Property Devt & Invt HONG KONG 50 November 1, 2012 · Property Devt & Invt HONG KONG November 1,...

Property Devt & Invt HONG KONG November 1, 2012

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. Designed by Eight, Powered by EFA

Nailing its 3-step remodelling Yuexiu is taking the final step in its 3-stage streamlining of its business model - accelerating property developments to strengthen its growth profile following the sale of non-core assets (step 1) and monetising IP via REITs (step 2). This should trigger further re-rating.

We initiate coverage with an Outperform rating and a target price based on 40% discount to RNAV, in line with the sector average. Potential land acquisition would serve as a near-term catalyst.

Towards a faster churn, one brick at a time Over the past few years, Yuexiu has taken significant efforts to shake off non-core assets/businesses and shorten the payback period of prime investment properties (IP) via its REIT platform. With a more efficient development team, the company is set to shorten its development cycle as the final step in streamlining its business model. Over the past three years, it sped up construction starts at a CAGR of 50-60%, fuelling its saleable resources growth and sales outperformance over the past two years.

Expect a 20% sales growth in FY13 Yuexiu’s accelerated construction starts this year will bring up its saleable resources from Rmb20bn in

FY12 to Rmb25-30bn in FY13. With two to four new launches in Guangzhou next year, Yuexiu could continue to leverage its leading position there. We conservatively project a c.20% growth of contracted sales to Rmb15-16bn in FY13.

Value-accretive acquisitions drive further upside Cashed up after the Guangzhou IFC transaction, Yuexiu has added 1.9m sq m (Rmb5.8bn) of landbank YTD but will still be able to keep net gearing at 50% at end-FY12, according to our estimate. This leaves room for more land acquisitions.

Undemanding valuation Yuexiu is trading at a 54% discount to our RNAV estimate of HK$4.77, deeper than the sector average. We think a narrower discount is warranted given its sound track record and more visible growth. We apply a 40% RNAV target discount to Yuexiu, in line with the sector average.

Notes from the Field

Fan Tso

T (852) 25321319 E [email protected]

Johnson Hu, CFA

T (852) 25321117 E [email protected]

Company Visit Expert Opinion

Channel Check Customer Views

–GZ Starry Wenhua

Yuexiu Property COMPANY NOTE 123 HK / 0123.HK Current HK$2.17 SHORT TERM (3 MTH) LONG TERM

Market Cap Avg Daily Turnover Free Float Target HK$2.90 US$2,603m US$4.31m 50.0% Previous Target N/A HK$20,173m HK$34.60m 9,310 m shares Up/downside 33.6%

Conviction

Sources: CIMB. COMPANY REPORTS

88

101

114

127

139

152

165

178

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

Price Close Relative to HSI (RHS)

Source: Bloomberg

50

100

150

200

250

Nov-11 Feb-12 May-12 Aug-12

Vo

l m

Financial Summary

Dec-10A Dec-11A Dec-12F Dec-13F Dec-14F

Revenue (Rmbm) 5,634 9,569 11,598 13,581 18,654

Operating EBITDA (Rmbm) 1,311 3,400 4,556 4,811 6,285

Net Profit (Rmbm) 919 5,137 2,275 2,406 3,219

Core EPS (Rmb) 0.10 0.18 0.24 0.26 0.35

Core EPS Growth 46.2% 92.3% 32.4% 5.7% 33.8%

FD Core P/E (x) 18.30 9.49 7.15 6.76 5.05

DPS (Rmb) 0.00 0.07 0.09 0.09 0.12

Dividend Yield 0.00% 3.99% 4.90% 5.18% 6.93%

EV/EBITDA (x) 18.17 9.51 6.15 6.59 5.69

P/FCFE (x) 10.66 NA NA NA NA

Net Gearing 62.8% 75.5% 49.8% 61.1% 70.9%

P/BV (x) 0.83 0.80 0.75 0.70 0.64

Recurring ROE 5.1% 9.5% 10.8% 10.7% 13.2%

% Change In Core EPS Estimates

CIMB/consensus EPS (x) 0.89 0.92 0.96

2.17

2.90

1.04 2.17

Target

52-week share price range

Current

SOURCE: CIMB, COMPANY REPORTS

Yuexiu Property

November 1, 2012

2

PEER COMPARISON

Research Coverage

Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside

Yuexiu Property 123 HK HK OUTPERFORM 2,603 2.17 2.90 33.6%

KWG Property Holding 1813 HK HK NEUTRAL 1,740 4.66 4.50 -3.4%

Guangzhou R&F 2777 HK HK NEUTRAL 4,075 9.80 9.15 -6.6%

Agile Property 3383 HK HK NEUTRAL 3,979 8.94 9.40 5.1%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Rolling P/BV (x)

Yuexiu Property KWG Property Holding

Guangzhou R&F Agile Property

0

5

10

15

20

25

30

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Rolling FD P/E (x)

Yuexiu Property KWG Property Holding

Guangzhou R&F Agile Property

0%

4%

9%

13%

18%

22%

27%

31%

36%

40%

0

1

2

3

4

5

6

7

8

9

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

Peer Aggregate: P/BV vs Recurring ROE

Rolling P/BV (x) (lhs) Recurring ROE (rhs)

-60%

-20%

20%

60%

100%

140%

0

5

10

15

20

25


Peer Aggregate: FD P/E vs FD EPS Growth

Rolling FD P/E (x) (lhs) Fully Diluted EPS Growth (rhs)

Valuation

P/E (FD) (x) P/BV (x) EV/EBITDA (x)

Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13

Yuexiu Property 3.17 7.15 6.76 0.80 0.75 0.70 9.51 6.15 6.59

KWG Property Holding 5.16 5.06 4.55 0.80 0.73 0.65 5.21 5.94 5.94

Guangzhou R&F 5.24 5.72 5.36 1.13 1.01 0.90 4.24 4.38 4.56

Agile Property 6.24 5.96 5.35 1.16 1.01 0.89 4.01 4.85 4.62

Growth and Returns

Fully Diluted EPS Growth Recurring ROE Dividend Yield

Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13 Dec-11 Dec-12 Dec-13

Yuexiu Property 351.9% -55.7% 5.7% 9.5% 10.8% 10.7% 3.99% 4.90% 5.18%

KWG Property Holding 59.6% 1.9% 11.2% 14.9% 15.1% 15.1% 5.87% 6.32% 6.59%

Guangzhou R&F 11.4% -8.3% 6.6% 20.9% 18.6% 17.8% 7.57% 7.00% 7.46%

Agile Property -31.4% 4.7% 11.4% 19.7% 18.5% 17.7% 3.87% 4.26% 4.67%


Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends

Yuexiu Property November 1, 2012

3

We estimate a CAGR of 26%

for FY11-14 core net profit

Net cash inflow due to

Guangzhou IFC transaction

Share price info

Share px perf. (%) 1M 3M 12M

Relative 5.5 7.8 71.2

Absolute 10.2 17.9 83.9

Major shareholders % held

Yue Xiu Enterprises (Holdings) Limited

49.9

0%

2%

4%

6%

8%

10%

12%

0.0

0.2

0.4

0.6

0.8

1.0

1.2


P/BV vs Recurring ROE

Rolling P/BV (x) (lhs) Recurring ROE (rhs)

-100%

-69%

-37%

-6%

26%

57%

89%

120%

0

5

10

15

20

25

30

35


FD Core P/E vs FD Core EPS Growth

Rolling FD Core P/E (x) (lhs) FD Core EPS Growth (rhs)

Profit & Loss

(Rmbm) Dec-10A Dec-11A Dec-12F Dec-13F Dec-14F

Revenue 5,634 9,569 11,598 13,581 18,654

Other Operating Income

Cost Of Sales (3,753) (5,565) (6,281) (7,961) (11,256)

Gross Profit 1,881 4,004 5,317 5,621 7,398

Total Operating Costs (808) (985) (1,218) (1,358) (1,772)

Operating Profit 1,073 3,019 4,099 4,262 5,626

Operating EBITDA 1,311 3,400 4,556 4,811 6,285

Depreciation And Amortisation (238) (381) (457) (549) (658)

Operating EBIT 1,073 3,019 4,099 4,262 5,626

Net Interest Income (177) (420) (377) (331) (365)

Exchange Gains

Other Income 469 107 0 0 0

Associates' Profit 256 480 254 337 421

Profit Before Tax (pre-EI) 1,622 3,187 3,977 4,268 5,683

Exceptional Items 379 5,177 0 0 0

Pre-tax Profit 2,001 8,364 3,977 4,268 5,683

Taxation (1,021) (3,108) (1,532) (1,731) (2,346)

Exceptional Income - post-tax

Profit After Tax 979 5,256 2,444 2,538 3,337

Minority Interests (61) (120) (169) (131) (118)

Other Adjustments - post-tax

Net Profit 919 5,137 2,275 2,406 3,219

Recurring Net Profit 718 1,713 2,275 2,406 3,219

Cash Flow


Pre-tax Profit 2,001 8,364 3,977 4,268 5,683

Depreciation And Non-cash Adj. 159 320 580 543 602

Change In Working Capital (6,281) (6,878) (6,024) (4,728) (8,203)

Tax Paid (633) (1,021) (3,108) (1,532) (1,731)

Other Operating Cashflow 1,815 (3,516) 1,788 (741) (1,217)

Cashflow From Operations (2,940) (2,731) (2,788) (2,190) (4,867)

Capex (757) (4,726) (2,052) (1,390) (1,659)

Disposals Of FAs/subsidiaries 0 0 9,762 0 0

Acq. Of Subsidiaries/investments 0 0 0 0 0

Other Investing Cashflow 0 0 (2,312) 0 0

Cash Flow From Investing (757) (4,726) 5,399 (1,390) (1,659)

Debt Raised/(repaid) 5,143 4,046 (3,822) 1,796 1,976

Equity Raised/(Repaid) 0 0 0 0 0

Dividends Paid 0 (648) (796) (842) (1,127)

Net Cash Interest (220) (473) (435) (396) (436)

Other Financing Cashflow 677 2,429 2,429 475 2,953

Cash Flow From Financing 5,600 5,354 (2,624) 1,033 3,366

Total Cash Generated 1,903 (2,103) (13) (2,547) (3,159)

Change In Net Cash (3,240) (6,149) 3,808 (4,343) (5,135)

Free Cashflow To Equity 1,226 (3,884) (1,646) (2,180) (4,985)

