Company, Daiwa estimates

Valuation upside possible for investment properties In the table below, we show the market value of China Jinmao’s major investment properties currently operating, using our annual rental income forecasts for the properties. If we compare the market value per sq m for these properties with nearby office projects of a similar age, we can see that China Jinmao’s investment properties appear undervalued. Hence, we believe valuation upside is likely for the company’s investment properties, either through an increase in rents or lower cap rates.

China Jinmao: major investment properties currently operating Project City Leasable area Market value Market value/sq m Nearby office projects ASP (sq m) (CNYm) (CNY/sq m) (CNY/sq m) Beijing Chemsunny World Trade Center Beijing 110,760 8,020 72,409 82,000 Sinochem Tower Beijing 49,066 1,262 25,720 52,433 Jinmao Tower Shanghai 216,462 8,292 38,306 90,000 Nanjing Xuanwu Lake Jinmao Plaza Nanjing 139,806 2,546 18,213 25,000 Changsha R&D Center Changsha 14,963 161 10,743 17,000

Source: Company, Soufun, Daiwa

China Jinmao (817 HK): 26 July 2016

4,487 hotel rooms in hotel portfolio 6% YoY rise in 2015 revenue from hotel operations China Jinmao’s 9 Besides having a quality investment property portfolio, China Jinmao has a hotel portfolio currently operating comprising 12 hotels with 4,487 hotel rooms, of which 9 are currently operating (3,667 hotels recorded 6% YoY rooms). The 12 hotels are located in 8 cities: Beijing, Shanghai, Sanya, Lijiang, Shenzhen, revenue growth in 2015 Nanjing, Changsha and Guangzhou.

The company’s hotels generated revenue of HKD2,258m in 2015, up 6.2% YoY. While its 2 Sanya hotels (Hilton Sanya Resort & Spa and The Ritz-Carlton) saw lower YoY average room rates in 2015 and flattish occupancy as a result of the slower tourism industry in Sanya, many of its other hotels recorded higher average room rates, if not occupancy. The company’s Renaissance Beijing Wangfujing Hotel saw a higher average room rate and occupancy in 2015 after undergoing renovation in 2013-14.

Of the 3 new hotels in China Jinmao’s hotel portfolio, Changsha Luxury Collection Hotel is scheduled for completion in 2016 while the other 2 new hotels, St. Regis Hotel in Nanjing and Guangzhou Nansha Hotel, are scheduled to be completed in 2019.

China Jinmao: info and operating statistics of hotels ------2015 ------2014 ------Date of No. of Average Average Average Average Project City Stake completion rooms room rate occupancy Revenue room rate occupancy Revenue (CNY) (HKD m) (CNY) (HKD m) Renaissance Beijing Wangfujing Hotel* Beijing 66.53% 1995 329 751 66% 119.8 668 35% 20.2 Grand Hyatt Shanghai Shanghai 66.53% 1999 555 1,515 70% 530.5 1,572 64% 530.8 Hilton Sanya Resort & Spa Sanya 66.53% 2006 501 1,433 69% 282.8 1,529 71% 316.4 The Ritz-Carlton, Sanya Sanya 66.53% 2008 450 2,453 72% 481.6 2,661 70% 508.3 Westin Beijing Beijing 66.53% 2008 550 1,179 80% 365.9 1,215 78% 364.8 JW Marriott Shenzhen Shenzhen 66.53% 2009 411 1,028 79% 224.7 1,060 77% 224.4 Westin Nanjing Nanjing 51.00% 2011 234 790 63% 84.1 861 67% 103.2 Hyatt Regency Chongming Shanghai 66.53% 2014 235 982 48% 91.6 892 42% 55.0 Grand Hyatt Lijiang** Lijiang 66.53% 2014 402 867 38% 76.5 875 16% 3.6 Changsha Luxury Collection Hotel Changsha 100% 2016 350 ------St. Regis Hotel Nanjing 51% 2019 200 ------Guangzhou Nansha Hotel Guangzhou 90% 2019 270 ------Total 4,487 2,257.5 2,126.7

Source: Company, Daiwa

Hotel revenue should see slight increase in 2016 before seeing larger growth in 2017-18 For 2016, we forecast a 2.1% YoY growth in China Jinmao’s revenue from hotels to HKD2,305m, also due to the CNY/HKD foreign currency translation impact. We expect the hotels to see larger revenue growth of 8.9% YoY to HKD2,510m in 2017 and 5.4% YoY to HKD2,646m in 2018, largely attributable to a ramp-up in the revenue contribution from the new Changsha Luxury Collection Hotel and improved room rates and occupancy at the Hilton Sanya Resort & Spa, which is to undergo renovation in 2016-17.

China Jinmao: revenue from hotel operations We expect a 2.1% YoY (HKDm) 3,000 increase in 2016 hotel 2,646 2,510 revenue due to 2,258 2,305 2,134 2,127 CNY/HKD currency 2,010 2,061 translation impact 2,000

1,000

0 2011 2012 2013 2014 2015 2016E 2017E 2018E Source: Company, Daiwa estimates

China Jinmao (817 HK): 26 July 2016

High gross margins for investment properties and hotels China Jinmao’s investment properties and hotel operations have generated high gross margins in recent years. In 2015, its investment property portfolio recorded a gross margin of 90%, while its hotel operations saw a 46% gross margin. We expect the high gross margins of the 2 businesses to be maintained in 2016-18.

China Jinmao: gross margin of property investment and hotel operations We expect China Jinmao 100% to see high and steady margins for its property 80% investment and hotel 60% portfolio 40%

20%

0% 2011 2012 2013 2014 2015 2016E 2017E 2018E Property investment Hotel operations

Source: Company, Daiwa estimates

China Jinmao (817 HK): 26 July 2016

Stable earnings growth Earnings outlook Strong rise in 2016 property development revenue expected after disappointing 2015 We look for a 35% YoY After a disappointing 2015 due to a delay in the booking of Shanghai Shipping Service rise in 2016 property Center and Changsha Meixi Lake International primary development project, we forecast a development revenue 15.6% YoY increase in recognised GFA in 2016 to 747,000sq m. We expect the major after falling short in 2015 projects to be booked on the top line to include the Beijing Ya’ao Jinmao Residence, Beijing Wangjing Jinmao Palace, Beijing YiZhuang Jinmao Residence, Beijing Guangqu Jinmao Palace, Shanghai International Shipping Service Center and Hangzhou Huanglong Jinmao Residence. We estimate around 18.7% YoY growth in China Jinmao’s recognised ASP to CNY26,377/sq m in 2016, thanks to increased bookings of higher-ASP projects in upper-tier cities. Overall, we look for a 34.6% YoY rise in the company’s property development revenue to HKD21,961m in 2016.

