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In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore.
“Recipients of this report, received from DBS Vickers Research (Singapore) Pte Ltd (“DBSVR”), are to contact DBSVR at +65 6535 9688 in respect of any matters arising from or in connection with this report.”
www.dbsvickers.com
ed-OY / sa- AH
BUY HK$2.58 HSI : 22,577 (Initiate Coverage) Price Target : 12-Month HK$ 3.15 Reason for Report : Initiating Coverage Potential Catalyst: Further NAV-accretive land acquisitions and improved visibility of fast asset turn DBSV vs Consensus: Our FY12-14F EPS below consensus Analyst Carol WU · (852) 2863 8841· [email protected] Ken HE CFA +86 21 6888 3375 [email protected] Danielle WANG, CFA · (852) 2820 4915· danielle_wang @hk.dbsvickers.com Andy YEE · (852) 2971 1773· [email protected]
Price Relative
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1.0
1.5
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Feb-09 Feb-10 Feb-11 Feb-12 Feb-13
HK$
80
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140
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180
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240
Relative Index
Yuexiu Property (LHS) Relative HSI INDEX (RHS)
Forecasts and Valuation F Y Dec (RM Bm) 2011A 2012F 2013F 2014F
Turnover 9,569 9,661 14,422 19,655EBITDA 8,149 4,841 4,418 5,893Pre-tax Profit 8,364 4,562 4,314 5,785Net Profit 5,137 2,169 2,199 2,982Core Net Profit 1,262 1,719 2,199 2,982EPS (RMB) 0.55 0.23 0.24 0.32EPS (HK$) 0.69 0.29 0.29 0.40EPS Gth (%) 350.7 (57.8) 1.4 35.6Diluted EPS (HK$) 0.69 0.29 0.29 0.40DPS (HK$) 0.09 0.05 0.06 0.08BV Per Share (HK$) 2.72 2.97 3.22 3.56PE (X) 3.7 8.9 8.7 6.4EV /EBITDA (X) 5.0 7.5 8.2 6.0Net Div Yield (%) 3.4 1.8 2.3 3.1P/Book V alue (X) 0.9 0.9 0.8 0.7Net Debt/Equity (X) 0.8 0.5 0.5 0.4ROAE (%) 28.4 10.2 9.5 11.8
Earnings Rev (%) New New NewConsensus EPS (RMB) 0.25 0.25 0.31Other Broker Recs: B: 12 S: 0 H: 1
ICB Industry: Financials ICB Sector: Real Estate Holding & Development Principal Business: Property development & management Source of all data: Company, DBSV, HKEX
A faster Yuexiu • The largest landlord in Guangzhou, benefitting from the city’s
urban renewal and Nansha development plans
• Faster investment and development cycle should drive rapid growth: c.20% presales growth over the next three years
• SOE background and investment grade rating allow it to borrow at low cost to power its expansion
• Initiating coverage with BUY with TP of HK$3.15 National expansion with focus on Guangzhou. Yuexiu Property owns a land bank of 14.5m sm, with 6.4m sm in Guangzhou, making it the largest landlord in Guangzhou. In addition, its land bank quality is much higher than its peers’, helped by its local SOE background. The city government is actively progressing its urban renewal plan and developing Nansha into the sixth state-level new development area to facilitate the integration between Hong Kong and Guangzhou. Yuexiu shall benefit from such efforts, with a large land bank in Guangzhou CBD and Nansha areas. Its high quality land bank in the city will also help it to mitigate potential policy risk given the supply shortage in Guangzhou central districts.
Improvement in asset turn to drive high earnings growth. Yuexiu’s asset turn ratio has improved substantially from 11% in FY08 to 17% in FY11. In our view, such uptrend will likely continue. Its presales grew 35% y-o-y to Rmb12.3bn in 2012 and are expected to grow another 20% to Rmb15bn in 2013, supported by sufficient saleable resources of Rmb28-30bn (40-50% y-o-y growth). It registered strong presales of Rmb2.9bn (Rmb4.6bn if including subscribed sales) in Jan2013. In addition, it is the only developer in China owning a listed REIT platform. This provides it a unique way to manage cash flow by injecting commercial properties into Yuexiu REIT. We estimated its core profit to grow at c.30% in 2013/2014.
Lower funding costs to support future margins. It recently obtained investment grade rating from rating agencies, making it one of the few developers (others include COLI, CRL and Franshion) owning such a rating. Recent medium-term note due 2018/2023 was priced at 3.75%/4.25% respectively, much lower than peers. Its average funding cost was 7.5% in 1H12 and is expected to decline with the new bond issuance this year. This should support higher margins ahead. We estimate a 50% net gearing at end-FY12 with cash on hand of Rmb6bn.
BUY for accelerated growth. Initiating coverage on Yuexiu Property with BUY and HK$3.15TP, based on 40% discount to our estimated NAV of HK$5.25. Valuation is attractive at a 51% discount to NAV (or a deeper discount of 55% if excluding Yuexiu REIT), against Tier II peers’ average of 43% and sector average of 44%. Re-rating catalysts include further NAV-accretive acquisitions and improved asset turn.
At A Glance Issued Capital (m shrs) 9,300Mkt Cap (HK$m/US$m) 23,994 / 3,093Major Shareholders (%) Guangzhou Yue Xiu Hold. Ltd 49.88
F ree F loat (%) 50.12Avg Daily V olume (m shrs) 3.5
DBS Group Research . Equity 28 February 2013
China / Hong Kong Company Focus
Yuexiu Property Bloomberg: 123 HK EQUITY | Reuters: 0123.HK Refer to important disclosures at the end of this report
China / Hong Kong Company Focus
Yuexiu Property
Page 2
Table of Contents
SWOT Analysis 3
Corporate Profile 4
Transformed into a national real estate company 4
Fast land bank expansion 5
Local SOE background transferred to low funding costs 5
Business Model and Outlook 7
Guangzhou opportunities 7
Ongoing improvements in asset turn 9
Improved Financials to Support Expansion 14
High earnings visibility 14
Expecting 33% core earnings CAGR in FY11-14F 15
Cash flow manageable 15
BUY for Strong Growth Potential and Multiple Catalysts 18
NAV estimated at HK$5.25 18
TP of HK$3.15, based on 40% discount to NAV, BUY 18
Never too late 19
Key Risks 20
Appendices 25
China / Hong Kong Company Focus
Yuexiu Property
Page 3
SWOT Analysis
Strengths Weakness
• Municipal SOE background helps in land acquisitions and access to finance. Given its local SOE background, Yuexiu Property has strong support from the government, especially in Guangzhou and surrounding cities. Its SOE background should also enable Yuexiu Property to obtain finance at a relatively low cost.
• Unique REIT platform to unlock value and manage cash flow. It is the only developer in China owning a listed REIT platform. This provides it a unique way to manage cash flow by injecting commercial properties into Yuexiu REIT. In addition, enlarged operating scale and improved market liquidity should also drive Yuexiu REIT’s valuation, which might potentially benefit Yuexiu Property.
• One of a few China developers owning investment grade rating. A recent medium-term note due 2018/2023 was priced at 3.75%/4.25% respectively, much lower than peers’ funding cost. The issuance will be used to pay down previous trust finance, which in turns, should lower its average funding cost and extend its borrowing maturity profile.
• Highly exposed to Guangzhou. Guangzhou still gives Yuexiu’s its major competitive edge and is a revenue growth driver. Yet, the company might be negatively affected by the fluctuation of the Guangzhou market.
• Limited track record outside Guangzhou. We’re quite confident in the company’s execution ability in Guangzhou and Guangdong. But the company has a limited track record in other cities and areas it has newly penetrated.
Opportunities Threats
• Continuous improvements in asset turn. It has successfully improved its asset turn and this improvement will likely to continue. Its asset turn ratio has improved from 11% in FY08 to 17% in FY11. The company aims to launch pre-sales in 12 months after land acquisitions, much faster than the previous 24 months. On the commercial side, it will shorten the payback period by injecting premium commercial properties into Yuexiu REIT and disposing non-core commercial properties. The ongoing improvements in asset turn allow it to self-finance land acquisitions and development costs.
• Guangzhou opportunity. Yuexiu Property is a potential beneficiary of Guangzhou “Three-Old” Urban Renewal Plan and the development of Guangzhou Nansha New District (which is the sixth state-level new development area).
• Further policy tightening in Guangzhou. Recent ASP increase in Tier I cities arouse investors’ concerns over new policy risks in Tier I cities.
• Rising land costs. It has to face rising land costs, as it expands nationwide. This may affect its margins if national expansion pace is not well controlled.
Source: DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 4
Corporate Profile
Transformed into a national real estate company
A former conglomerate in Guangzhou. Yuexiu Property Co., Ltd. (or “Yuexiu Property”) was previously known as Guangzhou Investment Co. Ltd. – an investment vehicle of Guangzhou Municipal Government under the supervision of the State-owned Assets Supervision and Administration Commission (or “SASAC”). Listed on the HKEx as a red chip company in 1992, it was a conglomerate with various businesses including transport, cement, newsprint and property investment before 2008.