BY THE NUMBERS



4

Stronger cash position

expected

Balance Sheet


Fixed Assets 9,832 14,547 6,503 7,803 9,364

Intangible Assets 547 558 892 981 1,080

Other Long Term Assets 2,918 2,972 5,284 5,284 5,284

Total Non-current Assets 13,297 18,077 12,679 14,068 15,727

Total Cash And Equivalents 7,473 6,128 6,823 5,040 3,085

Inventories 26,229 34,609 42,050 48,358 58,029

Trade Debtors 10 5 5 7 9

Other Current Assets 3,772 2,377 1,753 2,279 2,963

Total Current Assets 37,484 43,119 50,632 55,684 64,087

Trade Creditors 4,805 6,436 7,723 9,268 11,121

Short-term Debt 6,034 10,591 7,184 7,903 8,693

Other Current Liabilities 8,483 6,332 6,972 7,903 8,972

Total Current Liabilities 19,322 23,359 21,880 25,073 28,787

Total Long-term Debt 11,703 11,191 10,776 11,854 13,039

Other Liabilities 0 68 0 0 0

Deferred Tax 3,410 5,840 8,269 8,744 11,697

Total Non-current Liabilities 15,113 17,099 19,045 20,598 24,736

Shareholders' Equity 15,860 20,288 21,767 23,331 25,423

Minority Interests 486 450 619 750 868

Preferred Shareholders Funds

Total Equity 16,346 20,738 22,386 24,081 26,291

Key Drivers


Unbooked Presales (m) (Rmb) N/A N/A N/A N/A N/A

Unbooked Presales (area: m sm) N/A N/A N/A N/A N/A

Unbooked Presales (units) N/A N/A N/A N/A N/A

Unsold attrib. landbank (area: m sm) N/A N/A N/A N/A N/A

Gross Margins (%) 33.4% 41.8% 45.8% 41.4% 39.7%

Contracted Sales ASP (per Sm) (Rmb) 16,044 14,882 12,566 13,137 12,493

Residential EBIT Margin (%) N/A N/A N/A N/A N/A

Investment rev / total rev (%) N/A N/A N/A N/A N/A

Residential rev / total rev (%) N/A N/A N/A N/A N/A

Invt. properties rental margin (%) N/A N/A N/A N/A N/A

SG&A / Sales Ratio (%) -14.3% -10.3% -10.5% -10.0% -9.5%

BY THE NUMBERS

Key Ratios


Revenue Growth 20.6% 69.8% 21.2% 17.1% 37.4%

Operating EBITDA Growth 22% 159% 34% 6% 31%

Operating EBITDA Margin 23.3% 35.5% 39.3% 35.4% 33.7%

Net Cash Per Share (Rmb) (1.36) (1.68) (1.20) (1.58) (2.00)

BVPS (Rmb) 2.11 2.18 2.34 2.51 2.73

Gross Interest Cover 4.88 6.38 9.42 10.76 12.92

Effective Tax Rate 47.1% 33.9% 25.0% 25.0% 25.0%

Net Dividend Payout Ratio 0.0% 12.6% 35.0% 35.0% 35.0%

Accounts Receivables Days 2.04 0.28 0.16 0.16 0.16

Inventory Days 2,126 1,995 2,234 2,073 1,725

Accounts Payables Days 432.3 368.6 412.6 389.5 330.6

ROIC (%) 2.21% 5.26% 6.45% 6.66% 7.72%

ROCE (%) 3.8% 8.0% 10.0% 10.3% 12.4%



5

Nailing its 3-step remodelling 1. BACKGROUND

1.1 An investment vehicle of Guangzhou government

Formerly known as Guangzhou Investment, Yuexiu Property (Yuexiu) was listed on the Hong Kong Stock Exchange in December 1992 as a red chip company. Its substantial shareholder Guangzhou Yuexiu Holdings Limited is a state-owned enterprise under the supervision of the State-owned Assets Supervision and Administration Commission of the Guangzhou Municipal People’s Government. Before 2008, Yuexiu was an investment conglomerate engaged in businesses such as toll roads, newsprint, cement as well as property development and investment.

1.2 From a conglomerate to a property developer

After 2008 when Mr Lu Zhifeng was appointed chairman of Yuexiu, management started structural adjustments in the company by disposing of its non-property businesses (toll road business separated in 2009; newsprint business and supermarket business disposed of in 2008 and 2010, respectively). Yuexiu was then turned into a property company focusing only on property development and investment.

Figure 1: Simple group structure post restructuring

Guangzhou Municipal Government

Guangzhou Yuexiu Holding Limited (PRC)

Yue Xiu Enterprises (Holdings) Limited (HK)

Yuexiu Property (123 HK)Yuexiu Finance Holdings

(PRC)

Yuexiu Transport Infrastructure (1052 HK)

49.88%60.65%

SOURCES: COMPANY REPORTS

1.3 Home base Guangzhou; prudent expansion nationwide

In 2008-11, Yuexiu started to gradually but prudently establish its footprint in the Pearl River Delta, Yangtze River Delta, Bohai Rim Economic Zone and central region. As at June 2012, its landbank totalled 11.5m sq m, of which 51% was still located in Guangzhou. The company plans to remain Guangzhou-heavy, with 50-70% of its future contracted sales coming from Guangzhou. While enjoying the benefits of a reasonable level of geographical diversification, a strategy of prudent nationwide expansion should allow for better cost control and, therefore, better profitability management. Most importantly, this allows the company to fully leverage its local SOE background for Guangzhou-oriented growth.

Table of Contents

1. BACKGROUND p.5

2. OUTLOOK p.15

3. RISKS p.21

4. FINANCIALS p.22

5. VALUATION AND RECOMMENDATION p.24

Notes from the Field

“The chance that the interactive model between Yuexiu Property and Yuexiu REIT being replicated by other developers is very low”

– Lu Zhifeng, Chairman


6

Figure 2: Yuexiu’s total landbank as at 30 June 2012

Zhejiang

Shandong

Hubei

Liaoning

Yantai

0.22m sq m

2%

Shenyang

1.04m sq m

9%

Hangzhou

1.17m sq m

10%

Wuhan

0.64m sq m

6%

Guangdong

Hong Kong

0.08m sq m

1%

Guangzhou

5.86m sq m

51%

Zhongshan

1.65m sq m

14%

Jiangmen

0.58m sq m

5%

Foshan

0.29m sq m

3%

SOURCES: COMPANY REPORTS, CIMB

1.4 Strong SOE background provides land acquisition edge in Guangzhou

The primary factor that underpins value-accretive land acquisitions would be a good relationship with local governments, making developers owned by local governments the distinct beneficiaries. Thanks to its well-established government network, Yuexiu is able to secure its growth in Guangzhou with minimal risks. We estimate that the land acquisition cost for Yuexiu’s projects in Guangzhou constitutes only c.25% of ASP, allowing decent profitability, estimated at c.40% gross margin for these projects.

1.5 Funding cost peaked, improvement to drive growth

Yuexiu’s average funding cost was 7.5% during 1H12, up from 5.9% in 2011, mainly due to more trust loan financing. This is in line with its peers as most Chinese developers started the year with weakened finances at a time of higher funding costs.


7

Figure 3: Average funding cost, 1H12

Title:

Source:

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

0%

2%

4%

6%

8%

10%

12%

14%

16%

CR

Lan

d

CO

LI

CC

Lan

d

SO

HO

Ch

ina

Ag

ile

CO

GO

Lo

ng

for

Yuexiu

Sh

imao

Sin

o-O

cea

n

Po

ly P

ropert

y

Guan

gzh

ou R

&F

Everg

rande

Co

un

try

Gard

en

KW

G

Glo

rious

Gre

en

tow

n

SOURCES: CIMB, COMPANY REPORTS

We think that Yuexiu’s funding cost has peaked and could be brought down to c.7% at end-2012 since 1) the proportion of Rmb borrowings has been reduced significantly after the Guangzhou IFC (GZIFC) transaction, 2) the company is looking to settle Rmb1bn-1.5bn of trust loans during 2H12, and 3) Yuexiu has been actively seeking opportunities to increase the proportion of low-cost HK$ borrowings. Its ability to refinance at lower rates should allow it to pursue potential counter-cyclical expansion opportunities.

1.6 A solid leader in Guangzhou

Yuexiu has been building a presence in Guangzhou since the 1980s. It is now one of the leading developers in Guangzhou, with more than 5.8m sq m of landbank in the city in June 2012. We estimate that Guangzhou now accounts for 62% of its total GAV. Currently, Yuexiu has a portfolio of projects under development or for future development in nine districts and one county-level city in Guangzhou, fully capturing the growth potential of this PRD city.

Guangzhou a stable market historically

Guangzhou has a relatively stable property market among the four tier-1 cities, in our view. Based on Soufun’s monthly data, we estimate that the standard deviation of Guangzhou’s monthly primary residential price change (from January 2006 to September 2012) is 7% versus 12% for Beijing, 10% for Shanghai and 11% for Shenzhen. Guangzhou is also a steady market in terms of commodity housing transaction volume, especially during the most difficult years of 2010 and 2011. Guangzhou was apparently the most defensive tier-1 city in 2010 and 2011 as well as the overall best performer in 2007-2011 (see Figure 5). Fundamentally, Guangzhou has the lowest home price-to-income ratio among the tier-1 cities, indicating higher affordability for Guangzhou home buyers (see Figure 6).

During 9M12, primary residential home prices in Guangzhou rose mildly by 2% while that of major cities climbed 6%, according to Soufun’s statistics and our estimates. In Sep 2012, our Guangzhou inventory turnover indicator (inventory/past 12 months’ sales) stood at 9.4 months, near its historical average of 9.0 months. We, therefore, believe that home prices in Guangzhou are likely to remain stable for the next 3-6 months and further policy tightening after the 18th National Congress of the Communist Party is unlikely. We view Yuexiu’s home base in a tier-one city with a stable property market as key to its future expansion strategy.