In 2017, we forecast 17.1% YoY growth in the company’s recognised GFA to 875,000 sq m. Together with our forecast 14.2% YoY growth in recognised ASP to CNY30,125/sqm, a higher recognised GFA would lead to 33.8% YoY growth in property development revenue to HKD29,387m for the year, on our forecasts.

In 2018, we forecast a recognised GFA of 1,129,000 sq m (up 29% YoY) and a slight decline in recognised ASP of 3.5% YoY to CNY29,084/sq m. We forecast the company’s property development revenue for the year to be HKD36,601m, up 24.5% Yo Y.

As at end-2015, China Jinmao had unbooked contract sales of around HKD33,700m which are due to be booked in 2016 and thereafter.

China Jinmao: recognised GFA and ASP ('000 sqm) (CNY/sqm) 1,500 60,000 50,822 1,129 1,200 50,000 875 40,000 900 747 689 29,084 37,018 646 30,000 600 30,125 26,377 25,660 22,219 20,000 186 220 300 10,000

0 0 2012 2013 2014 2015 2016E 2017E 2018E Recognized GFA Recognized ASP (RHS)

Source: Company, Daiwa forecasts

China Jinmao: property development revenue (HKDm) 40,000 36,601

29,387 30,000

21,895 21,961

20,000 16,316

10,796 9,708 10,000

1,322 0 2011 2012 2013 2014 2015 2016E 2017E 2018E Source: Company, Daiwa forecasts

China Jinmao (817 HK): 26 July 2016

Primary land development revenue expected to see strong growth in 2016 We forecast a 311% YoY After the resumption of land sales in Changsha, and given the strong land market in both rise in primary land Changsha and Nanjing so far this year, we expect China Jinmao to see substantial growth development revenue in in its primary land sales proceeds from its Changsha Meixi Lake International and Nanjing 2016 Qinglong Mountain International projects in 2016. We forecast 311.1% YoY growth in the company’s primary land development revenue to HKD6,498m in 2016. And for 2017 and 2018, we expect flattish growth of 1.7% and 2.8% in primary development revenue to HKD6,609m and HKD6,796m, respectively.

China Jinmao: primary land development revenue (HKDm) 8,000 7,160 6,796 6,498 6,609

6,000

3,650 4,000 2,649 1,673 2,000 1,581

0 2011 2012 2013 2014 2015 2016E 2017E 2018E Source: Company, Daiwa forecasts

Recurring income should fall slightly in 2016 before recovering in 2017-18 We forecast only 2% YoY In 2016, we forecast only 1.9% YoY growth in China Jinmao’s recurring income from growth in recurring investment properties and hotel operations to HKD3,819m as a result of the CNY/HKD income in 2016, largely foreign currency translation impact. We expect the company’s recurring income to recover due to CNY/HKD foreign and see growth of 14.9% YoY to HKD4,388m in 2017 and 14.6% YoY to HKD5,028m in currency translation 2018, due to the commencement of operations of more investment properties (4 projects are scheduled to commence operations in 2016 and 2 in 2017) and hotels (1 hotel is scheduled to start operations in 2016 and the Hilton Sanya is to undergo renovation in 2016-17).

China Jinmao: recurring income from property investment and hotel operations (HKDm) 5,028 5,000 4,388 4,000 3,749 3,819 3,525 2,646 3,122 3,117 3,310 3,000 2,510 2,305 2,127 2,258 2,061 2,000 2,134 2,010

2,382 1,000 1,878 1,399 1,491 1,514 989 1,106 1,249 0 2011 2012 2013 2014 2015 2016E 2017E 2018E Property investment Hotel operations

Source: Company, Daiwa forecasts

Decent growth in revenue and core profit in 2016-18E As we look for strong growth in China Jinmao’s property development revenue, which accounts for the largest proportion of its total revenue, we forecast 20-48% pa growth in total revenue to HKD32,789m in 2016 (up 48.3% YoY), HKD40,947m in 2017 (up 24.9% YoY) and HKD49,044m in 2018 (up 19.8% YoY).

We forecast core profit In 2016, we expect China Jinmao’s core net profit (excluding valuation gains on investment to rise by 50% YoY in properties) to grow by 49.8% YoY to HKD3,831m. We look for slightly lower growth 2016, 17% YoY in 2017 thereafter, with core profit reaching HKD4,466m in 2017 (up 16.6% YoY) and HKD5,176m and 16% YoY in 2018 in 2018 (up 15.9% YoY), as a result of more joint venture projects being booked, leading to higher net profit attributable to minority interests.

China Jinmao (817 HK): 26 July 2016

China Jinmao: revenue and core net profit (HKDm) 49,044 50,000 40,947 40,000 32,789 29,548 30,000 20,719 22,110 20,000 17,176

10,000 6,592 3,293 3,831 4,466 5,176 1,329 1,842 2,593 2,557 0 2011 2012 2013 2014 2015 2016E 2017E 2018E

Revenue Core net profit

Source: Company, Daiwa forecasts

Gross margins expected to stay above 35% in 2016-18 We expect overall gross Thanks to its high-margin development property projects in upper-tier cities that were margins of >35% in acquired at low costs, as well as a steady revenue contribution from its high-margin 2016-18 to outperform primary development and property investment business, we expect China Jinmao’s overall many peers gross margin to remain above 35% in 2016-18, a high level relative to peers’ margins, largely due to the company’s high-margin primary land development business. We forecast the company’s gross margin to stay flat at 38.6% in 2016 (-0.1pp) before widening to 39.7% in 2017 (up 1.1pp) before falling slightly to 39.3% in 2018 (-0.4pp). Management aims to maintain a 30%-plus gross margin for its property development business over our forecast horizon.

Alongside the high gross margins that we forecast in 2016-18, we look for decent core net margins for China Jinmao over the period, at 11.7% in 2016 (up 0.1pp), 10.9% in 2017 (down 0.7pp) and 10.6% in 2018 (down 0.3pp). The declining core margin that we forecast for 2016-18 is again attributable to more joint-venture projects being booked and higher net profit share among minority interests.

China Jinmao: gross margin and core net margin 60% 54.2% 44.4% 50% 41.9% 39.1% 38.7% 38.6% 39.7% 39.3% 40%

30%

20% 20.2% 10% 10.7% 12.5% 11.1% 11.6% 11.7% 10.9% 10.6% 0% 2011 2012 2013 2014 2015 2016E 2017E 2018E Gross margin Core net margin (RHS)

Source: Company, Daiwa forecasts

China Jinmao (817 HK): 26 July 2016

Steady gearing and declining borrowing costs Stable gearing over the past few years Net gearing expected to stay around the 60% level in 2016-18 China Jinmao’s net debt level has gone up substantially over the past few years, from HKD12,607m in 2011 to HK32,561m in 2015. Nonetheless, the net gearing ratio as at end- 2015 was still at a comfortable 55.3%. Over 2016-18, we forecast China Jinmao’s net debt to rise, reaching HKD40,307m in 2016 (up 23.8% YoY), HKD42,955m in 2017 (up 6.6% YoY) and HKD46,068m in 2018 (up 7.2% YoY). We estimate net gearing to remain at a comfortable 61.6% in 2016 (up 6.3pp), 61.0% in 2017 (down 0.6pp) and 60.4% in 2018 (down 0.6pp).