Reshaped into a pure real estate company, led by new management team. The company was blamed for its timid business portfolio and limited synergies between those businesses in the past. After the company was taken over by the new management in 2008, it implemented a series of restructuring and streamlined non-core businesses to focus on the property business. By end-2010, it had successfully transformed into a pure professionally-managed property developer.
Yuexiu Property’s restructuring milestones
Year Adjustment & optimization
1992 Listed
1993 Acquired cement business
1997 Listing of GZI Transport
2002 Disposal of cement business
2002 Acquired Guangzhou City Construction & Development Holdings
2005 Listing of GZI REIT
2007 Raised its stake in GZI Transport to 45.28%
2008 Disposed newsprint business
2009 Disposed toll road business
2010 Disposed supermarket business
2010 HK$3.4bn raised from a right issues
2012 Transferred GZ IFC into Yuexiu REIT
Source: Company, DBS Vickers
Yuexiu Property’s development path: Restructuring largely done, entering into high growth stage
Source: Company, DBS Vickers
Listed
1992
Listing of GZI REIT
2008 2009 2010 2011 2012 2013 2014 2015 2005
Business restructuring led by new management
Disposed newsprint, toll road, and supermarket businesses
Rapid growthSustainable stable growth
Streamline non-property business
Dual-wheel model of property development and investment
Strategic national expansion
1. Asset turns to accelerate 2. Continue to dispose non-core investment properties 3. Twin-platform interaction
Injected Neo Metropolis into REIT
Injected GZ IFC into REIT
China / Hong Kong Company Focus
Yuexiu Property
Page 5
Fast land bank expansion
Fast landbank expansion post restructuring and GZ IFC’s transaction. After successful disposal of non-core businesses in 2008, the company has accelerated its land bank expansion pace. It has spent a total of Rmb18.9bn on land acquisition, adding 6.5m sm GFA into its landbank in 2009-2011. After the GZ IFC’s transaction in 2H12, it spent a total of Rmb8.4bn (Rmb7.0bn attributable) on land acquisitions, adding 3.2m sm GFA to its landbank. Currently, it owns a total landbank of 14.5m GFA.
Land banking 2009-2013YTD
Planned Actual GFA AV
(Rmb bn) (Rmb bn) (m sm) (Rmb/sm)
2009 5.5 5.1 1.4 3,698
2010 5.5 8.3 3.1 2,673
2011 6.0 5.5 2.0 2,740
2012 5.0 8.0 2.9 2,761
2013 YTD 5.0 0.3 0.3 1,159
Total 27.3 9.7 2,810
Source: Company, DBS Vickers
Nationwide expansion with strategic focus on Guangzhou. The company has successfully expanded into selective cities in Bohai Rim, Yangtze River Delta and Central regions. So far, its nationwide expansion is roughly done. Of the total landbank, 44%/17%/15%/15%/8% is from the Guangzhou/Pearl River Delta/ Bohai Rim/ Yangtze River Delta/ Central regions, respectively. Looking ahead, the company will remain focused on its home base – Guangzhou and Guangdong province – and target 50%/70% of its landbank to be from Guangzhou/Guangdong province, respectively, in the mid-term.
Its strategy to focus on Guangdong should help reduce risks in its national expansion. It will also deepen penetration into the cities it covers in Bohai Rim, Yangtze River Delta and Central regions. The key decision-making criteria include location and profitability (gross margin over 30%).
Landbank breakdown by regions
HongKong0.5%
Hainan0.5%
Pearl RiverDelta
17.3%
Guangzhou44.0%
Bohai Rim15.4%
YangtzeRiver Delta
14.5%
Centralregion7.7%
Source: Company, DBS Vickers
Local SOE background transferred to low funding costs
Established a US$2bn medium-term note program. Its SOE background also enables Yuexiu Property to obtain finance at a relatively low cost. It was recently granted a “Baa3” rating from Moody’s Investors Inc. and a “BBB-“rating by Fitch Ratings Ltd. It successfully established a US$2bn medium-term note program and issued US$350m 3.25% medium-term notes due in 2018 and US$500m 4.5% medium-term notes due in 2023. Its funding cost is much lower than its peers or at similar levels to that of COLI and CRL.
China / Hong Kong Company Focus
Yuexiu Property
Page 6
Yuexiu Property’s geographical exposure: Nationwide expansion with strategic focus on Guangzhou
Source: Company, DBS Vickers
Landbank replenishment since mid-2012: Accelerated landbanking after the GZ IFC’s transaction
Project City Date Type GFA (sm)Land cost (Rmb m)
AV (Rmb/sm)
Conghua Jiangpu Town Project Guangzhou Jun-12 R 184,900 164 887
Hangzhou Lin'an Phase III Land Hangzhou Aug-12 R/C 214,600 254 1,184
HK Prince Edward Road Project HongKong Aug-12 R 3,700 152 41,081
Yantai Land Parcel Yantai Sep-12 R/C 480,000 530 1,104
Luogang Land Parcel Guangzhou Sep-12 R 226,400 1,250 5,521
Luogang Changling Road Land Parcel Guangzhou Oct-12 R 314,300 1,650 5,250
Wuhan Jiang'an District Land Parcel Wuhan Oct-12 R/C 323,900 1,201 3,708
Wuhan Jiang'an District Land Parcel III Wuhan Nov-12 R/C 152,900 568 3,715
Shenyang Changbai Island Land Parcel Shenyang Nov-12 R/C 154,800 400 2,584
Simpo Island Land Parcel Haikou Nov-12 R 68,000 350 5,147
Kunshan Huaqiao Land Project Kunshan Dec-12 R 429,515 496 1,154
Qingdao Licang Land Project Qingdao Dec-12 R/C 353,880 1,011 2,857
Hangzhou Lin'an Phase IV Land Hangzhou Jan-13 R/C 292,678 339 1,159
Total 3,199,573 8,365 2,614
Source: Company, DBS Vickers
Shenyang
Yantai
Wuhan
HongKong
Guangzhou, Zhongshan, Jiangmen, and Foshan
Haikou
Landbank breakdown by cities City GFA (sm) % Guangzhou 6,405,500 44% Zhongshan 1,647,400 11% Jiangmen 582,000 4% Foshan 289,300 2% Yantai 699,800 5% Qingdao 355,880 2% Shenyang 1,191,400 8% Hangzhou 1,681,878 12% Kunshan 429,515 3% Wuhan 1,120,700 8% Haikou 68,000 0% HongKong 75,600 1% Total 14,546,973 100%
Hangzhou
Kunshan
Qingdao
China / Hong Kong Company Focus
Yuexiu Property
Page 7
Business Model and Outlook
Guangzhou opportunities
Guangzhou residential market has been historically healthy. Guangzhou is viewed as the healthiest market in terms of affordability. The monthly payment to disposable income in 2012 averaged at 71% in Guangzhou (vs. historical average of 69%), lower than the 92% in Shenzhen, 91% in Beijing and 76% in Shanghai. Property price to annual income in 2012 averaged at 11.6x in Guangzhou (vs. historical average of 11.7x), lower than the 14.7x in Beijing, 14.7x in Shenzhen, and 12.3x in Shanghai. On the contrary, Guangzhou’s annual disposable income has achieved a higher CAGR growth among peers (11.3% vs. Tier I cities’ average of 10.8% in 2007-2011).
Guangzhou’s residential market is the healthiest among four Tier I cities
Monthly payment to disposable income
(2012 avg)
Property price to annual income
(2012 avg) Beijing 91% 14.7 Shanghai 76% 12.3 Guangzhou 71% 11.6 Shenzhen 92% 14.7
Source: CEIC, Soufun, DBS Vickers
Sales-through rate of new launches (on the launch day) in Guangzhou stayed high
0
1
2
3
32W
1233
W12
34W
1235
W12
36W
1237
W12
38W
1239
W12
40-4
1W12
42W
1243
W12
44W
1245
W12
46W
1247
W12
48W
1249
W12
50W
1251
W12
52W
1253
W12
1W13
2W13
3W13
0%
20%
40%
60%
80%
100%
120%
Total projects launched (LHS)Sale-through rate (RHS)
Source: Soufun, DBS Vickers
ASP is trending upwards. The number of months to digest inventory in Guangzhou has fallen to 6.8x as of end-Nov 2012, far below the historical average of 9.5x. In addition, the sales-through rate of new launches recently stayed high. All these things suggest improving demand supply dynamics in Guangzhou. In addition, ASP in Guangzhou is trending upwards lately (ASP in Jan 2013 up 2.0% m-o-m, or 4.7% y-o-y), which may enable Yuexiu – the largest landlord in Guangzhou to enjoy margins expansion in the long term. While price uptrend may trigger potential government actions in the near term, Yuexiu’s high quality land bank shall help it mitigate such risk.