8

Figure 4: Primary residential price indices for tier-1 cities

Title:

Source:


50

100

150

200

250

300

350

Jan

-06

Mar-

06

May-0

6

Jul-

06

Sep

-06

No

v-0

6

Jan

-07

Mar-

07

May-0

7

Jul-

07

Sep

-07

No

v-0

7

Jan

-08

Mar-

08

May-0

8

Jul-

08

Sep

-08

No

v-0

8

Jan

-09

Mar-

09

May-0

9

Jul-

09

Sep

-09

No

v-0

9

Jan

-10

Mar-

10

May-1

0

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar-

11

May-1

1

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Mar-

12

May-1

2

Jul-

12

Sep

-12

Beijing Shanghai Guangzhou Shenzhen

Beijing: s.d. 12%

Shanghai: s.d. 10%

Shenzhen: s.d. 11%

Guangzhou: s.d. 7%

NOTE: INDEX BASE: JAN 2006 = 100; SOURCES: CIMB, SOUFUN

Figure 5: Commodity housing sales performance comparison among tier-1 cities

2007 2008 2009 2010 2011 9M12 2008 2009 2010 2011 9M12

(m sqm) (m sqm) (m sqm) (m sqm) (m sqm) (m sqm) (yoy %) (yoy %) (yoy %) (yoy %) (yoy %)

Guangzhou 801.6 552.3 978.3 604.5 557.3 518.6 -31% 77% -38% -8% 18%

Beijing 1,490.9 895.9 1,883.1 1,228.5 960.3 950.1 -40% 110% -35% -22% 39%

Shenzhen 484.4 407.1 640.1 320.2 271.7 249.1 -16% 57% -50% -15% 18%

Shanghai 2,688.3 1,554.5 2,644.2 1,581.6 1,308.9 961.6 -42% 70% -40% -17% -5% SOURCES: SOUFUN, CIMB

Figure 6: Home price-to-income ratio

(x) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Beijing 11.4 10.8 11.4 11.9 14.5 12.6 14.7 22.1 18.3 17.3

Shanghai 10.1 10.4 15.2 13.8 13.3 13.5 16.7 22.3 18.5 17.0

Shenzhen 8.9 9.7 8.5 12.0 17.0 12.3 15.4 18.0 15.4 15.7

Guangzhou 8.1 8.6 8.4 10.9 14.1 10.4 12.2 14.1 11.6 11.0

Hangzhou 8.5 8.0 8.1 14.2 15.8 16.6 16.1 21.9 16.9 15.1

Dalian 8.9 8.6 12.2 13.9 15.4 13.9 14.2 16.4 14.8 12.4

Xiamen 7.1 7.8 8.7 11.4 15.8 10.2 12.5 13.3 12.8 11.1

Ningbo 5.3 5.7 7.8 7.8 9.6 11.3 14.6 16.0 13.6 10.8

Tianjin 7.2 7.7 9.3 9.8 11.0 10.3 10.4 11.8 11.2 10.7

Suzhou 6.0 6.1 9.1 8.6 10.0 8.1 9.6 9.8 10.4 9.5

Chengdu 6.5 6.4 7.6 8.2 8.7 9.7 9.2 12.5 11.5 9.3

Nanjing 8.5 8.1 7.7 8.2 8.6 8.5 11.3 12.9 11.1 8.9

Chongqing 4.9 5.1 5.0 8.1 8.9 7.5 9.9 11.9 10.1 8.7

Hefei 7.3 7.9 8.7 7.8 8.3 8.4 8.7 10.1 9.0 7.8

Shenyang 10.1 9.4 9.0 8.3 7.1 6.7 6.8 8.1 7.6 7.3

Wuhan 7.1 7.7 7.6 8.6 9.3 8.7 7.9 10.0 8.2 7.2

Qingdao 6.8 7.4 8.3 7.8 8.1 8.3 10.0 9.9 7.5 7.0

Xi'an n.a. n.a. n.a. n.a. n.a. 8.3 7.5 9.1 8.2 7.0

Wuxi 4.6 5.0 7.7 7.1 8.0 7.6 7.7 9.0 7.5 6.6

Foshan 5.1 5.2 5.0 5.8 7.8 6.9 7.8 8.9 7.9 6.4

Changsha 5.4 4.8 5.0 5.2 6.3 6.3 5.2 7.3 6.4 6.2

Shantou n.a. n.a. n.a. n.a. n.a. n.a. 11.3 10.8 9.9 9.5

Xuzhou n.a. n.a. n.a. n.a. n.a. n.a. 8.3 8.5 8.9 7.2

Bengbu n.a. n.a. n.a. n.a. n.a. n.a. n.a. 8.9 6.4 7.2

Yantai n.a. n.a. n.a. n.a. n.a. n.a. 7.7 8.0 7.6 6.3

Dongquan n.a. n.a. n.a. n.a. n.a. n.a. 6.8 6.7 7.3 6.2

Changzhou n.a. n.a. n.a. n.a. n.a. n.a. 6.2 7.2 6.9 6.2 NOTE: Assuming an average household size of 3 persons and an average home size of 90 sq m. SOURCES: CIMB, COMPANY REPORTS


9

Figure 7: Guangzhou inventory turnover indicator vs. historical average

Title:

Source:


0

2

4

6

8

10

12

14

16

18

Jul-

08

Sep

-08

No

v-0

8

Jan

-09

Mar-

09

May-0

9

Jul-

09

Sep

-09

No

v-0

9

Jan

-10

Mar-

10

May-1

0

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar-

11

May-1

1

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Mar-

12

May-1

2

Jul-

12

Sep

-12

SOURCES: CIMB, SOUFUN

Figure 8: Yuexiu’s major projects in Guangzhou and their locations

NOTE*: GUANGZHOU IFC WAS INJECTED INTO YUEXIU REIT IN 2H12; SOURCE: COMPANY REPORT, CIMB


10

Our recent ground checks reveal resilience in Guangzhou…

Our recent ground checks in Guangzhou show that sales of mass market residential this year are still strong even though sales of high-end products are relatively slow. Home prices have been steady in Guangzhou but Pearl River New City, the CBD in Tianhe district, has shown a 10% price increase during the first three quarters of the year due to limited supply and rising land prices. As c.85% of Yuexiu’s YTD contracted sales came from Guangzhou, a mild price uptrend will continue to benefit the company.

Contrary to some media reports, our checks with local commercial banks indicate that, apart from BOC and CCB, most banks are still offering first-home buyers a 10-15% discount to the benchmark rate. An easy mortgage policy and steadily rising property prices would spur the end-user market and underpin Yuexiu’s sales.

…and phased price-control policy has minimal effect on Yuexiu

In September, the Guangzhou Land Resources and Housing Administrative Bureau carried out phased property control measures to curb the sale of high-end residential units by slowing down the approval of presales permits. Despite the lack of detailed guidance, our checks revealed that the price threshold of the policy depends on the district-based average selling price. Yuexiu expects the policy to be a short-term, transitional one that is likely to be reviewed early next year. The company does not have any more launches (whether for new projects or new phases of existing projects) planned in Guangzhou for the rest of the year. The new policy does not affect its existing projects which already have presales permits. As a result, we believe that the policy should not affect Yuexiu this year.

Figure 9: Yuexiu’s new launches in 2H12

Projects Location Type ASP (Rmb psm) Launch time Comment

Paradiso Riverside Panyu, Guangzhou Residential 14,000 Aug 2012 Unaffected by the Guangzhou price-control policy

Paradiso Sunshine Panyu, Guangzhou Residential 11,000 Aug 2012 Unaffected by the Guangzhou price-control policy

Hangzhou Lin'an Project Hangzhou Residential 5,100 Aug 2012 Not in Guangzhou

Wuhan Qiaokou Project Wuhan Residential 16,000 Sep 2012 Not in Guangzhou

Paradiso Courtyard Haizhu, Guangzhou Residential 23,000 Sep 2012 Unaffected by the Guangzhou price-control policy

Zhongshan Starry Junting Zhongshan Residential 8,300 Oct 2012 Not in Guangzhou SOURCES: COMPANY REPORTS, SOUFUN, CIMB

To march through Guangzhou

Within Guangzhou, Yuexiu is a major player that has been capturing increasingly more market share. During 1H12, Yuexiu had c.9% market share of Guangzhou’s total commodity housing sales compared to c.5-6% in 2009 and 2011 and c.7-8% in 2010. We expect two to four new launches by Yuexiu in Guangzhou next year. The two major launches are the Guangzhou Science City Project (a large-scale project in Luogang district) and Pearl River New Town D8-C3 Project (a high-end project located in the CBD area) while we also expect the two Luogang projects that Yuexiu acquired this year to be launched during late-2013. Given this, together with its signature projects like Southern Le Sand that are still extensively available for sale, Yuexiu’s market share in Guangzhou is likely to further improve in 2013.

Figure 10: Yuexiu – estimated historical market share in Guangzhou (commodity housings)

2009 2010 2011 1H2012

By sales proceed 6% 8% 6% 9%

By area sold 5% 7% 5% 9%

SOURCES: COMPANY REPORTS; SINA DICHAN, SOUFUN, CIMB


11

Figure 11: Top 10 developers in Guangzhou by sales, 1H12 Figure 12: Top 10 developers in Guangzhou by area sold, 1H12

Rmb bn

1 Poly Real Estate 7.2 13%

2 Yuexiu 5.2 9%

3 Guangzhou R&F 4.8 9%

4 Agile 3.4 6%

5 Country Garden 3.3 6%

6 Guangzhou Nimble Investment 3.1 6%

7 Vanke 2.6 5%

8 COLI 2.4 4%

9 New World China 1.9 3%

10 KWG 1.1 2%

Total sales of commodity housings 55.2

k sqm

1 Poly Real Estate 405.5 10%

2 Guangzhou Nimble Investment 362.7 9%

3 Yuexiu 355.3 9%

4 Country Garden 325.1 8%

5 Agile 304.2 8%

6 Guangzhou R&F 241.7 6%

7 Vanke 198.1 5%

8 Shenzhen Heungkong 174.9 4%

9 Guangdong Pearl River Investment 106.9 3%

10 Poly Property 102.5 3%

Total sales of commodity housings 3962.8 SOURCES: SINA DICHAN, SOUFUN, CIMB SOURCES: SINA DICHAN, SOUFUN, CIMB

1.7 Impressive contracted sales track record…

From January to September, Yuexiu achieved contracted sales of Rmb11.0bn, up 134% yoy, at a decent sell-through rate of c.65%. This represents 110% of its FY12 target and is one of the highest run-rate among all its peers (see table below). Apart from non-core investment properties sold, Fortune Century Square, Starry Golden Sands and Fortune Apartments are the best-selling projects so far with each of them contributing more than Rmb1bn.