Compared with its China property peers’ average net gearing of 60% as at end-2015, China Jinmao’s net gearing of 55% is healthy and is one of the lower such figures among the China property companies we track.

China Jinmao: net debt and net gearing We expect net gearing to (HKDm) 80,000 80% stay around the 60% 61.6% 61.0% 60.4% level in 2016-18 58.1% 55.3% 60,000 60% 44.5% 41.3% 42.9% 40,307 42,956 46,068 40,000 32,707 32,561 40%

21,013 20,000 12,607 14,811 20%

0 0% 2011 2012 2013 2014 2015 2016E 2017E 2018E Net debt Net gearing (RHS)

Source: Company, Daiwa forecasts

Average borrowing cost on a downtrend We anticipate declining China Jinmao had a weighted average borrowing cost of 5.35% in 2015, down from 5.90% average borrowing costs in 2011. As at end-2015, its effective interest cost was about 4.80%. In 2016, we forecast a for China Jinmao decline in its weighted average borrowing cost to 4.60% to factor in all 5 interest-rate cuts in China in 2015 and our in-house forecast for more interest-rate cuts in 2016. We assume slightly lower average borrowing costs of 4.20% in 2017 and 4.00% in 2018.

China Jinmao: weighted average borrowing cost 8%

5.90% 5.90% 5.60% 6% 5.40% 5.35% 4.60% 4.20% 4.00% 4%

0% 2011 2012 2013 2014 2015 2016E 2017E 2018E

Source: Company, Daiwa forecasts

China Jinmao (817 HK): 26 July 2016

USD200m of perpetual convertible securities repurchased in June 2016 In October 2010, China Jinmao issued perpetual convertible securities amounting to USD600m, providing investors with rights to receive a distribution of 6.8% p.a. On 4 February 2016, the company issued USD500m worth of subordinate guaranteed perpetual capital securities, offering a distribution of 6% p.a.

On 24 May 2016, the company announced that it was planning to repurchase a proportion of the USD600m perpetual subordinated convertible securities at 108.0% of the principal value of the securities. The final aggregate repurchase amount was USD200m and the total consideration paid by the company was USD218.34m. This repurchase was settled on 14 June 2016.

Currently, the company has outstanding perpetual subordinated convertible securities worth USD400m and outstanding subordinate guaranteed perpetual capital securities of USD500m.

Dividend payout targeted to be maintained at 30% China Jinmao plans to Thanks to its healthy financials, China Jinmao has maintained a dividend payout at 30% of maintain a dividend core profit since 2012. According to management, plans call for the dividend payout to be payout of 30% of core maintained at 30% going forward. profit

China Jinmao (817 HK): 26 July 2016

Valuation Initiating with a Buy (1) call and TP of HKD2.97 NAV estimate and target discount to NAV NAV is our preferred approach to valuing property companies We regard an NAV methodology as the best way to value China Jinmao and the other property companies, as it uses the market value of a company’s property assets. Moreover, property companies typically trade at a discount to their appraised NAV to reflect: 1) their capabilities in terms of project execution and property sales, as well as their long-term sales growth potential, 2) market risk and diversification, and 3) corporate risk (eg, corporate governance and financial position).

End-2016 NAV of HKD4.96/share, on our forecasts We use a WACC of Based on China Jinmao’s existing landbank of 33.6m sq m, we estimate an end-2016 total 11.51% in our GAV gross asset value (GAV) of CNY99,602m by discounting the company’s estimated future calculation for China net cash flow to be generated at a WACC of 11.51%. The company’s development Jinmao properties would account for 57% of its GAV, with investment properties/hotels accounting for 28% and primary land development accounting for 15%, on our calculations.

Assuming the company has net debt and outstanding land premiums of CNY48,757m as at end-2016, we calculate an end-2016 NAV of CNY50,845m. Based on its outstanding share capital of 10,672m shares as at end-June 2016, we derive an NAV per share of CNY4.76, or HKD4.96.

Our end-2016 NAV assumption of HKD4.96 factors in Daiwa’s forecast that the CNY will depreciate to 7.50 against the USD as at the end of 2016.

China Jinmao: WACC calculation Rate assumptions Risk-free rate 2.83% Risk premium 13.00% Beta 0.9 Cost of equity 14.54% Cost of debt 4.6% Debt/assets 30% WACC 11.51%

Source: Daiwa forecasts

China Jinmao (817 HK): 26 July 2016

China Jinmao: NAV breakdown Development properties (CNY m) End-2016 NAV % of GAV would account for 57% Development properties: Beijing 13,944 14.0 of end-2016 GAV, on our Shanghai 7,614 7.6 estimates Nanjing 2,964 3.0 Ningbo 2,979 3.0 Qingdao 2,031 2.0 Chongqing 1,718 1.7 Hangzhou 5,925 5.9 Changsha 4,434 4.5 Guangzhou 4,443 4.5 Lijiang 2,030 2.0 Suzhou 1,120 1.1 Tianjin 3,426 3.4 Shenzhen 3,447 3.5 Zhuhai 485 0.5 Development property GAV 56,560 56.8 Investment properties: Beijing 8,251 8.3 Shanghai 11,624 11.7 Changsha 2,333 2.3 Nanjing 777 0.8 Lijiang 799 0.8 Qingdao 487 0.5 Sanya 2,475 2.5 Shenzhen 880 0.9 Guangzhou 245 0.2 Investment property GAV 27,872 28.0 Land development: Changsha 8,104 8.1 Nanjing 7,066 7.1 Primary development GAV 15,170 15.2 GAV 99,602 100.0 Net debt and outstanding land premium (48,757) NAV 50,845 Shares (m) 10,672 NAV/Share (CNY) 4.76 NAV/Share (HKD) 4.96

Source: Daiwa forecasts

We apply a 40% discount to NAV Based on our NAV estimate of HKD4.96/share for China Jinmao and its share price of HKD2.26 as at 25 July, the stock is trading at a 54.4% discount to end-2016E NAV. We apply a 20% target NAV discount to large-cap stated-owned China developers under our coverage – COLI (688 HK, HKD25.95, Buy [1]) and CR Land (1109 HK, HKD19.60, Buy [1]) – a 30% target NAV discount to Longfor (960 HK, HKD10.84, Buy [1]), which is a mid- to-large cap non-SOE developer, and a 50% target NAV discount to our covered mid-cap China developers – Guangzhou R&F (2777 HK, HKD12.00, Buy [1]) and KWG (1813 HK, HKD4.90, Buy [1]).