Office market to recover. While Guangzhou office supply glut is a concern, office supply has peaked in 2012 and likely to moderate in 2013, according to Jones Lang LaSalle. Rents are largely stable. While we expect mild rental correction this year, we believe Yuexiu’s major office building IFC (owned through Yuexiu REITs) shall see more resilient rents due to its prime location. As Guangzhou government continues to upgrade its service economy, we foresee growing demand for office space in Guangzhou in the mid to long term. We have drawn a scattered chart (See appendix) to show cumulative office GFA new start (2009-2012) vs. 2011 tertiary industry output for the 40 cities across the nation and found that Guangzhou supply is relatively lagging behind potential demand in the mid- to long-term (Guangzhou spot is far above the trend line).
Office rental rate comparison (3Q12)
Guangzhou Shenzhen Shanghai BeijingAvg rent (Rmb/sm/month)
156 163 267 305
Avg value (Rmb/sm)
31,941 45,237 54,944 56,949
Source: CBRE, DBS Vickers
More land acquisition opportunities in Guangzhou. The city’s land transaction value has been lagging behind original targets in the past two years (Rmb31bn/Rmb22bn transacted in 2011/2012, respectively, far below the targetted Rmb50bn/Rmb31bn) due to the sluggish land market in 2011/2012. Therefore, the city government is eager to launch more land for sale to make up for the revenue gap in the last two years. In 2013, the city is looking at a land transaction value of Rmb30bn, implying a 36% y-o-y growth. Being an investment vehicle of Guangzhou government, Yuexiu Property should enjoy advantages over peers in land acquisitions in Guangzhou, helped by its local SOE background.
China / Hong Kong Company Focus
Yuexiu Property
Page 8
Guangzhou office: financial indices (4Q09 = 100)
Guangzhou office: physical indicators
60
80
100
120
140
160
4Q09 4Q10 4Q11 4Q12 4Q13
Rental value index Capital value index
0
100
200
300
400
500
600
700
2009 2010 2011 2012 2013F0
2
4
6
8
10
12
14
16
18
Take up (LHS) Completion (LHS)Vacancy rate (RHS)
'000 sqm %
Source: Jones Lang LaSalle Source: Jones Lang LaSalle
Guangzhou retail: financial indices (4Q09 = 100)
Guangzhou retail: physical indicators
90
100
110
120
130
4Q09 4Q10 4Q11 4Q12 4Q13
Rental value index Capital value index
0
100
200
300
400
500
600
2009 2010 2011 2012 2013F0
1
2
3
4
5
6
7
Completion (LHS) Vacancy rate (RHS)
'000 sqm %
Source: Jones Lang LaSalle Source: Jones Lang LaSalle
China / Hong Kong Company Focus
Yuexiu Property
Page 9
Yuexiu Property’s existing projects and in Guangzhou downtown area and acquisition target in Haizhu District
Source: Company, DBS Vickers
Likely to benefit from the city’s urban renewal plan. Yuexiu Property is also expected to be a potential beneficiary of Guangzhou’s “Three Old” (old urban area, old villages, and old factories) Urban Renewal Plan, as its parent – Yuexiu Group was involved in several “Three Old” redevelopment projects. Yuexiu Property’s Ling Nan Riverside project was built on the old site of Guangzhou Cement Factory (currently a subsidiary of Yuexiu Group and formerly a subsidiary of Guangzhou Investment). For this year, a premium parcel of land – formerly old site of Guangzhou Newsprint (also a subsidiary of Yuexiu Group and formerly a subsidiary of Guangzhou Investment) is expected to be launched for sale this year. The site covers a total area of 0.5m sm and is expected to be developed into a residential and commercial complex project with total GFA of around 1.5m sm. Yuexiu Property stands a good chance of winning this land on the back of its historical ties. The mega site of land is expected to be listed by phases, with the first phase to be launched as early as 1H13.
Hidden value in Nansha. Guangzhou Nansha new area was approved by the State Council as the sixth state-level new
development area, which is designated to deepen integration and cooperation between Guangdong and HongKong/Macao. The new area is expected to enjoy various favourable policies in the future. Guangdong is looking at an industrial upgrade, transforming the province into a high-quality service company, which is likely to attract more companies to settle down in the Nansha new area. Driven by this, housing prices in Nansha district increased significantly in end-2012/early-2013. Yuexiu Property’s Nansha project was previously selling at an ASP of Rmb7k/sm in early-2012 and is now selling at an ASP of Rmb11k/sm. Yuexiu Property’s landbank in Nansha is 2.4m sm with a relatively low cost of only Rmb700/sm.
Yuexiu Group and Guangzhou Nansha District Government signed a comprehensive strategic cooperation framework agreement in early-2012. The two bodies will deepen cooperation to upgrade the industrial structure and redevelop the Nansha district. We believe Yuexiu Property will keep seeking opportunities in Nansha area.
Zhujiang New Town
Old downtown
GZ Newsprint site
China / Hong Kong Company Focus
Yuexiu Property
Page 10
Ongoing improvements in asset turn
Faster investment and development cycle should drive rapid growth on the residential side. The company was blamed for its low asset turn in the past. However, we have seen management putting in more effort to enhance asset turnover. This could be evidenced by the improving asset turnover ratio. Before 2008, its development cycle was seven years. Last year, the company launched pre-sales in 14-16 months after acquiring land. New
construction start has chalked a CAGR growth of 52% in FY09-FY12. We believe there is still some room for Yuexiu Property to improve further. The company is looking at launching pre-sales within 12 months after land acquisitions. Yuexiu Property also accelerates investment, especially after the GZ IFC’s transaction. It has spent a total of Rmb8.4bn (Rmb7.0bn attributable) on land acquisition, adding 3.2m sm GFA into its land bank. It could spend another Rmb5bn for landbanking in 2013. As such, we believe the improvements in asset turn will continue.
Ongoing improvements in asset turnover New construction start saw a 52% CAGR growth
0%
5%
10%
15%
20%
2008 2009 2010 2011
0.0
0.5
1.0
1.5
2.0
2.5
2009A 2010A 2011A 2012F
Achieved growth CAGR of 52%
mn sm
Source: Company, DBS Vickers Source: Company, DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 11
2012 presales lock-in ratio comparison
130%
110%102%101%
105%
115%
146%
111%112% 103%105% 102%115%
41%
119%139%
104%
123% 116%102%108%
48%
82%
115% 111%
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
Van
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Poly
CN
Ever
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CO
LI^
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Lan
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Lan
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0%
20%
40%
60%
80%
100%
120%
140%
160%
12M12 Pre-sales 2012 Pre-sales targetPre-sales lock-in ratio Average lockin ratio
RMB mn
Average=112%
Source: Company, DBS Vickers
2012 presales growth comparison
-6%33%
39% 36%71%
-13%14%
23%
52%
17%
5% 15%
7%
5%
78%
21%10%
50%
20%
19%
66%
13%
-18%
5%27%
48%45%
15%
-30,000-10,00010,00030,00050,00070,00090,000
110,000130,000150,000
Van
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Lan
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SPG
-40%
20%
80%
12M12 Pre-sales Y-o-Y growth
RMB mn
Source: Company, DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 12
Strong sales growth achieved in 2012. Total contracted sales grew 35% to Rmb12.3bn in 2012, 23% ahead of its target of Rmb10bn. This implies a 62% sales-through rate, on saleable resources of Rmb20bn in 2012. Pre-sales’ CAGR growth was 31% in 2007-2012.
Sales momentun to continue in 2013. Based on the 2012 inventory (Rmb8bn) and new starts (2.1m sm), saleable resources are likely to jump by 40-50% to Rmb28-30bn in 2013. Applying a conservative sales-through rate of 50%, contracted sales is expected to reach Rmb15bn, up over 20% y-o-y. In fact, it registered strong contracted sales of Rmb2.9bn (total pre-sales of Rmb4.6bn if including subscribed sales) in Jan2013. The company is aiming for annual pre-sales of Rmb20bn in 2015, implying a CAGR of 18%. We believe this is achievable supported by its rapid landbanking and accelerated development pace.
Sales trend
0
4
8
12
16
20
2007A 2008A 2009A 2010A 2011A 2012A … 2015F
Implied growth CAGR of 18%
Achieved growth CAGR of 31%
Rmb bn
Source: Company, DBS Vickers
Also improve asset turn of its investment properties by disposing non-core investment properties and injecting key investment properties into Yuexiu REIT. Yuexiu Property holds a premium commercial portfolio in Guangzhou. Currently it directly owns 438k sm of investment properties in Guangzhou and Hong Kong and indirectly owns 670k sm of premium investment properties in Guangzhou through its 35.14%-owned associate, Yuexiu REIT. The company has been gradually selling non-core investment properties in the last five years. The rest of the 438k sm of non-core investment properties, with total appraised value of Rmb2.9bn, are expected to be disposed over the next three years.