Figure 13: Contracted sales run-rate of major developers, 9M12

Sep-12 MoM yoy Sep-12 MoM yoy 9M12 sales % chg

9M12

contracted

sales % chg

2012 sales

target

2012

contracted

sales locked-in

('000 sqm) (%) (%) (Rmb bn) (%) (%) ('000 sqm) yoy (Rmb bn) yoy (Rmb bn) (%)

Yuexiu 125 17% 47% 1.4 20% 10% 892 178% 11.0 134% 10 110%

CRL 343 -41% -5% 3.8 -36% -6% 3,453 70% 37.7 57% 40 94%

COLI* 593 -3% 21% 8.6 8% 31% 5,856 33% 91.9 29% 100 92%

COGO* 155 49% n.a. 1.6 50% n.a. 851 n.a. 11.8 n.a. 13 91%

Poly Property 220 -15% 57% 2.1 -9% 62% 1,860 18% 17.2 40% 19 91%

Shimao 467 16% 50% 5.1 27% 44% 3,217 71% 35.7 46% 40 89%

Central China 120 -27% 5% 0.9 -9% 59% 1,187 3% 7.8 12% 9 87%

Sino-Ocean n.a. n.a. n.a. 3.3 0% n.a. n.a. n.a. 23.6 24% 27 87%

Greentown 303 35% 279% 6.0 36% 253% 1,820 54% 32.5 37% 40 81%

CC Land 129 63% 36% 1.0 48% 40% 653 28% 5.0 11% 7 73%

KWG 95 6% 35% 1.2 13% 52% 650 n.a. 8.8 -5% 12 73%

Evergrande 1,456 23% -4% 8.1 13% -11% 9,732 -7% 58.6 -15% 80 73%

Longfor n.a. n.a. n.a. 4.0 12% -5% n.a. n.a. 28.1 0% 39 72%

R&F 246 -4% 17% 2.5 -11% -17% 1,919 36% 22.3 4% 32 70%

Kaisa n.a. n.a. n.a. 1.6 14% -19% 1,819 14% 11.0 7% 17 67%

Glorious 120 7% -27% 1.1 -1% -10% 1,041 -11% 8.9 -14% 13 68%

Sunac 166 6% 15% 3.0 13% 84% 1,280 72% 19.2 73% 30 64%

Agile 285 16% -8% 2.4 7% -16% 2,175 -1% 20.7 -10% 36 58%

Vanke 1,050 1% -3% 12.0 6% -4% 9,079 7% 96.3 -1% n.a. n.a.

Average 9% 34% 11% 32% 38% 24% 80% NOTE*: COLI, COGO IN HK$; Revised targets for Shimao, COLI, COGO; Sunac; Poly Property


In the past few years, Yuexiu has shown outstanding execution ability by meeting all its annual sales targets. For 2012, we expect Yuexiu to slow down sales during the last three months of the year and achieve around Rmb13bn for the full year. This represents a CAGR of 29% on sales from year 2009 to 2012.


12

Figure 14: Yuexiu has hit its sales targets for three consecutive years

Title:

Source:


0

2

4

6

8

10

12

14

2009 2010 2011 2012F

Contracted sales achieved (Rmb bn) Contracted sales target (Rmb bn)

29% CAGR


1.8 … placing it in a better position to protect margins

Hitting its sales targets early allows room for Yuexiu to fine-tune its selling price and speed. In our view, there are chances that Yuexiu would raise its selling price of projects located in Guangzhou’s central areas like Haizhu/Tianhe districts to enhance profitability. Further policy tightening, which we do not expect, would have minimal effect on Yuexiu as the company has no urgent need to cut prices and boost sales for the remainder of this year.

1.9 A comprehensive 3-step approach to improve churning

Step 1: Disposal of non-property businesses (year 2008-2010) and non-core IPs (ongoing)

Since Chairman Lu Zhifeng came onboard in 2008, Yuexiu has been making continuous efforts to streamline its business by shaking off non-property businesses. Subsequent to the disposal of the newsprint business at the end of 2008, Yuexiu spinned off its toll road unit GZI Transport (GZT) by means of the distribution and sale of GZT shares. In December 2010, Yuexiu sold the supermarket business to China Resource Enterprise.

In additional to the above disposal of non-property businesses, Yuexiu divested 211k sq m of non-core investment properties from year 2008 to 1H12, which fetched Rmb3.4bn in revenue. The disposals would allow the company to better employ its capital for developing and churning residential properties as well as upgrading its core investment property portfolio.

Figure 15: Capital structure adjustment and divestment of non-core businesses

Year Event

2008 Disposal of newsprint business

2009 Separation of toll road business

2010 HK$3.4bn raised from a right issues

2010 Disposal of supermarket business SOURCES: CIMB, COMPANY REPORTS


13

Figure 16: Disposal of non-core investment properties

Year GFA (sqm) Revenue (Rmb m) Cost (Rmb m) Gain on sales (Rmb m)

2008 33,700 492 334 158

2009 12,400 236 197 39

2010 81,000 1,345 876 469

2011 36,500 703 596 107

1H12 47,700 576 426 149

Total 211,300 3,352 2,429 922 SOURCES: CIMB, COMPANY REPORTS

In 2008-2011, core earnings and core ROEs had a bumpy ride. We believe this is one of the major reasons for market scepticism about Yuexiu’s consistency in recognising profits and hence its share price has been trading at a deep discount. We believe the market’s scepticism will gradually ease as Yuexiu has demonstrated 1) its execution ability by outpacing its peers in terms of contracted sales without implementing any price cuts, 2) the successful recycling of capital via the injection of GZIFC into Yuexiu REIT as well as the continual disposal of non-core investment properties, and 3) its wisdom in utilising cash to relieve net gearing pressure and expand landbank, striking a perfect balance so far between strengthening its balance sheet and maintaining landbank growth. Moreover, construction progress has not slowed down. We project a 26% CAGR of core earnings from FY11 to FY14, with core ROE steadily trending up due to the sale of investment properties with long payback periods.

Figure 17: Core earnings and core ROE trends

Title:

Source:


0

500

1,000

1,500

2,000

2,500

3,000

3,500

0%

2%

4%

6%

8%

10%

12%

14%

08A 09A 10A 11A 11A 12F 13F 14F

Millions

Core Net profit (RHS) Core ROE (LHS)

Period of optimization Period of growth



14

Step 2: Unique business paradigm: unlocking the value of core IP (ongoing)

Yuexiu is the only Hong Kong-listed China property developer that owns a listed REIT platform, namely Yuexiu REIT (405 HK, formerly known as GZI REIT). We expect the REIT platform to play an important role in Yuexiu’s future development strategy of shortening the payback period of investment properties.

Figure 18: Relationship between Yuexiu and Yuexiu REIT

SOURCES: COMPANY REPORTS

The previous transaction between Yuexiu and Yuexiu REIT took place in January 2008 when Yuexiu sold Neo Metropolis to Yuexiu REIT at a total consideration of HK$677m. That included cash settlement and the issuance of new trust units. This year, Yuexiu continued to leverage the REIT platform, into which it injected GZIFC at a total consideration of Rmb8.85bn, comprising Rmb4.9bn of cash and the remainder in new and deferred trust units.

How does the GZIFC transaction benefit Yuexiu?

(i) Yuexiu obtained Rmb4.9bn of cash and got rid of Rmb4.5bn of bank loans, which, combined, would significantly reduce Yuexiu’s net gearing from 71% to 34% as of June 2012 (assuming the transaction was done on 30 June). A lower net gearing should further enhance Yuexiu’s financing capability.

(ii) Yuexiu is able to immediately unlock the value of GZIFC and obtain capital for better use. We see the transaction as particularly important as it provides cash for Yuexiu’s potential acquisitions, including the Guangzhou Paper Mill site, which, according to our estimate, will cost Rmb6bn-10bn for the entire site.

(iii) Yuexiu will still be able to enjoy a share of the rental income from GZIFC through associate income (an increasing share with the issuance of deferred units from end-2016 to end-2023).

(iv) Yuexiu can regain focus on residential development.


15

Figure 19: The GZIFC transaction

Rmb m

Cash 4,871

Consideration units @ HK$3.3 1,579

Deferred units @HK$4.0 2,400

Total consideration 8,850

Existing construction loan 4,500

Minority interest 90

Transfer value 13,440

Total GFA (k sqm) 457

Transfer value (Rmb psm) 29,400 SOURCES: CIMB, COMPANY REPORTS

According to the management, Yuexiu will work on the subsequent sale of other prime commercial properties to Yuexiu REIT upon the projects’ completion, namely, Fortune World Plaza (2013 completion), Fortune Centre (2016 completion) and Asia Pacific Century Plaza (2018 completion).

Figure 20: How Yuexiu benefits from the sale of commercial properties to Yuexiu REIT

SOURCES: CIMB

2. OUTLOOK

Step 3: Shortening of development cycle (ongoing)

After completing the disposal of non-property businesses, we think Yuexiu has a clear expansion strategy spearheaded by an experienced management team. Management has set a contracted sales target of Rmb20bn by year 2015, implying a 2012-2015 CAGR of 19% based on the company’s internal sales target of Rmb12bn in FY12. Based on our assumption of 3-5% annual property price growth during 2013-2015, we think the Rmb20bn target is a conservative one and could be achieved early. According to the existing development plan, Yuexiu could double its saleable resources from 1.5m sq m in 2012 to around 3m sq m in 2015 with 6m sq m of GFA under development. According to management, Yuexiu will gradually expand its landbank from 11.5m sq m as of June 2012 to around 14m sq m in the medium term.

Yuexiu is now in the early stages of its next phase of growth and we think this is the right time to capture its potential as we believe the current valuation is still undemanding despite the recent share price hike. In our view, the growth will be (1) driven by the shortening of the development cycle, and (2) underpinned by the substantial revenue lock-in as of September 2012.


16

Residential development: aiming for faster churn

Management is looking to speed up project development by implementing product standardisation and shortening the initial planning stage and the marketing cycle so as to enhance project returns and cashflow. We estimate that it currently takes Yuexiu more than 18 months on average to launch its projects from the acquisition of the land, compared to an average of 13-14 months for other major Chinese developers. This implies 20% room for improvement in terms of speeding up of development. We believe Yuexiu’s long development cycle has already been fully priced in and any improvement that leads to quicker asset churn could serve as a re-rating catalyst.

For the two Luogang (Guangzhou) sites that Yuexiu acquired in September and October this year, management indicated that they could be launched by the end of 2013 since the development team began planning for the sites ahead of the acquisitions. We see this as an encouraging improvement as it implies a period of less than 15 months between land acquisition and project launch. We are confident that Yuexiu can gradually turn around its long development cycle on the back of its more efficient development team.

Figure 21: Period from land purchase to presale launch Figure 22: Yuexiu’s asset turnover ratio projection

Title:

Source:


0

2

4

6

8

10

12

14

16

18

20

Everg

rande

Co

un

try

Gard

en

Van

ke

CO

LI

Po

ly R

eal E

sta

te

Avera

ge

Lo

ng

for

CR

Lan

d

Ag

ile

Sin

o-O

cea

n

Gre

en

tow

n

Po

ly P

ropert

y

Yuexiu

Potential improvement

Title:

Source:


12.4% 12.8%

17.1%18.6%

20.3%

24.3%

0%

5%

10%

15%

20%

25%

30%

09A 10A 11A 12F 13F 14F

SOURCES: CIMB, COMPANY REPORTS SOURCES: CIMB, COMPANY REPORTS

Commercial properties: develop, upgrade and monetise

We expect Yuexiu to continue to dispose of non-core investment properties 1) for better capital use, and 2) to cover any residential sales shortfall. As of June 2012, Yuexiu had a remaining c.Rmb2.9bn worth of non-core investment properties for sale, which we expect to be sold in 2-3 years.