China Jinmao is a mid-cap premium developer with a strong SOE parent. The company has been able to leverage on its SOE status to obtain low-cost financing. Also, its SOE status has created opportunities for its primary development business, allowing it to see increasing revenue contribution (from 7.1% of revenue in 2015 to more than 15% of revenue for 2016-17E) and more lucrative margins. We also like China Jinmao for its reputable brand, high-quality projects and sales execution ability, which have led to its strong contract sales growth in the past few years (20.9% contract sales CAGR for 2011- 15). We believe that these qualities will continue to benefit the company, especially when the operating environment in the China property sector is becoming increasingly challenging. Hence, we believe a 40% target NAV discount is justified for the stock.

Initiating coverage with a Buy (1) rating and target price of HKD2.97 By applying a 40% target discount to China Jinmao’s end-2016E NAV per share of HKD4.96, we arrive at our 12-month target price of HKD2.97, which translates into a 2016E PER of 8.8x and a 2017E PER of 7.4x. With the stock trading at HKD2.26 (25 July), our target price implies 31.4% upside potential. We initiate with a Buy (1) rating.

China Jinmao (817 HK): 26 July 2016

Peer comparison Below-sector-average ROE and ROA should improve gradually Our 2016E ROE of 9.0% and ROA of 2.3% for China Jinmao are below the averages for the sector (on our and the Bloomberg consensus forecasts) of 12.4% and 3.3%. The major reason we forecast lower a ROE and ROA for China Jinmao is because its investment properties are still being developed and have yet to contribute to earnings. As we expect China Jinmao’ earnings to increase over our forecast period, we expect a gradual improvement in ROE to 9.6% in 2017 and 10.3% in 2018 and look for ROA to improve to 2.4% in 2017 and 2.5% in 2018.

Current valuation largely in line with peers China Jinmao’s current China Jinmao’s 2016E PER of 6.7x is below the sector average of 7.4x (on both our and NAV discount of 54.4% is consensus forecasts). Also, our 2016 PBR forecast of 0.5x for the stock is below the sector slightly lower than the average of 0.7x. China Jinmao’s current NAV discount of 54.4% is slightly lower than the peer average of 55.5% average discount of its peers, at 55.5%. However, compared with larger-cap peers like COLI, CR Land and Longfor, which are trading at an average 41.8% NAV discount, China Jinmao’s NAV valuation does not look expensive.

China property companies: peer comparison Share Target Market 2016E 2016E 2015 2015 2016E 2016E Discount Company Ticker Rating price price cap ROE ROA PER PBR PER PBR NAV to NAV (HKD) (HKD) (USDm) (%) (%) (x) (x) (x) (x) (HKD) (%) Agile Property* 3383 HK Not rated 4.49 - 2,283 7.6 2.5 10.9 0.4 5.3 0.4 n.a - COGO 81 HK Buy 2.28 6.15 680 19.0 4.8 6.2 0.5 1.8 0.3 15.20 (85.0) COLI 688 HK Buy 25.95 31.80 33,434 15.5 7.0 9.3 1.3 8.4 1.2 39.80 (34.8) China Jinmao 817 HK Buy 2.26 2.97 3,082 9.0 2.3 10.3 0.6 6.7 0.5 4.96 (54.4) China Resources Land 1109 HK Buy 19.60 30.05 17,728 13.2 4.1 9.3 1.2 8.5 1.1 37.56 (47.8) China Vanke* 2202 HK Not rated 15.98 - 28,596 19.4 3.8 8.4 1.5 7.4 1.4 n.a - Country Garden* 2007 HK Not rated 3.28 - 9,445 14.1 2.8 6.6 1.0 6.4 0.9 n.a - Dalian Wanda Commercial Properties* 3699 HK Not rated 47.55 - 28,192 10.8 3.6 6.3 1.0 9.7 1.0 n.a - Evergrande Real Estate* 3333 HK Not rated 5.00 - 8,819 12.2 1.4 6.1 1.2 9.2 1.0 n.a - Greentown China* 3900 HK Not rated 5.69 - 1,581 7.3 1.6 19.6 0.4 5.7 0.4 n.a - Guangzhou R&F 2777 HK Buy 12.00 12.90 4,977 18.1 4.6 5.8 0.8 4.2 0.7 25.80 (53.5) Joy City 207 HK Buy 1.26 1.52 2,275 1.9 0.8 49.3 0.5 26.6 0.5 3.04 (58.6) KWG Property 1813 HK Buy 4.90 7.41 1,912 12.8 3.6 4.8 0.6 4.1 0.5 14.82 (66.9) Longfor Properties 960 HK Buy 10.84 13.29 8,187 13.9 4.2 7.9 1.0 6.8 0.9 18.98 (42.9) Shimao Property* 813 HK Not rated 10.30 - 4,604 12.6 3.2 5.0 0.6 4.5 0.6 n.a - Sino-Ocean Land* 3377 HK Not rated 3.32 - 3,235 7.8 2.5 10.0 0.5 6.6 0.5 n.a - Sunac China* 1918 HK Not rated 4.95 - 2,183 14.9 2.7 4.4 0.8 4.7 0.7 n.a - Average 12.4 3.3 10.6 0.8 7.4 0.7 (55.5)

Source: Bloomberg forecasts for non-rated stocks, Daiwa forecasts for the others; based on prices as of 25 July 2016 Note: * denotes those companies for which we do not have figures as we do not cover them

Share-price performance and NAV discount Share price has outperformed peers in past month In the past month (26 June-25 July), the share prices of the China property companies have gone up by 8.8% on average, outperforming the 6.9% increase in the HSCEI. During the past month, China Jinmao’s share price has risen by 8.2%, in-line with its peers. YTD, the stock’s share price is pretty much in line with that of its peers. Its share price has fallen by 15.5% compared with the start of 2016 as of 25 July, versus the 9.6% overall decline for the China property players.

China Jinmao (817 HK): 26 July 2016

China Jinmao: share price (HKD) 5

0 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Source: Bloomberg, Daiwa

Current end-2016E NAV discount of 54.4% Currently trading at Currently, China Jinmao is trading at a 54.4% discount to our end-2016 NAV estimate of more than 1SD below its HKD4.96. Compared with its 2010-15 valuation, China Jinmao’s current discount is well 2010-15 mean discount below its 2010-15 mean discount of 33.0%, and even lower than its mean discount of -1SD of 46.9% of 46.9%. This indicates to us that its current valuation is undemanding.