Disposal of non-core investment properties in the past
Year GFA (sm) Revenue (Rmb m) Cost (Rmb m)
2008 33,700 492 334 2009 12,400 236 197 2010 81,000 1,345 876 2011 36,500 703 596 1H12 47,700 576 426
Source: Company, DBS Vickers
Unique REIT platform to unlock value and manage cash. It is the only developer in China which owns a listed REIT platform. This provides it a unique way to manage its cash flow, by injecting commercial properties into Yuexiu REIT. Yuexiu Property has successfully injected Neo Metropolis in 2008 and GZ IFC in 2012. Another two key investment properties to be completed in 2013 and 2016 respectively will be injected into Yuexiu REIT after maturity. Fortune World Plaza is likely to be injected into Yuexiu REIT in 2014 with expected proceeds of over Rmb4bn.
China / Hong Kong Company Focus
Yuexiu Property
Page 13
Other non-core investment properties to dispose Project City Total GFA Office Retail Carpark
Jin Han Building Guangzhou 45,800 45,800
HK Properties HongKong 14,300 2,000 11,100 1,200
Guang Yuan Cultural Centre Guangzhou 32,000 20,700 11,300
Huangshi Garden Guangzhou 34,500 31,000 3,500
Xiangkang Commercial Plaza Guangzhou 32,200 28,800 3,400
Victory Plaza Guangzhou 22,300 400 21,900
Yuexiu City Plaza Guangzhou 35,000 16,700 18,300
Other Projects Guangzhou 222,100 34,000 65,400 122,700
Total 438,200 111,000 144,900 182,300
Source: Company, DBS Vickers
Interactions between Yuexiu Property and Yuexiu REIT
Source: Company, DBS Vickers
Key investment properties to be injected into Yuexiu REIT Project Type GFA (sm) Total investment (Rmb m) Completion
Fortune World Plaza Wholesale/retail 266,000 2,660 2013
Fortune Center Office 210,000 2,620 2016 Source: Company, DBS Vickers
Yuexiu Property
Core development activities
Undertake development of quality commercial projects
Strengthen commercial development capability
Yuexiu REIT
Designated property owning platform that holds completed investment properties
Existing portfolio of quality, stable income generating assets
Selectively acquire from Yuexiu's completed investment property portfolio
Strong acquisition pipeline supports long term growth profile Sale of completed commercial
investment properties to the REIT
Realise the value of investment property portfolio Achieve efficient cost of capital
Proceeds from asset sale to the REIT
Fund the development of high quality commercial investment properties
Return development profit to Yuexiu Property and its shareholders
China / Hong Kong Company Focus
Yuexiu Property
Page 14
Improved Financials to Support Expansion
High earnings visibility
Rmb18.3bn unrecognized sales as of end-Jan2013. Yuexiu Property’s unrecognized sales amounted to Rmb10.2bn as of end-1H12. Including 2H12 contracted sales of Rmb5.2bn and Jan2013 contracted sales of Rmb2.9bn, total unbooked revenue aggregated to Rmb18.3bn as end-Jan2013. This implies a high earnings visibility in 2012 and 2013.
Revenue trend
3.75.7
9.2
4.2
4.8
8.4
7.3
10.2
0
2
4
6
8
10
12
14
16
18
2009 2010 2011 1H12
Recognized sales Unrecognized sales
Rmb bn
Source: Company, DBS Vickers
Gross profit margin comparison: Yuexiu Property’s GPM was higher than industry average
1H11 FY11 1H12 1H11 FY11 1H12Agile 52% 54% 45% 34% 36% 33%BJ Capital Land 60% 31% 44% 45% 26% 37%C C Land 34% 27% 31% 23% 17% 21%Central China 46% 39% 36% 35% 31% 29%COGO 52% 57% 50% 39% 38% 38%COLI 41% 45% 41% 32% 37% 34%Country Garden 33% 35% 42% 29% 30% 34%CR Land 41% 40% 48% 36% 31% 42%Evergrande 35% 33% 29% 28% 27% 23%Franshion 60% 54% 56% 60% 51% 51%Glorious 49% 40% 41% 31% 30% 35%Greentown 34% 34% 28% 29% 29% 22%KWG 44% 44% 44% 34% 34% 34%Longfor 55% 41% 46% 42% 32% 37%Poly (HK) 43% 40% 37% 37% 35% 33%GZ R&F 48% 42% 42% 36% 33% 35%Shimao 40% 38% 34% 35% 34% 30%Shui On Land 46% 44% 45% 41% 36% 43%Sino Ocean Land 30% 31% 30% 24% 26% 25%SOHO China 57% 48% 48% 38% 34% 32%SPG Land 28% 34% 11% 26% 32% 5%Sunac 49% 34% 32% 44% 30% 24%Yanlord 38% 34% 35% 30% 29% 30%Yuexiu Property 44% 42% 56% 40% 38% 53%Average 44% 40% 40% 35% 32% 32%
Gross profit margin Post-LAT gross profit margin
Source: Company, DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 15
SG&A as % of sales comparison: Yuexiu Property saw significant improvements in operating efficiency
0%
5%
10%
15%
20%
25%
30%
35%
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Lan
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Glo
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ent
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Ave
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e
R&
F
Shim
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Co
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try
Gar
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KW
G
Sun
ac
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Ch
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lord
Ag
ile
Sin
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Bei
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Cap
ital
Lan
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Gre
ento
wn
Ever
gra
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e
CO
GO
CO
LI
Lon
gfo
r
-10%
-5%
0%
5%
10%
15%
20%
25%SG&A % Sales 1H11 SG&A % Sales 1H12 change
Source: Company, DBS Vickers
Expecting 33% core earnings CAGR in FY11-14F
High margin sustainable. Yuexiu Property has registered the highest gross margin among its peers in 1H12, due to the recognition of high-end projects and commercial projects in Guangzhou. According to our estimate, a 50% gross margin for the full year of 2012 is likely. Although management did not promise that such margin is sustainable, it is confident of delivering decent margins of over 35% in the long term. We expect gross margins to stay above 40% in FY13 and FY14.
Improving cost efficiency. SG&A as a % of sales improved significantly from 12% in 1H11 to 7% in 1H12. We expect this ratio to continue to drop due to i) improving asset turn ii) continuous disposal of non-core investment properties and asset injection into Yuexiu REIT. In addition, the initial set up costs associated with regional branches are relatively high. As its national expansion is taking shape, the company will focus on deepening penetration into the cities it has a presence in. It could also enjoy economies of scale regarding construction contracts and procurement of raw materials. This may lead to a further decrease of SG&A expenses as a percentage of sales.
Funding cost to drop. Borrowing cost jumped from 5.4% in 1H11 to 7.5% in 1H12, driven by one trust loan (Rmb2.4bn at 11%) in 2011. We believe its full-year borrowing cost will decline to 7% for FY12 and will keep decreasing this year. This
is because: i) Management has seen improving credit liquidity since 2H12. The company is currently enjoying an onshore development loan of 1.0x benchmark rate (vs 1.1x-1.2x benchmark rate in 2011 and 1H12). ii) The company has transferred an Rmb4.5bn development loan related to GZ IFC to its Yuexiu REIT. iii) The recent issue of medium-term notes are priced at 3.25% and 4.50% respectively, which is much lower than its peers’. It could issue up to US$2bn under the medium-term note program. So far, it has issued a total of US$650m medium-term notes, implying it could issue another US$1,350m medium-term notes with relatively low costs. The outstanding trust loan issued in 2011 is expected to be refinanced this year.
Due to the above factors, we expect its core earnings to grow at a CAGR of 33% in FY11-FY14F.
Cash flow manageable
Net gearing of around 50% as of end-FY12. Net gearing was 71% as of end-1H12. Adjusted following GZ IFC’s transaction, its net gearing is expected to drop to 33%. We estimate net gearing to conclude at around 50% as of end-FY12, despite its aggressive landbanking in 2H12. Cash level is expected to stay at Rmb6bn as of end-FY12.
More room to gear up. Management is comfortable with a 70-80% net gearing ratio, implying that Yuexiu Property has more room to leverage further, which should fuel further growth.