Meanwhile, Yuexiu will continue to grow its holding investment properties pipeline to offset the decline of rental income due to the sale of non-core investment properties. As of December 2011, the company had a total GFA of 698k sq m (471k sq m ex-GZIFC) and the portfolio is expected to grow to 1.3m sq m by end-2018 assuming no disposals or REIT injections. In particular, the pre-lease of Fortune World Plaza started in 2012 and we expect it to be the next investment property to be monetised via injection into Yuexiu REIT.


17

Figure 23: Yuexiu – upcoming investment properties pipeline

Year ended Office Retail Others Total Office Retail Others Total

2011 284 200 214 698 122 156 193 471

Upcoming major completions

2013 - Fortune World Plaza 79 197 110 386

2016 - Fortune Center 157 7 46 210

2018 - Asia Pacific Century Plaza 105 27 100 232

Total investment properties based on current portfolio 462 387 449 1,299

GFA (k sqm) GFA ex-GZIFC (k sqm)


Figure 24: Yuexiu – description of upcoming investment properties pipeline


Substantial revenue lock-in underpins growth

As of end-September 2012, we estimate that Rmb14.1bn of sales had yet to be booked as revenue, of which we estimate that Rmb5.0bn and Rmb5.8bn (post business tax) are to be recognised in 2HFY12 and FY13, respectively. Together with the Rmb4.3bn in total revenue achieved in 1H12, this implies that 80% of our FY12 total revenue estimate has already been locked in. For FY13, 43% of our total revenue estimate has been locked in. The high lock-in ratios for our FY12 and FY13 total revenue estimates imply lower FY12 and FY13 earnings risk and higher tolerance to slower contracted sales.


18

Figure 25: Revenue lock-in estimate as of September 2012

before business

tax

post business

tax

(d) (e) (d)/(e)

Unrecognised sales as of Sep 2012

(a)+(b)+(c)14.11 13.33

Expected/actual recognition

1HFY12 4.26

2HFY12 (a) 5.27 4.98

FY12 9.24 11.60 80%

FY13 (b) 6.14 5.80 13.58 43%

FY13 onwards (c) 2.70 2.56

Unrecognised sales as of

Sep2012 (Rmb bn)CIMB - total

revenue estimate

(Rmb bn)

% locked-in


2.1 To focus on 2013

Ample saleable resources for 2013

We expect Yuexiu to have Rmb25-30bn in saleable resources for 2013, a 25-50% growth versus Rmb20bn in 2012. As the company typically announces a conservative external sales target but sets a higher number internally, we would not be surprised if the 2013 external sales target is set at around Rmb14bn (a 10% growth based on 2012 projected sales achievement). We conservatively project Rmb15-16bn of contracted sales in 2013 (about 60-64% implied sell-through rate assuming Rmb25bn of saleable resource) and we are comfortable with this given the 60-65% sell-through rate the company achieved so far this year.

Although the company has not yet determined its exact sales pipeline, we expect to see six major new launches in 2013 (see table below). Among the new sites that Yuexiu acquired in 2012, we expect the two Luogang (Guangzhou) projects and the Wuhan Tazi Lake projects to be launched in late-2013, courtesy of Yuexiu’s more efficient development teams. We are more positive about the sales in Guangzhou CBD due to the limited supply in Tianhe district.

Figure 26: Projected major new launches in 2013

Project Location Type

Est. ASP

(Rmb/sqm)

Est.

GPM

Pearl River New Town D8-C3 Project Tianhe, Guangzhou Residental 37,000 42%

Guangzhou Science City Project Luogang, Guangzhou Residental/ Commercial 15,800 39%

Shenyang Nanta Street Project Shenyang Residental/ Commercial 11,000 34%

Guangzhou Luogang Kai Yuen Ave Project Luogang, Guangzhou Residental 15,700 35%

Guangzhou Luogang Changling Rd. Project Luogang, Guangzhou Residental 15,700 37%

Wuhan Tazi Lake Project Wuhan Residental/ Commercial 10,500 32% Note: Est. ASP and GPM during the first year of launch; SOURCES: CIMB, COMPANY REPORTS

Near-term catalyst: value-accretive land acquisitions

(i) Eye on Haizhu mega site (the Guangzhou Paper Mill site)

This is a 500k sq m mega site located in the old industrial region of Guangzhou Haizhu district, at the waterfront of the Pearl River. Guangzhou Yuexiu Holdings, the parent of Yuexiu, has spent three years converting the site from industrial use to one ready for the development of a residential-commercial complex. Some local media have reported that the draft development plan is likely to include a 250-metre-tall super high-rise office, some SOHO buildings and a shopping mall. Despite the lack of official details, we believe management expects the site to yield 1m-1.5m sq m of total GFA (implying a plot ratio of 2-3x). Taking the average land price of nearby sites as reference, we expect the site to go for at least Rmb6bn-10bn.


19

The Guangzhou government has not officially placed the site on its transfer list yet but it is expected to be available for open auction in 2013. ASPs of nearby projects are currently Rmb20,000-25,000psm, depending on the view.

Figure 27: Location of the Guangzhou Paper Mill site (the red dot)

SOURCES: CIMB, SOGOU MAP

(ii) Disciplined land replenishment in 2H12 to ensure growth beyond 2013

Cashed up by the GZIFC transaction, Yuexiu has become more active in land replenishment since the second-half of 2012. From Jan to 1 Nov, it spent Rmb5.8bn to acquire eight new sites (Rmb5.6bn in 2H12), of which three of them are located in its hometown Guangzhou. These combined added 1.9m sq m of landbank to the company and increased its total landbank to 13.25m sq m as of 1st November. Compared to the estimated GFA sold this year of 1.0m sq m, we believe the 1.9m sq m land replenishment so far is on track to ensure growth in the medium term.

Moreover, Yuexiu is likely to scale up construction commencement by 31-50% yoy from 1.6m sq m in FY11 to 2.1-2.4m sq m in FY12 (1.9m sq m already commenced as of June 2012) while management indicated that actual construction capex in FY12 could be c.Rmb7bn, lower than the budgeted Rmb7.6bn.

Figure 28: New construction starts, 2009-2012F

Title:

Source:


0.6

1.3

1.6

0.0

0.5

1.0

1.5

2.0

2.5

2009 2010 2011 2012F

m sqm

2.1-2.4



20

Figure 29: Yuexiu’s landbank, 2009 to 1st Nov 2012 Figure 30: Yuexiu’s land acquisitions, 2009 to 1st Nov 2012

Title:

Source:


6.6

10

11.2

13.3

0

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4

6

8

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12

14

2009 2010 2011 1st Nov 2012

m sqm

Title:

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2009 2010 2011 Jan - 1st Nov 2012

m sqm


Figure 31: Details of Yuexiu land acquisitions, 2009 to 1st Nov 2012

Period Month Project Location Type GFA (k sqm)Land cost

(Rmb m)

Land cost/ sqm

of GFA (Rmb)

Est. ASP*

(Rmb/ sqm)Est. GPM*

1H12 Jun Conghua Jiangpu Town ProjectConghua,

GuangzhouResidential 185 164 887 5,800 30%

Aug Hangzhou Lin'an Ph.3 Land HangzhouResidential/

Commercial215 254 1,184 8,400 30%

Aug Price Edward Road Project Hong Kong Residential 4 152 41,081 88,200 39%

SepYantai Economic and Technology

Developmeent Zone ProjectYantai Residential 480 530 1,104 6,700 34%

Sep Luogang Site (near Kaiyuan Avenue)Luognag,

GuangdongResidential 226 1,250 5,522 15,700 35%

Oct Luogang Changling Road SiteLuognag,

GuangdongResidential 314 1,650 5,250 15,700 37%

Oct Wuhan Tazi Lake Site WuhanResidential/

Commercial324 1,201 3,708 10,500 32%

Nov Wuhan Tazi Lake Site Ph.2 WuhanResidential/

Commercial153 568 3,715 11,000 34%

2012 YTD total 1,901 5,769 3,035

2011 total 2,013 5,516 2,740

2010 total 3,112 8,318 2,673

2009 total 1,379 5,100 3,698

2H12

Note: Est. ASP and GPM during the first year of launch; SOURCES: CIMB, COMPANY REPORTS


21

3. RISKS

3.1 Further tightening of property measures

Any further stiffening of property measures with regards to the purchase restriction, approval of pre-sales permits, construction loan quotas as well as the tightening of mortgage loan approvals and the expansion of property tax could dampen the property market. All these will directly or indirectly affect Yuexiu’s cashflows and earnings.

3.2 Failure to shorten asset churn cycle

Currently, Yuexiu has a relatively long project development cycle compared to our major listed China developers. Failure to accelerate asset churn might hamper the company’s long-term growth.

3.3 Sluggish property market in Guangzhou

We project that 50-70% of Yuexiu’s future contracted sales would come from Guangzhou. A decline in Guangzhou’s housing demand will adversely affect Yuexiu.

3.4 Higher costs associated with national expansion

Yuexiu may face challenges in national expansion, including the risk of higher direct cost, higher selling and administration expenses, lower pricing power and thus lower profitability.

3.5 Delay in new launches, construction and completion schedule

Potential delays with regards to new launches, construction and completion schedules could harm the company’s earnings and cashflows.

Figure 32: SWOT analysis

Strengths Opportunities

• Strong local SOE background • Continued improvements in asset churn

• Established market position in Guangzhou • More HKD refinancing to lower average funding cost

• Ownership of a unique REIT platform • Continued improvements in SG&A cost as a percentage of sales

Weaknesses Threats

• High geographical concentration • Volatility in Guangzhou property market

• Relatively long project development cycle • Unexpected slowdown in China's economy

• Limited track record in markets outside Guangzhou • Futher property market tightening by the Chinese/Guangzhou governement SOURCES: CIMB


22

4. FINANCIALS

4.1 Stable earnings growth in FY11-14

We project a 25% CAGR for Yuexiu’s topline in FY11-FY14 with a relatively low risk of shortfall, thanks to its substantial Rmb10.2bn of unrecognised sales as of June 2012 and accelerating construction progress this year. We expect Yuexiu to continue to leverage its pricing ability in Guangzhou and we project a 26% core earnings CAGR over the same period.