China Jinmao: historical discount to NAV (%) (10)

(20) +1SD -19.0% (30) Mean -33.0% (40)

(50) -1SD -46.9%

(60)

(70) 2010 2011 2012 2013 2014 2015 2016

Source: Bloomberg, Daiwa

China Jinmao (817 HK): 26 July 2016

Risks

Housing demand could slow as economy deteriorates (main risk) Key risks: 1) slower Since 2011, when home purchase restrictions (HPR) were introduced in China, the housing demand, 2) property market has been largely supported by first-home buyers. In 2014, the HPR was tightening measures in removed in most of the cities in China, and many upgraders have since entered the the upper-tier cities, and market. Despite the slowdown in overall economic growth in 2015, demand for housing 3) competition over from these first-time buyers and upgraders is holding up well, with nationwide home sales quality land plots and up 17% YoY in 2015 and 44% YoY in 1H16. However, with China’s overall economic rising land prices in growth set to slow in 2016 and beyond, we are concerned that housing demand will also upper-tier cities start to slow, which would drag down the contract sales of the China developers, including China Jinmao, in the years to come.

More tightening measures imposed on upper-tier-city property/land markets As a result of the hot property and land markets, and the rapidly rising home and land prices in some upper-tier cities, tightening measures on both the property and land markets were recently (March 2016) imposed in some cities. For example, Shanghai, Shenzhen, Suzhou, Nanjing and Zhongshan have rolled out tightening property measures, while Suzhou and Nanjing have implemented tightening measures for the land market. If home and land prices continue to rise in the upper-tier cities, we see a possibility of further tightening measures being introduced.

Thus, given China Jinmao’s large landbank exposure to upper-tier cities, its property sales performance could be affected if property tightening measures are rolled out in the upper- tier cities. Moreover, with its property development business (currently only in 2 cities, Changsha and Nanjing) could also be affected if more cities introduce tightening measures in the land market.

Intense competition in upper-tier cities over land plots As many developers have been expanding their property businesses in the upper-tier cities, where the housing demand-supply dynamics are more balanced and margins are generally higher than in the lower-tier cities, competition for quality land plots has become more intense. Consequently, land costs have been pushed higher and a downtrend in gross margins seems highly likely in the coming years. China Jinmao is facing the same problems currently and they could continue.

Delays in new project launches, affecting contract sales performance With a property development landbank GFA of 11.2m sq m and 20.2m sq m GFA of primary development landbank on hand, China Jinmao’s saleable resources should be sufficient to support our annual contract sales growth forecasts of 22.3% YoY in 2016 and 23.9% YoY in 2017. Nonetheless, there is always a possibility that its project launches will be delayed due to delays in pre-sales permits being issued by housing authorities, or if China Jinmao decides to push back projects. Under these circumstances, the company’s contract sales performance would be affected and our sales growth forecasts might not be realised.

China Jinmao (817 HK): 26 July 2016

Appendix I: company background Mid-range to high-end property developer Real estate flagship of Sinochem Corporation China Jinmao is a large-scale and property developer specialising in the development of high-end mixed-use property projects. Other than property development, it is involved in property leasing, hotel investments and operations, as well as retail property development and operations. It is 53.97%-owned by Sinochem Group, which is one of the SOEs approved by the State-owned Assets Supervision and Administration Commission to engage principally in property development and hotel operations. In turn, China Jinmao owns 66.53% of Jinmao (China) Hotel Investments and Management Limited (6139 HK, HKD4.25, Not rated), which holds 100% stake in an office building (Shanghai Jinmao Tower) and 8 hotels (Grand Hyatt Shanghai, Hyatt Regency Chongming Shanghai, Westin Beijing, Jinmao Beijing Renaissance, Lijiang Grand Hyatt Hotel, Hilton Sanya Resort & Spa, The Ritz Carlton Sanya and JW Marriott Shenzhen).

As at end-March 2016, China Jinmao had a total landbank GFA of 33.6m sq m in 15 cities, of which 11.1m sq m GFA (33%) was for its property development landbank, 20.6m sq m GFA (61%) was for its primary land development landbank, 1.2m sq m GFA (4%) was for its investment properties, and the remaining 0.7m sq m GFA (2%) was for hotels. In terms of GAV, China Jinmao’s property development business accounts for 57% of its total end- 2016E GAV, followed by 15% for its primary land development business. The company’s investment properties account for 13% of its end-2016 GAV and hotels account for 15%, on our estimates.

China Jinmao: GFA breakdown by business segment (end- China Jinmao: end-2016 GAV breakdown by business segment March 2016)

Investment Hotels Hotels properties 2% 15% 4%

Property development 34% Investment Primary land properties development 13% 61% Property Primary land development development 57% 15%

Source: Company, Daiwa Source: Company, Daiwa forecasts

Largest non-primary development landbank exposure to Changsha and Beijing Of China Jinmao’s total landbank, it has the largest landbank exposure to Changsha (54.8%), followed by Nanjing (12.2%). However, excluding its primary development landbank, the company would have the most landbank in Changsha (6.8%), Beijing (5.9%) and Guangzhou (5.2%).

China Jinmao (817 HK): 26 July 2016

China Jinmao: landbank breakdown by city (as at end-March 2016) City Total GFA % City Total GFA % (sq m) (sq m) Property development Property investment Beijing 1,696,911 5.0% Beijing 159,826 0.5% Shanghai 947,612 2.8% Shanghai 442,848 1.3% Nanjing 208,834 0.6% Nanjing 260,506 0.8% Suzhou 261,261 0.8% Changsha 229,265 0.7% Ningbo 714,619 2.1% Qingdao 61,295 0.2% Hangzhou 490,671 1.5% Lijiang 21,893 0.1% Qingdao 1,134,060 3.4% 1,175,633 3.5% Chongqing 1,358,464 4.0% Lijiang 198,242 0.6% Hotel operations Changsha 2,034,636 6.0% Beijing 122,380 0.4% Guangzhou 1,703,047 5.1% Shanghai 125,005 0.4% Tianjin 407,313 1.2% Sanya 158,980 0.5% Zhuhai 4,143 0.0% Nanjing 56,014 0.2% 11,159,813 33.2% Lijiang 84,384 0.3% Guangzhou 28,000 0.1% Primary land development Shenzhen 51,730 0.2% Changsha 16,131,990 48.0% Changsha 48,592 0.1% Nanjing 3,578,645 10.6% 675,085 2.0% Sanya 916,741 2.7% 20,627,376 61.3% Total 33,637,907 100.0%

Source: Company, Daiwa *the landbank breakdown as at end-June 2016 is not yet available

China Jinmao: landbank map

Source: Company, Daiwa

China Jinmao (817 HK): 26 July 2016

Primary land development business should account for higher proportion of revenue in coming years Of China Jinmao’s total revenue of HKD22,110m for 2015, its property development business accounted for the largest proportion of 73.8% (HKD16,316m). Its property investment business achieved revenue of HKD1,491m (6.7%), while its hotel operations saw revenue of HKD2,258m (10.2%) for that year. Even though the company’s primary land development business for the same period (HKD1,581m or 7.1%) was small compared with its property development business, we think this business is on the rise given the resumption of land sales in Changsha and our expectation of strong sales continuing in Nanjing. We estimate that its revenue from primary land development will be HKD6,498m (+311% YoY) in 2016 and HKD6,609m (+2% YoY) in 2017. They would account for 19.8% of total revenue in 2016 and 16.1% in 2017, on our estimates.