China / Hong Kong Company Focus
Yuexiu Property
Page 16
Conservative cash flow projection 2012
Major cash items (Rmb bn)
Contracted sales in 1H12 7.1
Contracted sales in 2H12 5.2
Cash collected from contracted sales* 5.8
Disposal of GZ IFC 4.9
Cash inflow 10.6
Outstanding land premium 0.6
New land acquisitions in 2H12^ 6.6
Construction costs 3.7
Cash outflow 10.9
Net cash flow -0.3
Net debt as of end-1H12 15.6
Projected net debt as of end-FY12 (adjusted by the IFC's transaction) 11.4
Shareholder's equity 22.1
Net gearing ratio 52%
* Assuming a 70% cash collection ratio ^ Assuming all the land premium in 2012 are paid Source: DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 17
Funding cost comparison: Yuexiu Property’s coupon rate was much lower than peers’ Type Ticker Company Date Coupon /
CostAmount
(mn)Other details
Senior notes 1638 Kaisa Sep-12 12.88% US$250 Due 2017Senior notes 1918 Sunac Oct-12 12.50% US$400 Due 2017Senior notes 960 Longfor Oct-12 6.88% US$400 Due 2019
Senior notes 1668 China South City Oct-12 13.50% US$125 Due 2017Senior notes 1628 Yuzhou Properties Oct-12 11.75% US$250 Due 2017Guaranteed notes 817 Franshion Oct-12 4.70% US$500 Due 2017Senior notes 410 SOHO China Oct-12 5.75% US$600 Due 2017
Senior notes 410 SOHO China Oct-12 7.13% US$400 Due 2022Senior notes 1966 China SCE Nov-12 11.50% US$200 Due 2017Guaranteed notes 688 COLI Nov-12 3.95% US$700 Due 2022
Guaranteed notes 688 COLI Nov-12 5.35% US$300 Due 2042Senior notes 3883 China Aoyuan Nov-12 13.88% US$125 Due 2017Guranteed notes 2868 Beijing Capital Land Nov-12 7.60% CNY2,000 Due 2015
Senior notes 1638 Kaisa Jan-13 10.25% US$500 Due 2020Senior notes 2007 Country Garden Jan-13 7.50% US$750 Due 2023Senior notes 813 Shimao Jan-13 6.63% US$800 Due 2020
Senior notes 754 Hopson Jan-13 9.88% US$300 Due 2018Medium term notes 123 Yuexiu Property Jan-13 3.25% US$350 Due 2018; Offering price: 99.831%
of the nominal amount
Medium term notes 123 Yuexiu Property Jan-13 4.50% US$500 Due 2023; Offering price: 99.459%of the nominal amount
Senior notes 1777 Fantasia Jan-13 10.75% US$250 Due 2020
Senior notes 2777 Guangzhou R&F Jan-13 8.75% US$400 Due 2020Senior notes 832 Central China Jan-13 8.00% US$200 Due 2020Senior notes 960 Longfor Jan-13 6.75% US$500 Due 2023Senior notes 1030 Future Land Jan-13 10.25% US$200 Due 2018
Senior notes 1966 China SCE Jan-13 11.50% US$150 Due 2017Senior notes 3883 Aoyuan Jan-13 13.88% US$100 Due 2017Senior notes 656 Fosun Jan-13 6.88% US$400 Due 2020
Senior notes 1238 Powerlong Jan-13 11.25% US$250 Due 2018Senior notes 846 Mingfa Jan-13 13.25% US$100 Due 2018Senior notes 3900 Greentown Jan-13 8.50% US$400 Due 2018
Senior notes 1813 KWG Jan-13 8.63% US$300 Due 2020
Source: Company, DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 18
BUY for Strong Growth Potential and Multiple Catalysts
NAV estimated at HK$5.25
NAV is one of our primary valuation tools for a company such as Yuexiu Property, as it is the most commonly used method for valuing property developers (i.e. the potential value of existing property assets held by a property-focused company in the event of a disposal). We have computed the value of development property projects based on the discounted cash flow model and investment properties using the capitalisation rate method.
51% discount to NAV despite our conservative assumptions. We estimated Yuexiu Property’s GAV at HK$6.43 and NAV at HK$5.25, based on the following assumptions:
(i) We have assumed a flat property price in Tier I/II/III cities in 2013/2014. Although we expect property prices especially in Tier I cities to rise in 2013, we have conservatively assumed a flat property price in Guangzhou.
(ii) 10% WACC in our DCF projections for development properties.
(iii) 7-8%/6-7% cap rate for valuing the investment properties in Guangzhou/HongKong. We have assumed a flat rental rate for investment properties in Guangzhou in 2013/2014 and 5% annual rental growth since 2015.
(iv) We valued Yuexiu REIT by using the market price despite visible synergies between Yuexiu Property and Yuexiu REIT.
Of the total GAV (excluding Yuexiu REIT), 70%/16%/12% is from residential/retail/office properties, respectively. By tier, we estimate about 65%/23%/9% of GAV (excluding Yuexiu REIT) from Tier I/II/III cities, respectively. In terms of contribution by region, Guangzhou and Pearl River Delta Region represent the largest at 65% and 78%, respectively.
NAV calculation
HK$ m GAV (excluding Yuexiu REIT) 59,656 Outstanding land premium -6,935 Net debt (adjusted for IFC's transfer) -7,943 NAV (excluding Yuexiu REIT) 44,778 Yuexiu REIT (35.14% of market cap) 3,933 NAV 48,711 No. of shares (mn) 9,284 GAV per share (HK$) 6.43 NAV per share (HK$) 5.25
Source: DBS Vickers
NAV sensitivity to property price growth rate
Property price growth rate
Tier 1 Tier 2 Tier 3 NAV (HK$)
NAV chg
Bear case -10% -10% -10% 4.57 -13%
Base case 0% 0% 0% 5.25 0%
Bull case 10% 10% 10% 5.89 12%Source: DBS Vickers
NAV sensitivity analysis to discount rate and cap rate
(HK$) 8% 9% 10% 11% 12%
7% 5.90 5.68 5.47 5.27 5.08
8% 5.77 5.55 5.34 5.14 4.95
9% 5.67 5.45 5.25 5.05 4.86
10% 5.60 5.38 5.18 4.98 4.79
11% 5.55 5.33 5.12 4.92 4.74
Cap
rat
e
Discount rate
Source: DBS Vickers
TP of HK$3.15, based on 40% discount to NAV, BUY
Deserves to trade at a premium to peers. The sector is trading at an average 44% discount to NAV (ranging from 5% to 80%). Considering the faster growth ahead, the better earnings outlook and its SOE background, Yuexiu Property should trade at a narrower discount to NAV than its peers. Our end-2012 target price of HK$3.15 is based on a 40% discount to our NAV estimate of HK$5.25. We initiate coverage of Yuexiu Property with a BUY call, offering an 18% potential upside to our TP.
Fast NAV-accretion ahead. One of the key weaknesses of the NAV valuation methodology is that it fails to incorporate management’s ability to increase shareholders’ value through future land acquisitions. After the GZ IFC’s transaction in 2H12, it spent a total of Rmb8.4bn (Rmb7.0bn attributable) on land acquisitions, adding 3.2m sm GFA into its land bank. It could spend another Rmb5bn for landbanking in 2013. This shall help it to enhance its NAV.
China / Hong Kong Company Focus
Yuexiu Property
Page 19
GAV (excluding Yuexiu REIT) breakdown by city
GAV (excluding Yuexiu REIT) breakdown by type
HongKong4%
Haikou0%
Kunshan0%
Hangzhou4%
Wuhan7%
Yantai2%
Jiangmen2%
Guangzhou65%
Zhongshan5%
Foshan3%
Shenyang8%
Retail16%
Office12%
Serviced apartment
2%
Residential56%
Car park14%
Source: DBS Vickers Source: DBS Vickers
Never too late
Valuation is still undemanding. The share price is not demanding at 8.7x FY13F PE (vs. its historical average of 13.9x, Tier II peers’ average of 7.8x and sector’s average of 8.2x respectively), against projected earnings growth of 33% in FY11-FY14F (vs. sector’s average of 16%). In addition, it is now trading at a 49% discount to NAV, higher than Tier II peers’ average of 43% and sector’s average of 44% respectively.
Synergies between Yuexiu Property and Yuexiu REIT are not fully-priced in. We noticed that the share price is trading at deeper discount to NAV (55%) if excluding Yuexiu REIT. As mentioned previously, its REIT platform provides it a unique way to manage its cash flow and unlock its IP’s value by injecting commercial properties into its Yuexiu REIT. In addition, the enlarged operating scale and improved market liquidity should also drive Yuexiu REIT’s valuation, which could potentially benefit Yuexiu Property’s valuation. Therefore, we believe the
synergies between Yuexiu Property and Yuexiu REIT are not fully priced in.
Deeper discount to NAV if excluding Yuexiu REIT
(HK$ m) Including
Yuexiu REIT Excluding
Yuexiu REIT NAV 48,711 44,778 Market cap 23,994 20,061 Discount to NAV 51% 55%
Source: DBS Vickers
Multiple re-rating catalysts in the near/medium term. Its share price was punished by its low asset turn in the past. We believe increased visibility of fast asset turn could act as a re-rating catalyst. Further land acquisitions could also provide NAV upside potential. A premium land in Haizhu District is expected to be listed in 1H13 and is a potential acquisition target for the company.
China / Hong Kong Company Focus
Yuexiu Property
Page 20
Key Risks
Highly exposed to Guangzhou. Guangzhou still provides Yuexiu its major competitive edge and is a revenue growth driver. The company might be negatively affected by the fluctuation of the Guangzhou market.
Limited track record outside Guangzhou. We’re quite confident in the company’s execution ability in Guangzhou and Guangdong province, given its proven track record in Guangzhou and strong connection with Guangzhou municipal government. But the company has a limited track record in other cities and areas it has newly penetrated.