Figure 33: Total revenue, FY11-FY14F Figure 34: Core net profit, FY11-FY14F

Title:

Source:


5,634

9,569

11,598

13,581

18,654

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

FY10 FY11 FY12F FY13F FY14F

25% CAGR from FY11 to FY14F

Rmb m

Title:

Source:


727

1,607

2,2752,406

3,219

0

500

1,000

1,500

2,000

2,500

3,000

3,500


26% CAGR from FY11 to FY14F

Rmb m


4.2 Normalising GPM; to stay above 40% in FY12-14F

Management expects FY12 gross profit margin to stay close to 50%, thanks to the recognition of some commercial and high-end projects. In the longer term, the company is targeting a gross margin of no lower than 35%. While the gross margin for FY12’s contracted sales looks decent (40%+ for projects within Guangdong province; 30-40% for projects outside Guangdong province), we expect FY13 recognised gross margin to normalise to 41%, still above the industry average.

Figure 35: Contracted sales ASP projection Figure 36: Gross margin projection

Title:

Source:


16,044

14,882

12,566

13,137

12,493

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000


Rmb/ sqm

Title:

Source:


33%

42%

46%

41%40%

20%

25%

30%

35%

40%

45%

50%




23

4.3 Net gearing to stay around 50% as of end-FY12

We expect Yuexiu’s net gearing to decrease from 71% as of June 2012 to 50% as of December 2012 as we expect Rmb6bn of land purchases this year. We think there are still rooms for more potential land purchases in near term given management’s 60-70% net gearing comfort zone.

Figure 37: 2HFY12 cash-flow projections and net gearing forecasts

2H12

(Rmb bn)

Cash inflow

Collection from sales 7.0

Disposal of GZIFC 4.9

Cash outflow

Payment of outstanding land premium (0.6)

Purchase of new land (4.5)

Construction costs (4.0)

Operating costs and taxes (2.5)

Subtotal (11.6)

Net cash flow 0.3

Net debt in mid-2012 (after deduction of GZIFC debt) (11.1)

Net debt at end-2012 (10.9)

Total equity at end-2012 21.8

End-2012:

Net gearing 50% SOURCES: CIMB, COMPANY REPORTS

Figure 38: Net gearing estimates, end-2012

Title:

Source:


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CO

GO

SO

HO

Ch

ina

CO

LI

Yuexiu

Lo

ng

for

Sin

o O

cean

Sh

imao

KW

G

Ag

ile

CR

Lan

d

Guan

gzh

ou R

&F

Everg

rande

Po

ly P

ropert

y

SOURCES: CIMB

4.4 Improving SG&A/revenue ratio

Yuexiu’s continual efforts to dispose of investment properties allow the company to concentrate on the residential development business, thus improving the SG&A/revenue ratio from 20% in FY08 to 10% in FY11. With the disposal of GZIFC this year, we expect the ratio to stay around the 10% level, which indicates improving execution and administration efficiency over the past few years.


24

Figure 39: Selling and administration expense as a percentage of revenue

Title:

Source:


20%

15% 14%

10%

0%

5%

10%

15%

20%

25%

FY08 FY09 FY10 FY11


4.5 How we differ from consensus

Our topline forecasts are higher by 5% for FY12, 2% for FY13 and 7% for FY14 than consensus and our core profit estimates are 7%, 8% and 7% higher, respectively, as 1) we expect the Guangzhou property market to remain solid and we factor in the likelihood of Yuexiu slightly lifting its ASP in core districts of Guangzhou, and 2) we expect quicker asset churn due to potentially shorter initial planning periods for projects. Consistent with our Overweight view on the sector, we believe the property market bottomed out in 2Q12. For the medium term (the next three years), we assume a 3-5% annual ASP growth.

5. VALUATION AND RECOMMENDATION

5.1 Initiate coverage with Outperform and HK$2.9 price target

We expect Yuexiu’s share price to outperform the index in the next 12 months. Our price target of HK$2.9 is based on a 40% discount to NAV (HK$4.77). We expect Yuexiu to narrow its valuation gap with the sector average on the back of 1) management’s outstanding execution capability and track record, 2) management’s strong commitment to speed up asset churn, 3) a clear expansion roadmap ahead and 4) well-developed strategies to shorten the investment cycle and drive earnings.

Our NAV estimate is based on a sum-of-parts approach. We value development properties using DCF fair value estimates by deducting projected outstanding costs from expected cash inflow of contracted sales. Outstanding costs include construction costs, potential LAT and other related expenses. We value investment properties using expected rental revenue discounted by the appropriate capitalisation rates (8-9% depending on the type of properties). Our NAV estimate represents the sum of development property NAV, investment property NAV, outstanding land premium, net debt position and attributable NAV of Yuexiu REIT. In deriving the NAV estimate, we also assume 1) 3-5% annual increase of ASP in the cities that Yuexiu has exposure to, 2) a WACC of 11.4%, and 3) a Rmb/HK$ exchange rate of 1.24.


25

Figure 40: Yuexiu’s RNAV estimate

RNAV (Rmb m) % of total

Development properties:

Guangzhou 22,948 52%

Zhongshan 2,506 6%

Jiangmen 1,042 2%

Foshan 1,268 3%

Yantai 612 1%

Shenyang 2,640 6%

Wuhan 4,548 10%

Hangzhou 1,898 4%

Hong Kong 1,776 4%

Property development GAV 39,239 90%

Investment properties:

Guangzhou 4,566 10%

Investment property NAV 4,566 10%

Subtotal 43,805 100%

Net debt (6,257)

Attri. land premium (5,548)

Attri. NAV of Yuexiu REIT 3,800

Total NAV 35,801

NAV/share (Rmb) 3.84

NAV/share (HK$) 4.77 SOURCES: CIMB


26

Figure 41: Sector Comparisons

Price Tgt Px Mkt Cap RNAV Prem./(Disc.) Gearing(%) P/BV (x)Div.

Yield

(local curr) (local curr) (US$ m) CY2012 CY2013 CY2012 to RNAV (%) CY2012 CY2012 CY2012

Agile Property 3383 HK Neutral 8.94 9.40 3,979 5.9 5.4 19.18 -53% 66% 1.01 4.3%

China Overseas Grand Oceans 81 HK Outperform 8.10 9.95 2,385 8.9 6.9 11.03 -27% 27% 2.64 1.1%

China Overseas Land 688 HK Outperform 20.60 23.50 21,723 10.9 9.2 24.68 -17% 30% 2.04 1.8%

China Resources Land 1109 HK Outperform 17.72 18.50 13,324 15.4 13.8 23.03 -23% 68% 1.58 1.8%

Evergrande Real Estate 3333 HK Trading Buy 3.48 4.70 6,722 5.0 4.5 10.45 -67% 83% 1.09 6.0%

Guangzhou R&F 2777 HK Neutral 9.80 9.15 4,075 5.7 5.4 15.21 -36% 81% 1.01 7.0%

KWG Property Holding 1813 HK Neutral 4.66 4.50 1,740 5.1 4.6 9.04 -48% 63% 0.73 6.3%

Longfor Properties 960 HK Outperform 13.90 16.00 9,734 11.1 10.0 21.40 -35% 42% 2.16 2.6%

Poly Property 119 HK Outperform 4.87 5.80 2,267 8.2 7.6 9.67 -50% 95% 0.66 1.2%

Shimao Property 813 HK Outperform 14.78 16.60 6,622 9.3 6.8 23.87 -38% 63% 1.25 3.5%

Sino-Ocean Land 3377 HK Neutral 5.07 3.60 3,824 9.9 9.2 8.91 -43% 60% 0.62 2.5%

SOHO China 410 HK Neutral 5.44 5.30 3,596 7.6 6.8 9.66 -44% 27% 0.96 4.6%

Yuexiu Property 123 HK Outperform 2.17 2.90 2,603 7.1 6.8 4.77 -54% 50% 0.75 4.9%

Hong Kong average 9.1 7.9 -41% 58% 1.27 2.9%

Bukit Sembawang Estates BS SP Outperform 5.38 5.45 1,142 6.6 6.4 9.1 -41% Net Cash 1.13 3.7%

CapitaLand CAPL SP Outperform 3.27 3.97 11,395 39.5 21.3 5.0 -34% 42% 0.90 1.4%

CapitaMalls Asia CMA SP Underperform 1.85 1.80 5,896 30.7 27.7 2.12 -13% 46% 1.09 1.6%

City Developments CIT SP Underperform 11.46 10.25 8,543 23.0 17.1 12.06 -5% 28% 1.51 1.2%

Fraser & Neave FNN SP Outperform 9.16 9.85 10,808 21.4 16.5 10.52 -13% 28% 1.77 2.0%

Global Logistic Properties GLP SP Neutral 2.57 2.48 9,685 29.4 25.8 2.48 3% 31% 1.21 1.4%

Ho Bee Investments HOBEE SP Neutral 1.48 1.52 851 9.3 6.1 2.18 -32% 30% 0.62 2.7%

Keppel Land KPLD SP Neutral 3.40 3.62 4,304 10.9 12.9 4.83 -30% 24% 0.88 3.0%

Overseas Union Enterprise OUE SP Outperform 2.65 3.38 1,977 24.6 20.2 4.50 -41% 54% 0.78 2.0%

Singapore Land SL SP Outperform 6.87 6.78 2,323 13.8 10.4 12.32 -44% 9% 0.63 2.9%

United Engineers UEM SP Outperform 2.47 3.14 613 16.6 9.6 4.83 -49% 88% 0.59 4.1%

UOL Group UOL SP Outperform 5.66 6.23 3,571 13.6 12.0 8.31 -32% 29% 0.81 1.6%

Wheelock Properties (S) WP SP Neutral 1.81 1.81 1,776 18.4 16.2 2.59 -30% Net Cash 0.74 3.3%

Wing Tai Holdings WINGT SP Outperform 1.74 1.94 1,113 7.5 7.4 2.59 -33% 17% 0.63 4.4%

Singapore average 20.5 16.5 -24% 31% 1.05 1.9%

Alam Sutera ASRI IJ Outperform 580.0 800.0 1,184 11.3 10.6 1,106 -48% Net Cash 2.51 2.3%

Bumi Serpong Damai BSDE IJ Outperform 1,240 1,750 2,254 17.8 14.2 2,744 -55% Net Cash 2.74 0.7%

Ciputra Development CTRA IJ Outperform 680.0 900.0 1,072 19.4 11.6 1,226 -45% Net Cash 1.87 0.9%

Ciputra Property CTRP IJ Outperform 660.0 950.0 422 16.5 9.7 1,330 -50% Net Cash 1.07 1.1%

Lippo Karawaci LPKR IJ Outperform 930.0 1,150 2,230 20.4 17.3 1,354 -31% 9% 2.56 1.7%

Metropolitan Land MTLA IJ Outperform 475.0 700.0 374 19.3 13.2 1,198 -60% Net Cash 2.43 1.1%

Summarecon Agung SMRA IJ Outperform 1,750 2,200 1,312 17.3 14.7 2,500 -30% Net Cash 4.08 0.7%