China Jinmao: revenue breakdown by business segment (HKDm) 60,000 49,044 50,000 40,947 40,000 32,789 29,548 30,000 20,719 22,110 20,000

10,000 6,592

0 2011 2012 2013 2014 2015 2016E 2017E 2018E Property development Primary land development Property investment Hotel operations Others

Source: Company, Daiwa forecasts

Experienced management team China Jinmao has a well-organised and experienced property development management team. Most have been with the company for a long time and have extensive experience in operations, management or the property-development business.

China Jinmao: management profile Position Brief introduction Ning Gaoning Chairman and non-executive director Mr Ning joined Sinochem Group in January 2016 and now serves as the chairman of Sinochem Group, Sinochem Corporation and Sinochem Hong Kong (Group) Company Limited. He also serves as the chairman of Sinofert Holdings Limited (297 HK, not rated) and Far East Horizon (3360 HK, not rated). He held different various senior positions at China Resources (Holdings) Company Limited over 1986-2004. He also served as the chairman of COFCO Corporation in 2004-16. Mr Ning has nearly 30 years’ experience in real estate development and investment, business management and internal control. Li Congrui CEO and executive director Mr Li has been the Vice President of China Jinmao since April 2009 and the executive director since June 2011. He has also been serving as the executive director and CEO since January 2013. He has over 10 years of experience in strategy management, corporate governance, organisational construction, appraisal and analysis of project investment, project management and large project construction. Jiang Nan CFO and executive director Mr Jiang joined China Jinmao in January 2006 as its CFO and has been involved in the daily management of the company since then. He also served as an executive director since August 2015. He is in charge of the company’s accounting and financing, capital market, investor relations, strategy and budget assessment. He has around 20 years of experience in corporate finance. Yang Lin Non- executive director Mr Yang joined China Jinmao in February 2014 and currently serves as a non- executive director. He joined Sinochem Group in 1994 and is now the chief accountant of Sinochem Group and the CFO of Sinochem Corporation. Mr Yang has over 10 years’ experience in fund management. Cui Yan Non-executive director Mr Cui joined the company in June 2015 and now serves as a non-executive director. He joined Sinochem Group in 2002 and is currently serving as the general manager of the HR department of Sinochem Group. Mr Cui has nearly 20 years of experience in marketing and corporate governance.

Source: Company, Daiwa

China Jinmao (817 HK): 26 July 2016

Appendix II: primary land development projects 20.6m sqm landbank in Changsha, Nanjing and Sanya Changsha Meixi Lake International New City Phase I, II and Land Block A China Jinmao currently China Jinmao started its primary land development business in 2011 in Changsha, Hunan has a total primary Province. In January 2011, the company entered into an agreement with the Management development landbank Committee of Dahexi Pilot Zone in Changsha for the primary development of Meixi Lake of 20.6m sq m, of which International Service and Technology Innovation City (now named Meixi Lake International 16.1m sq m is in New City Phase I). China Jinmao will be responsible for land requisition, compensation Changsha, 3.6m sq m is and resettlement, preliminary municipal infrastructure and urban public facilities, and also in Nanjing and the other related developments within the area. remaining 0.9m sq m is in Sanya Meixi Lake International New City Phase I is located in the core area of the Dahexi Pilot Zone in Changsha and is about 6km away from the city centre. The project comprises a development area of 9.40m sq m and is to be designed as a high-end development zone featuring a high- end residential building, a 5-star hotel, Grade 5A office buildings, serviced apartments, a cultural arts centre and a technology and innovation centre. In 2012, China Jinmao entered into an agreement for the primary development of land block A in the Meixi Lake area, comprising a total GFA of around 829,000 sq m. In October 2013, it agreed to participate in the primary development of Meixi Lake International New City Phase II, which comprises a GFA of 12.68m sq m. The company expects the primary development of Phase I and Land Block A to be completed in 2017, while the development of Phase II is scheduled for completion in 2020.

China Jinmao’s primary development costs for its Changsha Meixi Lake International New City project are fixed at CNY1,400/sq m and the local government shares 20% of the land sales proceeds when any land plots are sold to third-party developers via the application list system (a type of land auction).

The company started to generate sales from this project (Meixi Lake International New City Phase I) in 2011. It started selling land the same year it acquired the project and was able to record land sales of CNY2.7bn in 2011, CNY5.0bn in 2012, CNY6.4bn in 2013 and CNY3.0bn in 2014. However, overall land sales in Changsha slowed significantly in 2015 as a result of mounting housing inventory in the city in 2013-14. China Jinmao resumed sales of Meixi Lake International New City Phase I this year, and is targeting to generate around CNY1.7bn in sales proceeds for the whole of 2016. In April, the company sold land worth CNY1.1bn from this project at an ASP of CNY4,100/sq m, well above the original ASP of CNY2,850/sq m stated via the land application list system.

It plans to sell a further 2 land plots from this project in 2H16. We forecast land sales proceeds of around CNY1.85bn for the Changsha Meixi Lake project Phase I in 2016, higher than China Jinmao’s CNY1.7bn target. We anticipate steady land sales growth, reaching around CNY1.69bn in 2017 and CNY1.72bn in 2018.

Changsha Meixi Lake International New City Phase I land sales and ASP Primary land sales for (CNYm) (CNY/sqm) the Changsha Meixi 8,000 5,000 6,404 4,100 4,223 4,307 Lake International New 4,000 6,000 5,000 City project have 2,917 resumed this year, after 2,800 3,000 4,000 2,492 a temporary halt in 2015 2,959 2,700 2,058 2,000 1,845 1,689 1,723 2,000 1,000 0 0 0 2011 2012 2013 2014 2015 2016E 2017E 2018E Land sales proceeds Land ASP (RHS)

Source: Company, Daiwa forecasts

China Jinmao (817 HK): 26 July 2016

Sanya Yazhou Primary Land Development Project Sanya Yazhou Primary In 2012, China Jinmao and Hainan LongHigh Industrial Group jointly acquired the primary Development project is development rights of a land plot in Yazhou Bay in Sanya, Hainan Province. The plot was expected to be returned the last remaining prime seafront quality land plot in Sanya and comprised a GFA of to the government, 916,741sq m. However, according to the company, this project will be returned to the according to China Sanya Government soon as property developers are not allowed to get involved in primary Jinmao land development in Sanya. We do not expect there to be an impact on the company’s P&L or cash flow as a result of the project being returned.

Nanjing Qinglong Mountain International Ecological New City The primary development rights of Nanjing Qinglong Mountain International Ecological New City were acquired by China Jinmao in February 2015. This project is located in the downtown area of Dongshan Vice City in Nanjing, Jiangsu Province, and is next to the Qinglong-Dalian Mountain Range. It has a total GFA of 3.8m sq m and will be developed into an ecological area comprising a CBD, high-end residences, a commercial centre, a 5- star hotel, office buildings, ancillary public infrastructure and greenbelt area.