Policy risk. Policy is the critical risk factor for all Chinese property developers. Over the past several years, the Chinese Government has stepped up its tightening measures to rein in excessive (speculative) investment activity and price appreciation. Such measures include purchase restrictions, credit controls, tax initiatives, land controls, and restriction on foreign investment, amongst others. Recent ASP increase in Tier I cities aroused investor concerns over new policy risks in Tier I cities.
Stock market volatility. Growth stocks tend to exhibit higher price volatility, reflecting a wider range of sentiment and opinions.
China / Hong Kong Company Focus
Yuexiu Property
Page 21
Peers valuation
3-mthdaily Net Disc/
27-Feb Mkt trading 12-m EPS gth PE PE Yield Yield ROE ROE Gearing P/Bk NAV (Prem)Price Cap value Recom target 13F 14F 13F 14F 12F 13F 13F 14F 1H12A 1H12A to NAV
Company Name Code HK$ HK$bn US$m HK$ % % x x % % % % % x HK$ %
Tier 1 playersAgile Property* 3383 HK 9.8 33.8 16.3 Hold 11.09 11 11 5.9 5.3 3.8 4.2 17.6 17.2 70.6 1.2 22.0 55.5China Overseas* 688 HK 22.8 186.3 66.6 Buy 23.90 9 24 10.9 8.8 1.5 1.6 18.9 20.0 32.1 2.4 23.9 4.6Country Garden* 2007 HK 3.78 68.9 16.3 Buy 4.39 10 22 7.7 6.3 4.4 4.8 18.6 20.0 54.5 1.7 4.8 21.6CR Land* 1109 HK 21.85 127.3 29.7 Buy 22.29 26 27 14.5 11.4 1.4 1.7 12.1 13.9 66.3 2.0 24.8 11.8Evergrande* 3333 HK 3.66 58.7 65.1 Buy 5.07 22 25 4.8 3.8 4.3 5.2 22.5 22.8 96.1 1.3 9.2 60.3Longfor 960 HK 13.36 72.6 14.4 NR n.a. 14 16 8.9 7.7 1.9 2.1 19.9 21.5 44.5 2.3 n.a. n.a.Shimao Property* 813 HK 15.22 52.9 21.2 Buy 16.76 28 20 7.9 6.6 3.5 4.6 15.6 16.8 68.3 1.3 23.9 36.4Average 17 21 8.7 7.1 3.0 3.5 17.9 18.9 61.8 1.7 31.7
Tier 2 playersCOGO* 81 HK 10.76 24.6 5.4 Buy 11.62 35 36 8.2 6.0 0.4 0.6 34.3 33.6 Cash 3.6 12.9 16.7Franshion* 817 HK 2.64 24.2 3.4 Buy 3.48 (6) 28 7.9 6.1 2.4 2.3 11.2 12.8 50.0 0.9 5.8 54.4Greentown 3900 HK 14.98 32.2 9.8 NR n.a. 15 15 5.8 5.0 2.1 2.8 21.3 22.8 93.5 1.4 18.5 19.0Guangzhou R&F 2777 HK 12.48 12.7 14.6 NR n.a. 7 16 6.5 5.6 5.5 6.0 19.0 19.0 83.8 1.5 18.1 31.0Hopson Dev 754 HK 12.42 21.6 8.8 NR n.a. 42 52 9.5 6.2 0.4 0.6 6.7 4.1 62.1 0.5 n.a. n.a.KWG Property 1813 HK 5.18 15.0 6.7 NR n.a. 10 22 5.3 4.3 4.8 5.3 15.7 14.7 71.2 0.9 10.8 52.1Poly (Hong Kong) 119 HK 5.26 19.0 14.0 NR n.a. 15 17 7.4 6.3 2.1 2.5 10.0 8.7 105.4 0.7 13.1 59.9Shui On Land* 272 HK 3.46 20.8 11.1 Hold 3.56 58 32 12.8 9.7 1.4 2.2 4.0 5.2 75.0 0.6 7.1 51.4Sino-Ocean Land* 3377 HK 5.19 30.4 8.5 Buy 6.37 12 22 10.1 8.3 3.1 3.5 8.0 9.0 55.8 0.7 10.6 51.1Soho China* 410 HK 5.95 30.3 8.9 Hold 6.09 7 (33) 7.0 10.5 4.8 5.8 14.2 9.0 19.2 1.2 10.1 41.4Sunac China 1918 HK 5.71 18.9 23.2 NR n.a. 28 30 4.0 3.1 2.2 3.1 29.2 30.8 93.4 1.9 n.a. n.a.Yuexiu Property* 123 HK 2.58 24.0 9.7 Buy 3.15 1 36 8.7 6.4 1.8 2.3 9.5 11.8 53.0 0.9 5.2 50.8Average 19 23 7.8 6.5 2.6 3.1 15.3 15.1 69.3 1.2 42.8
Tier 3 playersBJ Cap Land 'H' 2868 HK 3.43 3.5 1.9 NR n.a. 5 n.a. 4.4 n.a. 8.0 9.1 n.a. 19.8 102.1 1.0 n.a. n.a.BJ North Star 'H' 588 HK 2.02 1.4 0.7 NR n.a. n.a. n.a. n.a. n.a. 0.0 0.0 n.a. n.a. 61.0 0.4 n.a. n.a.C C Land* 1224 HK 2.5 6.5 3.6 Hold 2.00 40 33 12.1 9.1 1.2 1.6 3.9 5.0 13.2 0.5 5.0 50.1Central China* 832 HK 2.71 6.6 1.6 Buy 2.39 22 30 5.7 4.4 4.3 5.2 16.9 19.2 57.6 1.1 5.9 53.7China SCE 1966 HK 1.83 5.2 0.4 NR n.a. 8 n.a. 3.8 n.a. 2.0 2.7 n.a. 19.3 53.0 1.0 n.a. n.a.Glorious Property 845 HK 1.43 11.1 2.8 NR n.a. 37 26 6.0 4.8 0.0 0.9 8.6 10.4 64.2 0.5 5.9 75.6Kaisa Group 1638 HK 2.48 12.2 9.7 NR n.a. 4 25 4.5 3.6 0.0 1.0 16.1 18.2 64.2 0.9 n.a. n.a.Lai Fung* 1125 HK 0.214 3.4 1.0 NR n.a. (74) 27 16.5 13.0 1.3 1.3 2.0 2.5 7.0 0.3 0.6 66.1Minmetals Land 230 HK 1.26 4.2 2.4 NR n.a. 59 19 4.7 3.9 0.8 0.8 13.0 8.2 35.2 0.6 n.a. n.a.Renhe Commercial 1387 HK 0.54 11.4 7.7 NR n.a. (29) 40 8.7 6.2 0.0 0.0 4.2 2.1 27.6 0.4 2.7 80.3SPG Land* 337 HK 2.73 2.9 0.8 Hold 1.49 n.a. n.a. n.a. 8.4 0.0 0.0 (0.6) 5.6 112.8 0.5 4.6 40.6SRE Group 1207 HK 0.325 1.8 1.0 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 92.5 0.1 n.a. n.a.Yanlord Land*^ YLLG SP 1.55 3.0 6.2 Hold 1.24 16 13 12.6 11.1 0.4 0.5 7.5 7.9 44.0 1.0 2.5 37.5Ying Li*^ YINGLI SP 0.505 1.1 3.0 Buy 0.55 (53) 71 15.2 8.9 0.0 0.0 10.7 16.0 58.4 2.0 0.9 45.1Yuzhou Properties 1628 HK 2.13 6.1 2.5 NR n.a. 27 45 4.5 3.1 5.3 6.4 20.9 14.9 55.9 0.9 n.a. n.a.Zhong An 672 HK 1.3 3.1 0.8 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 60.5 0.5 n.a. n.a.Average 5 33 8.2 7.0 1.7 2.1 9.4 11.5 56.8 0.7 56.1
Average (Overall) 13 26 8.2 6.8 2.3 2.8 13.7 14.5 61.9 1.1 44.5~
^ Denominated in SGD for price and market cap
~ Simple average discount to NAV; Market cap weighted average NAV = 30%
Source: Thomson Reuters, * DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 22
P/E valuations, 2007 to YTD12
3-mth daily27-Feb Mkt trading FY13 FY14
Price Cap value PE PE Avg Peak Trough Peak Peak Peak Peak Peak