Surya Semesta Internusa SSIA IJ Outperform 1,180 1,700 577 8.1 7.2 2,824 -58% 7% 3.32 1.8%

Indonesia average 17.1 13.6 -42% Net Cash 2.47 1.2%

Eastern & Oriental EAST MK Trading Buy 1.64 1.77 611 14.5 11.7 2.86 -43% 14% 1.36 2.2%

KLCC Property Holdings KLCC MK Trading Buy 5.93 5.47 1,818 15.6 14.6 6.08 -2% 16% 0.87 1.9%

Mah Sing Group MSGB MK Trading Buy 2.25 2.71 619 8.0 6.6 3.01 -25% 39% 1.52 4.0%

SP Setia SPSB MK Trading Buy 3.61 4.30 2,376 16.6 13.8 4.30 -16% 32% 1.81 3.4%

UEM Land Holdings ULHB MK Trading Buy 2.12 2.42 3,011 24.6 18.3 2.69 -21% 2% 1.77 0.4%

UOA Development UOAD MK Trading Buy 1.69 2.25 705 6.9 6.3 2.81 -40% Net Cash 1.04 7.3%

Malaysia average 15.2 12.7 -23% 14% 1.37 2.3%

Amata Corporation AMATA TB Outperform 15.40 23.70 536 16.3 9.1 21.77 -29% 75% 2.48 2.2%

Asian Property AP TB Outperform 8.70 12.04 807 11.0 8.6 7.00 24% 100% 2.02 3.6%

Hemaraj HEMRAJ TB Outperform 3.14 4.14 993 14.0 10.7 2.80 12% 80% 3.12 3.6%

Land And Houses LH TB Outperform 8.60 9.19 2,810 20.4 19.5 6.00 43% 58% 2.85 4.6%

LPN Development LPN TB Neutral 18.10 20.20 871 12.0 9.8 7.40 145% 2% 3.22 4.2%

Pruksa Real Estate PS TB Outperform 19.60 26.07 1,413 11.0 8.1 22.80 -14% 93% 2.17 2.7%

Quality Houses QH TB Neutral 2.14 1.64 641 24.6 19.0 3.60 -41% 140% 1.27 4.6%

Sansiri Public Co SIRI TB Outperform 3.08 4.20 790 9.2 7.4 2.48 24% 74% 1.94 5.4%

Supalai PCL SPALI TB Underperform 19.20 15.44 1,074 10.2 9.3 9.05 112% 28% 2.46 3.9%

Thailand average 13.5 10.8 16% 74% 2.36 4.0%

Ayala Land Inc. 37.0 31.9 #N/A 22% 4.34 0.9%

Philippine average 19.6 16.3 #N/A 53% 2.99 2.6%

Average (all) 12.6 10.7 -39% 42% 1.27 2.5%

CompanyBloomberg

TickerRecom.

Core P/E (x)



27

6. APPENDIX

Figure 42: Management profile

Name Position Background

Mr Lu ZhifengExecutive director and

Chairman

Mr Lu was appointed executive director and Chairman in 2008. He is also the Chairman of Guangzhou Yue Xiu Holdings and

Yue Xiu Enterprises. Mr Lu holds a Master of Business Administration degree and the qualification of senior economist in

China. He has forty years of experience in production operation, capital and corporate management. Before joinning Yuexiu,

Mr Lu worked for several renowned automobile companies as senior management or the chairman.

Mr Zhang Zhaoxing

Executive director,

Vice Chairman and

General Manager

Mr Zhang was appointed executive director, a Vice Chairman and General Manager in 2008. He is a vice chairman and

general manager of Guangzhou Yue Xiu Holdings and Yue Xiu Enterprises and Chairman of Yue Xiu Transport Infrastructure

Limited. Mr Zhang holds an Executive Master of usiness Administration degree by Huazhong University of Science and

Technology, and possesses the qualification of senior accountant in China. He has extensive experience in the financial

management, industrial operation, capital operation and corporate culture development of large enterprises.

Mr Liang YiExecutive director and

Vice Chairman

Mr Liang was appointed executive director in 2003. He is also a director of Guangzhou Yue Xiu Holdings and Yue Xiu

Enterprises. Mr Liang graduated from the Chinese People’s Liberation Army Engineering Soldier’s University majoring in

public administration. Prior to joining Yuexiu, he assumed leading roles in Guangzhou Chemical Industry Bureau and

organizations under the party Committee of Guangzhou Municipal People’s Government. Mr Liang has over 20 years of

experience in public dministration.

Mr Tang Shouchun Executive director

Mr Tang was appointed executive director in 2006. He is currently a deputy general manager of Guangzhou Yue Xiu Holdings

and Yue Xiu Enterprises, and is responsible for overseeing financial and treasury affairs. Mr Tang graduated from Nanjing

Agricultural University and is a senior accountant, senior economist and registered asset appraiser in China, and has a

Doctor degree in Agricultural Economics and Management. He has extensive experience in the financial management and

capital operation of large enterprises.

Mr Chen Zhihong

Executive director and

General Manager,

Operations

Mr Chen was appointed executive director and General Manager, Operations in 2011. Mr Chen holds a master of business

administration degree of the South China University of Technology and the qualifications of economist and engineer in China.

Prior to joining Yuexiu, Mr. Chen worked for Guangzhou Paper Group for almost 20 years. He has extensive experience in

the real estate industry and is familiar with the regulatory policies for the real estate industry in China.

Mr Lam Yau Fung Curt Executive director

Mr Lam was appointed executive director in 2010. He was previously Head of Corporate Finance and Business Development

at GOME Electrical Appliances. He also spent more than 10 years working in investment banking and capital markets at

Schroders Asia, ABN AMRO Rothschild, and Deutsche Bank. Mr Lam has extensive experience in financial management,

investment and transaction analysis, capital markets, and corporate finance. He is a Chartered Financial Analyst (CFA) and

holds a MBA from Rice University in the US. SOURCES: CIMB, COMPANY REPORTS


28

Figure 43: Yuexiu’s property development schedule

RNAV

12F 13F 14F 12F 13F 14F 12F 13F 14F (Rmb m)

Starry Winking Tianhe, GZ 95% R 36,300 38,115 40,021 - - - - - - -

Starry Winking Tianhe, GZ 95% Others 16,200 17,010 17,861 - - - 113 - - -

Southern Le Sand Tianhe, GZ 95% R 7,100 7,455 7,828 852 596 626 419 359 376 1,077

Southern Le Sand Nansha, GZ 95% C 11,745 12,332 12,949 587 617 647 256 237 249 1,638

Southern Le Sand Nansha, GZ 95% O 7,047 7,399 7,769 - 111 155 - - 149 627

Southern Le Sand Nansha, GZ 95% Others 5,090 5,344 5,611 - 80 84 - - - 450

Jiang Nan New Mansion Haizhu, GZ 95% R 36,270 38,084 39,988 - - - 1,777 1,110 - -

Jiang Nan New Mansion Haizhu, GZ 95% Others 12,150 12,758 13,395 - - - 622 9 - -

Ling Nan Riverside Liwan, GZ 95% R 20,600 21,630 22,712 - - - 623 624 502 -

Ling Nan Riverside Liwan, GZ 95% Others 10,951 11,499 12,074 217 - - 236 - - 81

Fortune Apartment Liwan, GZ 95% C, SA 19,000 19,950 20,948 2,052 - - 1,041 1,017 - 213

Springland Garden Haizhu, GZ 100% R 21,510 22,586 23,715 - - - 468 687 - -

Springland Garden Haizhu, GZ 100% Others 11,927 12,524 13,150 - - - 207 - - -

Glade Village Conghua, GZ 95% R 13,800 14,490 15,215 - - - 150 - - -

Glade Village Conghua, GZ 95% Others 5,148 5,405 5,676 - - - 95 - - -

Conghua Jiangpu Town Conghua, GZ 100% R 5,500 5,775 6,064 - 173 243 - - 233 260

Paradiso Garden Haizhu, GZ 95% R 30,000 32,100 33,705 450 429 - - 183 324 251

Paradiso Courtyard Haizhu, GZ 95% R 23,000 24,610 25,841 299 384 - - 117 249 218

Jiangnan New Village Haizhu, GZ 95% Others 18,225 19,136 20,093 368 - - 456 372 - 60

Fortune Century Square Tianhe, GZ 100% O 33,000 35,310 37,076 1,155 540 - - 502 1,070 501

Fortune Century Square Tianhe, GZ 100% C 32,400 34,668 36,401 - 142 146 - - 284 132

Fortune Century Square Tianhe, GZ 100% Others 17,314 18,526 19,452 69 74 335 - - 472 208

Starry Wenhua Panyu, GZ 95% R 20,000 21,000 22,050 520 1,470 1,544 800 808 848 2,169

Starry Wenhua Panyu, GZ 95% Others 12,150 12,758 13,395 - - 268 - - 322 913

Zhujiang New Town D8-C3 Tianhe, GZ 95% R 35,000 37,000 38,850 - 370 466 - - 740 458

Zhujiang New Town D8-C3 Tianhe, GZ 95% Others 18,000 18,000 18,900 - 144 - - - 131 101

Starry Golden Sands Baiyun, GZ 100% R 14,000 14,700 15,435 728 882 926 821 707 891 1,199

Starry Golden Sands Baiyun, GZ 100% Others 8,568 8,996 9,446 - - 378 - - - 509

Huadu Glade Greenland Huadu, GZ 100% R 6,500 6,825 7,166 228 112 - 65 354 - 154

Huadu Glade Greenland Huadu, GZ 100% Others 3,803 3,993 4,192 - 79 - - - 80 64

Sporty Stadium Building Yuexiu, GZ 95% O 16,200 17,010 17,861 - 442 714 - - 430 520

Sporty Stadium Building Yuexiu, GZ 95% Others 12,960 13,608 14,288 - - - - - - 85

Starry Wenhan Panyu, GZ 95% R 22,000 23,100 24,255 594 1,386 1,455 - 1,111 817 1,369

Starry Wenyu Panyu, GZ 95% R 19,000 19,000 19,950 95 532 778 - - 480 984

Paradiso Riverside Panyu, GZ 95% R/C 13,000 13,650 14,333 390 956 1,003 - 263 345 1,969

Paradiso Sunshine Panyu, GZ 95% R 11,300 11,865 12,458 226 593 632 - 228 300 619

Guangzhou Science City Project Luogang, GZ 95% R 15,000 15,750 16,538 - 480 992 - - 795 1,440

Guangzhou Luogang Kaiyuan Ave. Luogang, GZ 95% R 15,000 15,700 16,485 - 314 989 - - - 1,112