China Jinmao’s primary development costs for its Nanjing Qinglong Mountain International Ecological New City project are fixed at CNY4,700/sq m, according to the company. The local government shares 35% of the land sales proceeds when any land plots are sold from the project to third-party developers via public auctions, tenders and listings.

The company was able to commence sales of this project the same year it was acquired, with about CNY2.3bn of land sales proceeds generated in 2015. In 2016, China Jinmao has set a land sales target of CNY4.8bn. However, we forecast much higher achieved land sales of CNY7.2bn, largely due to the higher ASP of CNY18,778/sq m it realised for its 187,458sq m of land plots sold in June 2016, compared to the expected ASP of CNY8,500/sq m. We forecast land sales proceeds of CNY7.6bn in 2017 and CNY7.8bn in 2018 from this project.

Nanjing Qinglong Mountain International Ecological New City land sales and ASP We expect to see a rise (CNYm) (CNY/sqm) 19,467 10,000 18,900 20,000 in primary land sales for 18,000 7,560 7,787 the Nanjing Qinglong 8,000 7,200 Mountain project, 15,000 reaching CNY7.2bn in 6,000 2016 10,462 4,000 2,295 10,000 2,000

0 5,000 2015 2016E 2017E 2018E Land sales proceeds Land ASP (RHS)

Source: Company, Daiwa forecasts

China Jinmao (817 HK): 26 July 2016

China Jinmao: landbank summary as at end-March 2016 Total GFA Completed GFA Under GFA Under No. of Date of Project City Type Stake Unsold GFA Unsold Development Planning rooms completion (sqm) (sqm) (sqm) (sqm) Beijing Chemsunny World Trade Centre Beijing Office 100.0% 42,117 42,117 2006 Beijing Guangqu Jinmao Palace Beijing Residential 100.0% 75,516 75,516 2014 Beijing Ya'ao Jinmao Residence and Beijing Wangjing Jinmao Palace Beijing Residential 51.0% 166,524 166,524 2016 Beijing YiZhuang Jinmao Residence Beijing Residential 100.0% 377,113 377,113 2016 Beijing YiZhuang Jinmao Noble Manor Beijing Residential 25.5%/50% 558,922 558,922 2019 Beijing Shiliuzhuang Project Beijing Residential 49.0% 220,404 220,404 2020 Beijing Fengtai Science Park Project A Beijing Office/Commercial 49.0% 177,662 177,662 2018 Beijing Fengtai Science Park Project B Beijing Office/Commercial 51.0% 78,653 78,653 2018 Above ground area of Shanghai Port International Cruise Terminal #11 Shanghai Commercial 50.0% 6,165 6,165 2011 Shanghai Dongtan Jinmao Noble Manor Shanghai Commercial/Residential 100.0% 76,568 76,568 2014 Shanghai International Shipping Service Center Shanghai Complex 50.0% 352,577 352,577 2016 Shanghai Star Harbour International Centre Shanghai Complex 50.0% 223,102 223,102 2017 Shanghai Daning Jinmao Palace Shanghai Residential 36.0% 289,200 289,200 2017 Nanjing Xuanwu Lake Jinmao Plaza Phase I Nanjing 51.0% 6,854 6,854 Nanjing Xuanwu Lake Jinmao Plaza Phase II Nanjing Complex 51.0% 83,100 83,100 2019 Nanjing Dongcheng Jinmao Residence Nanjing Residential 40.0% 118,880 118,880 2018 Suzhou Gusu Jinmao Palace Suzhou Residential 80.0% 261,261 261,261 2018 Ningbo Nantang Jinmao Palace Ningbo Commercial/Residential 51.0% 225,160 225,160 2017 Ningbo Jiangdong Jinmao Palace Ningbo Residential 100.0% 315,850 315,850 2019 Ningbo Yaofeng Project Ningbo Residential 100.0% 173,609 173,609 2018 Hangzhou Huanglong Jinmao Residence Hangzhou Commercial/Residential 85.0% 242,300 242,300 2016 Hangzhou Binjiang Jinmao Palace Hangzhou Residential 100.0% 248,371 248,371 2020 Qingdao Jinmao Harbour Qingdao Commercial/Residential 100.0% 298,790 298,790 2017 Qingdao China-Europe International City Project - First batch Qingdao Commercial/Residential 100.0% 480,626 480,626 2024 Qingdao China-Europe International City Project - Second batch Qingdao Commercial/Residential 100.0% 354,644 354,644 2021 Chongqing Daping Jinmao Residence Chongqing Residential 100.0% 232,798 232,798 2016 Chongqing Panlong Jinmao Residence Chongqing Commercial/Residential 100.0% 300,000 300,000 2016 Chongqing Jinmao International New-Eco City Chongqing Commercial/Residential 45.5% 825,666 825,666 2021 Lijiang Jinmao Whisper of Jade Dragon Lijiang Residential 100.0% 179,355 179,355 2017 Lijiang Snow Mountain Jinmao Noble Manor Lijiang Commercial/Residential 100.0% 18,887 18,887 2017 Zhuhai Every Garden Zhuhai Residential 100.0% 4,143 4,143 2008 Changsha Yuelu Jinmao Landscape Metropolis Changsha Commercial/Residential 51.0% 196,809 196,809 2015 Changsha Meixi Lake Jinmao Plaza Changsha Complex 100.0% 799,471 799,471 2016 Changsha Meixi Lake Jinmao Residence Changsha Commercial/Residential 70.0% 348,487 348,487 2016 Changsha Meixi Lake Land Block F-13 Project Changsha Commercial 100.0% 191,264 191,264 2019 Changsha Meixi Lake Land Block F Project Changsha Commercial/Residential 100.0% 498,605 498,605 2019 Guangzhou Nansha Jinmao Harbour Guangzhou Complex 90.0% 750,652 750,652 2019 Guangzhou Zhujiang Jinmao Palace Guangzhou Residential 50.0% 314,321 314,321 2019 Foshan Green Island Lake Guangzhou Residential 100.0% 638,074 638,074 2021 Tianjin Thermal Power Plant Project Tianjin Complex 100.0% 407,313 407,313 2020 Property development landbank subtotal 11,159,813 408,172 6,930,891 3,820,750

Changsha Meixi Lake International New City Phase I Changsha Primary land 80.0% 2,623,024 2,623,024 2017 Changsha Meixi Lake International New City Phase II Changsha Primary land 70.0% 12,680,000 12,680,000 2020 Changsha Meixi Lake International New City Land Block A Project Changsha Primary land 80.0% 828,966 828,966 2017 Nanjing Qinglong Mountain International Ecological New City Project Nanjing Primary land 80.0% 3,578,645 3,578,645 2020 Sanya Yazhou Primary Land Development Project Sanya Primary land 51.0% 916,741 916,741 2018 Primary land development landbank subtotal 20,627,376 0 20,627,376 0