Company Name Code HK$ HK$bn US$m x x P/E (x) 2007 2008 2008 2009 2010 2011 2012Agile Property* HK3383 9.8 33.8 16.3 5.9 5.3 6.9 28.8 1.2 7.9 20.9 6.1 9.7 7.3China Overseas* HK688 22.8 186.3 66.6 10.9 8.8 11.8 34.3 10.2 26.0 21.2 12.0 9.7 12.4Country Garden* HK2007 3.78 68.9 16.3 7.7 6.3 18.4 42.3 11.4 88.1 25.7 10.8 9.1 9.1CR Land* HK1109 21.85 127.3 29.7 14.5 11.4 14.5 53.8 13.5 36.8 22.3 15.0 10.6 18.0Evergrande* HK3333 3.66 58.7 65.1 4.8 3.8 5.1 n.a. n.a. n.a. 52.1 7.0 6.6 7.9Longfor HK960 13.36 72.6 14.4 8.9 7.7 7.7 n.a. n.a. n.a. 14.8 11.7 9.2 11.8Shimao Property* HK813 15.22 52.9 21.2 7.9 6.6 11.4 18.7 11.4 63.7 14.2 9.6 6.7 10.5Average 8.7 7.1 10.8 35.6 9.6 44.5 24.5 10.3 8.8 11.0
COGO* HK81 10.76 24.6 5.4 8.2 6.0 7.6 12.4 32.9 188.9 n.a. 4.9 8.0 9.7Franshion* HK817 2.64 24.2 3.4 7.9 6.1 12.1 7.4 8.4 33.3 25.0 17.1 9.7 8.0Greentown HK3900 14.98 32.2 9.8 5.8 5.0 10.3 25.5 4.2 30.5 18.9 10.7 5.2 6.3Guangzhou R&F HK2777 12.48 12.7 14.6 6.5 5.6 9.2 26.4 3.3 28.6 20.6 10.2 8.3 7.4Hopson Dev HK754 12.42 21.6 8.8 9.5 6.2 5.7 12.3 1.1 16.2 4.1 3.9 11.7 13.7KWG Property HK1813 5.18 15.0 6.7 5.3 4.3 12.0 10.5 7.0 n.a. 22.0 13.3 7.7 6.5Poly (Hong Kong) HK119 5.26 19.0 14.0 7.4 6.3 11.9 44.2 11.4 59.7 40.1 18.6 10.8 9.8Shui On Land* HK272 3.46 20.8 11.1 12.8 9.7 7.4 16.4 1.7 12.7 8.5 6.9 5.0 23.7Sino-Ocean Land* HK3377 5.19 30.4 8.5 10.1 8.3 12.7 24.0 4.5 25.5 22.5 16.2 12.8 12.9Soho China* HK410 5.95 30.3 8.9 7.0 10.5 10.7 20.5 n.a. n.a. 6.7 7.9 8.0 7.9Sunac China HK1918 5.71 18.9 23.2 4.0 3.1 2.5 n.a. n.a. n.a. n.a. n.a. 3.2 5.4Yuexiu Property* HK123 2.58 24.0 9.7 8.7 6.4 14.0 16.9 3.6 21.6 n.a. 12.8 2.6 8.8Average 7.8 6.5 9.7 19.7 7.8 46.3 18.7 11.1 7.8 10.0
BJ Cap Land 'H' HK2868 3.43 3.5 1.9 4.4 n.a. 8.9 23.6 2.3 21.7 13.2 6.3 5.4 4.5BJ North Star 'H' HK588 2.02 1.4 0.7 n.a. n.a. 9.7 46.9 1.6 12.7 6.1 6.9 5.2 n.a.C C Land* HK1224 2.5 6.5 3.6 12.1 9.1 12.6 36.3 n.a. n.a. n.a. 36.8 27.0 19.0Central China* HK832 2.71 6.6 1.6 5.7 4.4 5.0 n.a. 1.1 6.7 11.0 7.4 6.6 7.0China SCE HK1966 1.83 5.2 0.4 3.8 n.a. 20.8 n.a. n.a. n.a. n.a. 7.0 7.3 4.3Glorious Property HK845 1.43 11.1 2.8 6.0 4.8 5.7 n.a. n.a. n.a. 8.8 6.3 8.5 10.4Kaisa Group HK1638 2.48 12.2 9.7 4.5 3.6 3.9 n.a. n.a. n.a. 20.2 3.2 7.0 4.9Lai Fung HK1125 0.214 3.4 1.0 16.5 13.0 6.6 n.a. 2.1 15.2 5.9 7.8 5.4 4.1Minmetals Land HK230 1.26 4.2 2.4 4.7 3.9 7.8 19.8 2.2 16.4 38.4 12.1 9.5 7.5Renhe Commercial HK1387 0.54 11.4 7.7 8.7 6.2 7.3 n.a. 8.1 9.7 9.6 9.9 6.0 11.2SPG Land* HK337 2.73 2.9 0.8 n.a. 8.4 8.2 13.1 2.4 39.3 7.2 4.9 4.2 n.a.SRE Group HK1207 0.325 1.8 1.0 n.a. n.a. 8.2 7.9 3.2 20.7 4.7 4.8 6.7 n.a.Yanlord Land*^ T:Z25 1.55 3.0 6.2 12.6 11.1 13.0 33.4 4.1 27.4 17.6 11.0 11.6 14.5Ying Li*^ T:5DM 0.505 1.1 3.0 15.2 8.9 15.6 n.a. 1.8 4.8 112.2 33.8 17.6 5.7Yuzhou Properties HK1628 2.13 6.1 2.5 4.5 3.1 14.9 n.a. n.a. n.a. 3.8 5.6 5.5 6.0Zhong An HK672 1.3 3.1 0.8 n.a. n.a. 18.6 21.8 4.2 29.4 15.4 12.4 10.4 n.a.Average 8.2 7.0 10.4 25.3 3.0 18.6 19.6 11.0 9.0 8.3
Average 8.2 6.8 10.3 24.9 6.1 33.7 20.5 10.9 8.5 9.6HSI Index 22,577 11.0 18.4 10.1 25.4 16.5 13.5 11.2 11.9
PE (x)
^ Denominated in SGD for price and market cap
Source: Thomson Reuters, * DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 23
Share price performance
Price Performance 20071-wk 2-wk 1-mth 2-mth 3-mth 4-mth 5-mth 6-mth YTD 1-yr 2010 2011 2012 high
% % % % % % % % % % % % % %Tier 1 playersAgile Property 3383 (2.2) (2.6) (10.7) (9.4) (0.4) 13.0 15.4 5.7 (10.1) (7.4) 0.4 (39.2) 56.6 (50.3)China Overseas 688 0.4 3.4 (5.8) (1.5) 0.7 14.6 17.2 25.3 (1.3) 40.6 (12.3) (9.7) 78.0 18.0Country Garden 2007 (4.8) (5.7) (3.6) (3.3) 8.3 23.5 26.4 38.5 (6.9) 12.1 3.1 (2.4) 46.5 (71.2)CR Land 1109 (2.9) 2.8 (4.2) 4.5 10.4 29.0 28.5 43.0 3.6 47.4 (19.5) (12.1) 69.1 2.1Evergrande 3333 (5.9) (5.4) (11.6) (11.4) 2.8 8.9 20.0 14.0 (13.9) (22.6) (11.9) (14.8) 32.0 n.a.Longfor Properties 960 (2.2) (0.4) (7.4) (10.2) (6.7) 0.9 12.8 18.0 (12.0) 19.3 23.7 (18.9) 72.9 n.a.Shimao Property 813 (2.4) (1.3) (4.6) 4.8 (2.2) 5.5 13.6 33.5 4.1 48.6 (20.2) (43.5) 120.5 (47.6)Average (2.9) (1.3) (6.8) (3.8) 1.8 13.6 19.1 25.4 (5.2) 19.7 (5.3) (20.1) 67.9 (29.8)
Tier 2 playersCOGO 81 (1.5) 2.5 2.5 14.6 33.2 36.0 39.2 46.4 15.5 82.6 (19.9) 88.6 105.6 136.9Franshion 817 0.0 (1.5) (6.4) (4.7) 7.8 11.4 11.9 11.4 (5.4) 30.0 (14.6) (35.9) 86.0 (57.9)Greentown 3900 (3.1) (0.1) (4.8) 16.5 25.5 68.3 85.2 82.9 5.5 144.8 (29.3) (60.8) 321.4 (23.4)GZ R&F 2777 (3.0) (4.0) (10.1) (3.9) 13.7 34.3 42.3 40.9 (3.3) 21.4 (18.8) (44.8) 110.1 (71.2)Hopson Dev 754 (8.7) (11.4) (21.3) 1.8 21.1 76.2 121.8 154.5 0.3 92.3 (25.4) (51.8) 207.2 (60.3)KWG 1813 (1.3) (3.7) (12.4) (6.0) (1.1) 12.6 23.9 23.9 (11.0) 5.1 (1.2) (55.7) 122.1 (66.3)Poly HK 119 (5.9) (5.1) (11.6) (9.2) 2.7 16.9 26.4 30.5 (13.2) 5.6 (21.8) (55.7) 79.8 (54.0)Shui On Land 272 (6.7) (6.7) (5.7) (7.7) (8.2) 5.8 18.9 15.0 (7.7) 2.4 (18.7) (36.9) 58.9 (67.7)Sino-Ocean 3377 (5.8) (8.3) (16.4) (5.8) (4.2) 10.4 19.9 41.8 (10.4) 13.6 (29.1) (29.3) 60.8 (65.4)SOHO China 410 (4.2) (5.1) (14.5) (1.3) 2.6 16.2 23.4 15.8 (4.3) 7.2 37.6 (10.6) 20.3 (50.1)Sunac China 1918 (3.1) 1.1 (7.8) 1.2 16.8 45.7 51.5 70.4 (4.8) 109.2 n.a. (42.1) 272.7 n.a.Yuexiu Property 123 (5.8) (5.5) (5.5) 5.7 8.4 24.6 33.7 41.8 5.3 63.3 (1.8) (46.2) 118.8 (16.2)Average (4.1) (4.0) (9.5) 0.1 9.8 29.9 41.5 47.9 (2.8) 48.1 (13.0) (31.8) 130.3 (36.0)