Guangzhou Luogang Changling Rd. Luogang, GZ 95% R 15,000 15,700 16,485 - 314 659 - - - 1,298

Foshan Nanhai Plot Foshan 95% R 13,500 13,500 14,175 - 473 992 - - - 1,268

Zhongshan Starry Winking Zhongshan 95% R 5,900 6,077 6,259 366 365 376 279 178 306 516

Zhongshan Starry Winking Zhongshan 95% C 8,850 9,116 9,389 - - 282 - - 367 191

Zhongshan Starry Winking Zhongshan 95% Others 4,968 5,117 5,271 - - 158 - - - 180

Zhongshan Starry Junting Zhongshan 100% R 8,000 8,240 8,487 160 165 463 - - 166 306

Zhongshan Starry Junting Zhongshan 100% Others 8,000 8,240 8,487 - - 136 - - - 104

Zhongshan Bo-ai Plot Zhongshan 95% R 6,624 6,823 7,027 - 96 351 - 23 275 448

Zhongshan Bo-ai Plot Zhongshan 95% C 9,936 10,234 10,541 - - 422 - 100 309 409

Zhongshan Dongsheng Town Zhongshan 100% R 6,500 6,695 6,896 - - 276 - 131 269 352

Jiangmen Starry Regal Court Jiangmen 95% R 6,600 6,930 7,277 363 416 437 231 213 280 790

Jiangmen Starry Regal Court Jiangmen 95% C 8,910 9,356 9,823 - - 79 - - 123 76

Jiangmen Starry Regal Court Jiangmen 95% Others 5,000 5,250 5,513 - - 165 175 152 133 176

Revenue (Rmb m)Contracted sales (Rmb m)ASP (Rmb/sqm)Project Location Stake Type


NOTE: R=RESDENTIAL, C=COMMERCIAL, O=OFFICE, SA=SERVICED APARTMENT


29

Figure 44: Yuexiu’s property development schedule (cont’d)

RNAV

12F 13F 14F 12F 13F 14F 12F 13F 14F (Rmb m)

Yantai Starry Phoenix Yantai 95% C 8,850 9,293 9,571 - 46 96 - - 187 91

Yantai Starry Phoenix Yantai 95% Others 6,000 6,300 6,489 60 32 130 - - 222 105

Yantai new site Yantai 95% R 6,200 6,510 6,705 - - 201 - - 196 318

Shenyang Yuexiu Hill Lake Shenyang 100% R 8,300 8,715 8,976 274 436 718 581 587 701 825

Shenyang Nanta Street Project Shenyang 100% R/C 11,000 11,000 11,550 - 440 924 - 550 889 1,814

Wuhan Qiaokou Project Wuhan 95% R 16,000 16,800 17,640 800 840 1,764 - 162 1,018 3,187

Wuhan Tazi Lake Wuhan 95% R/C 10,000 10,500 11,025 - 105 221 - - 212 812

Wuhan Tazi Lake Ph. 2 Wuhan 95% R/C 10,000 10,500 11,025 - - 331 - - - 548

Hangzhou Lin'an Hangzhou 100% R 6,500 6,825 7,166 650 683 860 - 328 689 1,293

Hangzhou Lin'an Ph.2 Hangzhou 100% R 7,000 7,350 7,718 - - 463 - - - 471

Hangzhou Lin'an Ph.3 Hangzhou 100% R/C 8,000 8,400 8,820 - - - - - - 135

Yau Tong Project Hong Kong 100% R 56,745 59,582 62,561 - 298 626 - - - 1,224

HK Prince Edward Road Project Hong Kong 100% R 80,000 84,000 88,200 - - - - - - 140

Revenue (Rmb m)Project Location Stake Type

ASP (Rmb/sqm) Contracted sales (Rmb

m)


NOTE: R=RESDENTIAL, C=COMMERCIAL, O=OFFICE, SA=SERVICED APARTMENT


30

Figure 45: Yuexiu’s projects

Wuhan Qiaokou Project

Guangzhou (Panyu) Starry Wenhua

Yantai Starry Phoenix

Guangzhou (Haizhu) Paradiso Courtyard

Guangzhou (Baiyun) Starry Golden Sands

Guangzhou (Tianhe) Fortune Century Square

Zhongshan Starry Winking

Guangzhou (Nansha) Southern Le Sand

SOURCES: CIMB, SOUFUN


31

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The term “CIMB” shall denote where applicable the relevant entity distributing the report in that particular jurisdiction where mentioned specifically below shall be a CIMB Group Sdn Bhd’s affiliates, subsidiaries and related companies.

(i) As of November 1, 2012, CIMB has a proprietary position in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report:

(a) Agile Property, Bukit Sembawang Estates, CapitaLand, CapitaMalls Asia, City Developments, Eastern & Oriental, Fraser & Neave, Keppel Land, KLCC Property Holdings, Mah Sing Group, Sansiri Public Co, Singapore Land, SP Setia, UEM Land Holdings, United Engineers, UOA Development, UOL Group, Wheelock Properties (S), Wing Tai Holdings

(ii) As of November 1, 2012, the analyst(s) who prepared this report, has / have an interest in the securities (which may include but not limited to shares, warrants, call warrants and/or any other derivatives) in the following company or companies covered or recommended in this report:

(a) -

The information contained in this research report is prepared from data believed to be correct and reliable at the time of issue of this report. This report does not purport to contain all the information that a prospective investor may require. CIMB or any of its affiliates does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information and opinion contained in this report and accordingly, neither CIMB nor any of its affiliates nor its related persons shall be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.

This report is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CIMB and its affiliates’ clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. The information and opinions in this report are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments thereof.

Investors are advised to make their own independent evaluation of the information contained in this research report, consider their own individual investment objectives, financial situation and particular needs and consult their own professional and financial advisers as to the legal, business, financial, tax and other aspects before participating in any transaction in respect of the securities of company(ies) covered in this research report. The securities of such company(ies) may not be eligible for sale in all jurisdictions or to all categories of investors.

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This publication is strictly confidential and is for private circulation only to clients of CHK. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CHK. Unless permitted to do so by the securities laws of Hong Kong, no person may issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the securities covered in this report, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong).

Indonesia: This report is issued and distributed by PT CIMB Securities Indonesia (“CIMBI”). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBI has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CIMBI. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBI. Neither this report nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens wherever they are domiciled or to Indonesia residents except in compliance with applicable Indonesian capital market laws and regulations.

Malaysia: This report is issued and distributed by CIMB Investment Bank Berhad (“CIMB”). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMB has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CIMB. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMB.

New Zealand: In New Zealand, this report is for distribution only to persons whose principal business is the investment of money or who, in the course of, and for the purposes of their business, habitually invest money pursuant to Section 3(2)(a)(ii) of the Securities Act 1978.

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its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only. If the recipient of this research report is not an accredited investor, expert investor or institutional investor, CIMBR accepts legal responsibility for the contents of the report without any disclaimer limiting or otherwise curtailing such legal responsibility. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBR.

As of November 1, 2012, CIMBR does not have a proprietary position in the recommended securities in this report.

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Taiwan: This research report is not an offer or marketing of foreign securities in Taiwan. The securities as referred to in this research report have not been and will not be registered with the Financial Supervisory Commission of the Republic of China pursuant to relevant securities laws and regulations and may not be offered or sold within the Republic of China through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Law of the Republic of China that requires a registration or approval of the Financial Supervisory Commission of the Republic of China.

Thailand: This report is issued and distributed by CIMB Securities (Thailand) Company Limited (CIMBS). The views and opinions in this research report are our own as of the date hereof and are subject to change. If the Financial Services and Markets Act of the United Kingdom or the rules of the Financial Services Authority apply to a recipient, our obligations owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report.

This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of CIMBS.

Corporate Governance Report:

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.

The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does not confirm nor certify the accuracy of such survey result.

Score Range 90 – 100 80 – 89 70 – 79 Below 70 or No Survey Result

Description Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority or governmental agencies in the United Arab Emirates. This report is being issued outside the United Arab Emirates to a limited number of institutional investors and must not be provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.

United Kingdom: This report is being distributed by CIMB Securities (UK) Limited only to, and is directed at selected persons on the basis that those persons are (a) persons falling within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (the “Order”) who have professional experience in investments of this type or (b) high net worth entities, and other persons to whom it may otherwise lawfully be communicated, falling within Article 49(1) of the Order, (all such persons together being referred to as “relevant persons”). A high net worth entity includes a body corporate which has (or is a member of a group which has) a called-up share capital or net assets of not less than (a) if it has (or is a subsidiary of an undertaking which has) more than 20 members, £500,000, (b) otherwise, £5 million, the trustee of a high value trust or an unincorporated association or partnership with assets of no less than £5 million. Directors, officers and employees of such entities are also included provided their responsibilities regarding those entities involve engaging in investment activity. Persons who do not have professional experience relating to investments should not rely on this document.

United States: This research report is distributed in the United States of America by CIMB Securities (USA) Inc, a U.S.-registered broker-dealer and a related company of CIMB Research Pte Ltd solely to persons who qualify as "Major U.S. Institutional Investors" as defined in Rule 15a-6 under the Securities and Exchange Act of 1934. This communication is only for Institutional Investors and investment professionals whose ordinary business activities involve investing in shares, bonds and associated securities and/or derivative securities and who have professional experience in such investments. Any person who is not an Institutional Investor must not rely on this communication. However, the delivery of this research report to any person in the United States of America shall not be deemed a recommendation to effect any transactions in the securities discussed herein or an endorsement of any opinion expressed herein. For further information or to place an order in any of the above-mentioned securities please contact a registered representative of CIMB Securities (USA) Inc.

Other jurisdictions: In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is only for distribtion to professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

Recommendation Framework #1 *

Stock Sector

OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months.

NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant benchmark's total return.

NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months.

UNDERPERFORM: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months.

TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months.

TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for t he total expected

returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

CIMB Research Pte Ltd (Co. Reg. No. 198701620M)


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Recommendation Framework #2 **

Stock Sector

OUTPERFORM: Expected positive total returns of 10% or more over the next 12 months.

OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 12 months.

NEUTRAL: Expected total returns of between -10% and +10% over the next 12 months.

NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +10% (or better) or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +10% to -10%; both over the next 12 months.

UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 months.

UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 12 months.

TRADING BUY: Expected positive total returns of 10% or more over the next 3 months.

TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +10% or better over the next 3 months.

TRADING SELL: Expected negative total returns of 10% or more over the next 3 months.

TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -10% or worse over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily

outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.

ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCP - Excellent, BEC - Very Good, BECL - Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY – Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH – Very Good, ITD - Good, IVL - Very Good, JAS – Very Good, KBANK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, SC – Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM – Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good, TUF - Very Good.

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