Sinochem Tower Beijing Office 100% 49,066 49,066 1995 Jinmao Tower Shanghai Office/retail 66.53% 216,462 216,462 1999 Beijing Chemsunny World Trade Centre Beijing Office 100% 110,760 110,760 2006 Nanjing Xuanwu Lake Jinmao Plaza Phase I Nanjing Office/retail 51% 139,806 139,806 2011 Lijiang J-Life Lijiang Retail 100% 21,893 21,893 2014 Changsha Meixi Lake International R&D Centre Changsha Office 80% 14,963 14,963 Changsha Meixi Lake International R&D Centre Changsha Office 80% 107,595 107,595 2016 Shanghai International Shipping Service Center Commercial Shanghai Retail 50% 23,428 23,428 2016 Changsha Jinmao Place Changsha Retail 100% 106,707 106,707 2016 Qingdao Jinmao Harbour Shopping Center Qingdao Retail 100% 61,295 61,295 2016 Shanghai Star Harbour International Center Shanghai Office 50% 92,994 92,994 2017 Shanghai Star Harbour International Center Shanghai Retail 50% 109,964 109,964 2017 Nanjing Xuanwu Lake Jinmao Plaza Phase II Nanjing Office 51% 72,200 72,200 2019 Nanjing Jinmao Place Phase II Nanjing Retail 51% 48,500 48,500 2019 Investment properties landbank subtotal 1,175,633 552,950 501,983 120,700 Renaissance Beijing Wangfujing Hotel* Beijing Hotel 66.53% 44,435 329 1995 Grand Hyatt Shanghai Shanghai Hotel 66.53% 76,013 555 1999 Hilton Sanya Resort & Spa Sanya Hotel 66.53% 75,208 501 2006 The Ritz-Carlton, Sanya Sanya Hotel 66.53% 83,772 450 2008 Westin Beijing Beijing Hotel 66.53% 77,945 550 2008 JW Marriott Shenzhen Shenzhen Hotel 66.53% 51,730 411 2009 Westin Nanjing Nanjing Hotel 51.00% 32,514 234 2011 Hyatt Regency Chongming Shanghai Hotel 66.53% 48,992 235 2014 Grand Hyatt Lijiang** Lijiang Hotel 66.53% 84,384 402 2014 Changsha Luxury Collection Hotel Changsha Hotel 100% 48,592 350 2016 St. Regis Hotel Nanjing Hotel 51% 23,500 200 2019 Guangzhou Nansha Hotel Guangzhou Hotel 90% 28,000 270 2019 Hotels landbank subtotal 675,085 4,487 Total 33,637,907 961,122 28,060,250 3,941,450 4,487

Source: Company, Daiwa *the landbank breakdown as at end-June 2016 is not yet available

China Jinmao (817 HK): 26 July 2016

Daiwa’s Asia Pacific Research Directory HONG KONG SOUTH KOREA Takashi FUJIKURA (852) 2848 4051 [email protected] Sung Yop CHUNG (82) 2 787 9157 [email protected] Regional Research Head Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; John HETHERINGTON (852) 2773 8787 [email protected] Shipbuilding; Steel Regional Deputy Head of Asia Pacific Research Mike OH (82) 2 787 9179 [email protected] Rohan DALZIELL (852) 2848 4938 [email protected] Banking; Capital Goods (Construction and Machinery) Regional Head of Asia Pacific Product Management Iris PARK (82) 2 787 9165 [email protected] Kevin LAI (852) 2848 4926 [email protected] Consumer/Retail Chief Economist for Asia ex-Japan; Macro Economics (Regional) SK KIM (82) 2 787 9173 [email protected] Jonas KAN (852) 2848 4439 [email protected] IT/Electronics – Semiconductor/Display and Tech Hardware Head of Hong Kong and China Property Thomas Y KWON (82) 2 787 9181 [email protected] Cynthia CHAN (852) 2773 8243 [email protected] Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Game Property (China) Kevin JIN (82) 2 787 9168 [email protected] Leon QI (852) 2532 4381 [email protected] Small/Mid Cap

Banking (Hong Kong/China); Broker (China); Insurance (China) TAIWAN Yan LI (852) 2773 8822 [email protected] Rick HSU (886) 2 8758 6261 [email protected] Banking (China) Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design Anson CHAN (852) 2532 4350 [email protected] (Regional) Consumer (Hong Kong/China) Christie CHIEN (886) 2 8758 6257 [email protected] Adrian CHAN (852) 2848 4427 [email protected] Banking; Insurance (Taiwan); Macro Economics (Regional) Consumer (Hong Kong/China) Steven TSENG (886) 2 8758 6252 [email protected] Jamie SOO (852) 2773 8529 [email protected] IT/Technology Hardware (PC Hardware) Gaming and Leisure (Hong Kong/China) Christine WANG (886) 2 8758 6249 [email protected] Dennis IP (852) 2848 4068 [email protected] IT/Technology Hardware (Automation); Pharmaceuticals and Healthcare; Consumer Power; Utilities; Renewables and Environment (Hong Kong/China) Kylie HUANG (886) 2 8758 6248 [email protected] John CHOI (852) 2773 8730 [email protected] IT/Technology Hardware (Handsets and Components) Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap Helen CHIEN (886) 2 8758 6254 [email protected] Kelvin LAU (852) 2848 4467 [email protected] Small/Mid Cap Head of Automobiles; Transportation and Industrial (Hong Kong/China) Brian LAM (852) 2532 4341 [email protected] INDIA Transportation – Railway; Construction and Engineering (China) Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Thomas HO (852) 2773 8716 [email protected] Head of India Research; Strategy; Banking/Finance Custom Products Group Saurabh MEHTA (91) 22 6622 1009 [email protected] Capital Goods; Utilities PHILIPPINES Patricia Tamase (63) 2 797 3024 [email protected] SINGAPORE Banking Ramakrishna MARUVADA (65) 6499 6543 [email protected]

Head of Singapore Research; Telecommunications (China/ASEAN/India) Royston TAN (65) 6321 3086 [email protected] Oil and Gas; Capital Goods David LUM (65) 6329 2102 [email protected] Banking; Property and REITs Shane GOH (65) 64996546 [email protected] Property and REITs; Small/Mid Cap (Singapore) Jame OSMAN (65) 6321 3092 [email protected] Transportation – Road and Rail; Pharmaceuticals and Healthcare; Consumer (Singapore)

China Jinmao (817 HK): 26 July 2016

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China Jinmao (817 HK): 26 July 2016

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Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.)

If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. • In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. • In some cases, we may also charge a maximum of ¥ 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a non-resident of Japan. • For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. • There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. • There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. • Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc.

When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us.

Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Securities Investment Advisers Association Type II Financial Instruments Firms Association