Tier 3 playersBJ Cap. Land 2868 (3.4) 0.9 (1.7) 17.5 23.4 49.8 55.9 56.6 6.5 47.2 (25.7) (41.2) 110.5 (54.0)BJ North Star 588 (9.4) (6.5) (0.5) 4.7 18.8 22.4 51.9 57.8 (3.8) 21.7 (23.0) (45.5) 82.6 (74.4)C C Land 1224 (9.4) (8.1) (14.7) (7.1) 10.1 41.2 51.5 50.6 (8.1) 22.0 (27.4) (45.0) 88.9 (85.0)Central China 832 (5.6) 1.1 (9.1) 12.9 30.3 44.1 44.1 44.1 (1.1) 36.9 4.1 (31.2) 76.8 n.a.China SCE Property 1966 (3.2) (8.0) (6.6) (3.7) 10.9 8.9 10.2 10.2 (4.2) 5.8 n.a. (27.7) 20.1 n.a.Glorious Property 845 (5.9) (4.7) (14.4) 2.9 19.2 22.2 28.8 36.2 (2.1) (17.3) (23.9) (49.1) 7.4 n.a.Kaisa Group 1638 5.5 4.6 (3.9) 4.6 25.9 66.4 77.1 74.6 3.3 38.5 (21.7) (42.0) 79.1 n.a.Lai Fung 1125 (16.1) (16.1) (10.1) 2.9 18.2 32.9 42.7 56.2 3.4 6.5 14.2 (47.3) 25.5 (98.6)Minmetals Land 230 (6.7) (3.8) (15.4) 3.3 21.2 22.3 38.5 31.3 (1.6) 14.5 (29.1) (53.4) 70.7 (66.0)Renhe Commercial 1387 (16.9) (18.2) (20.6) (25.0) 36.7 63.6 74.2 77.0 (33.3) (40.7) (22.7) (34.6) (9.0) n.a.SPG Land 337 (3.2) (1.1) (4.5) 49.2 41.5 37.2 76.1 93.6 37.9 33.8 (16.6) (66.1) 53.5 (63.5)SRE Group 1207 (11.0) (13.3) (16.7) (14.5) 3.2 6.6 25.0 3.8 (17.7) (29.3) (6.0) (55.7) 24.2 (90.5)Yanlord Land YLLG (3.7) 0.6 (4.6) 2.3 12.3 22.0 27.6 30.3 2.0 8.8 (22.6) (43.2) 59.2 (63.3)Ying Li YINGLI (1.9) 8.6 12.2 34.7 38.4 48.5 46.4 57.8 36.5 32.9 (33.1) (41.4) 45.1 (57.9)Yuzhou Properties 1628 2.4 2.4 (1.4) 1.9 7.6 17.0 17.0 19.7 (5.3) 31.7 7.6 (18.6) 37.0 n.a.Zhong An 672 (11.0) (13.3) (13.3) 15.0 49.4 62.5 64.6 58.5 14.0 5.7 (22.1) (43.9) 7.5 (77.5)Average (6.2) (4.7) (7.8) 6.4 22.9 35.5 45.7 47.4 1.7 13.7 (16.5) (42.9) 48.7 (73.1)
Average (Overall) (4.8) (3.8) (8.2) 2.2 14.2 29.2 39.0 43.2 (1.2) 26.7 (13.0) (34.5) 80.5 (49.0)
Hang Seng Index (3.4) (2.7) (4.3) (0.2) 3.4 4.8 8.7 14.0 (0.4) 6.4 5.3 (20.0) 22.9 (28.6)MSCI China (4.9) (4.1) (5.4) (1.8) 3.4 5.6 10.7 14.2 (2.5) 0.5 2.6 (20.4) 18.7 (41.1)
Source: Thomson Reuters
China / Hong Kong Company Focus
Yuexiu Property
Page 24
PE chart
PB chart
0
5
10
15
20
25
30
35
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
x
Avg: 7.9x
+1SD: 13.7x
-1SD: 2.2x
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
x
Avg: 0.7x
+1SD: 0.9x
-1SD: 0.4x
Source: Thomson Reuters, DBS Vickers Source: Thomson Reuters, DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 25
Appendices
Appendix: Residential property market snapshot, Guangzhou
Average selling price GFA started
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Jan
-06
Jul-
06
Jan
-07
Jul-
07
Jan
-08
Jul-
08
Jan
-09
Jul-
09Ja
n-1
0
Jul-
10Ja
n-1
1
Jul-
11
Jan
-12
Jul-
12
-40%
-20%
0%
20%
40%
60%
80%
100%
ASP (LHS) y-o-y (RHS)
% Rmb/ sm
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
GFA started (GFA) y-o-y (RHS)
% 000 sm
Affordability GFA completed
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
Jan
-06
Jul-
06
Jan
-07
Jul-
07
Jan
-08
Jul-
08
Jan
-09
Jul-
09
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
6
8
10
12
14
16
18
Monthly payment to disposable income (LHS)Property price to annual income (RHS)
x x
01,0002,0003,0004,0005,0006,0007,0008,0009,000
10,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-30%
-20%
-10%
0%
10%
20%
30%
40%
GFA completed (LHS) y-o-y (RHS)
% 000 sm
Inventory level GFA sold
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Jan
-06
Jul-
06
Feb
-07
Au
g-0
7
Mar
-08
Sep
-08
Ap
r-09
No
v-09
May
-10
Dec
-10
Jun
-11
Jan
-12
Jul-
12
000 sm
0
5
10
15
20
25months
Inv GFA (LHS)No. of months to digest inv (RHS)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
GFA sold (GFA) y-o-y (RHS)
% 000 sm
Source: CEIC, Soufun, DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 26
Appendix: Guangzhou economic performance vs other key cities
No. 3 in terms of 2011 GDP No. 2 in terms of 2011 tertiary industry output
0
400
800
1,200
1,600
2,000
Shan
gh
ai
Bei
jing
Gu
ang
zho
u
Shen
zhen
Tian
jin
Ch
on
gq
ing
Han
gzh
ou
Ch
eng
du
Wu
han
Qin
gd
ao
Shen
yan
g
Ch
ang
sha
Xi'a
n
Rmb bn
0
200
400
600
800
1,000
1,200
Shan
gh
ai
Gu
ang
zho
u
Shen
zhen
Ch
on
gq
ing
Han
gzh
ou
Ch
eng
du
Wu
han
Qin
gd
ao
Shen
yan
g
Ch
ang
sha
Xi'a
n
Tian
jin
Bei
jing
Rmb bn
No. 3 in terms of 2011 disposable income per capita No. 3 in terms of 2011 retail sales
0
10,000
20,000
30,000
40,000
Shen
zhen
Shan
gh
ai
Gu
ang
zho
u
Bei
jing
Han
gzh
ou
Qin
gd
ao
Tian
jin
Ch
ang
sha
Ch
eng
du
Wu
han
Shen
yan
g
Xi'a
n
Ch
on
gq
ing
Rmb
0
100
200
300
400
500
600
700
Bei
jing
Shan
gh
ai
Gu
ang
zho
u
Shen
zhen
Ch
on
gq
ing
Tian
jin
Wu
han
Ch
eng
du
Han
gzh
ou
Shen
yan
g
Qin
gd
ao
Ch
ang
sha
Xi'a
n
Rmb bn
2011 fixed asset investment 2011 population*
0
200,000
400,000
600,000
800,000
Ch
on
gq
ing
Tian
jin
Bei
jing
Shan
gh
ai
Ch
eng
du
Shen
yan
g
Wu
han
Ch
ang
sha
Qin
gd
ao
Gu
ang
zho
u
Xi'a
n
Han
gzh
ou
Shen
zhen
Rmb bn
0
10,000
20,000
30,000
Ch
on
gq
ing
Shan
gh
ai
Bei
jing
Tian
jin
Gu
ang
zho
u
Ch
eng
du
Shen
zhen
Wu
han
Xi'a
n
Qin
gd
ao
Shen
yan
g
Han
gzh
ou
Ch
ang
sha
Persons
Source: CEIC, DBS Vickers
* 2010 numbers in Beijing, Tianjin, Shenyang, Chengdu, Changsha, Xi’an
China / Hong Kong Company Focus
Yuexiu Property
Page 27
Appendix: Cumulative office GFA new start (2009-2012) vs. tertiary industry output (2011)
SuzhouChengdu
Zhengzhou
Hangzhou
Shenzhen
Guangzhou
Tianjin
Shanghai
Beijing
0
200
400
600
800
1,000
1,200
1,400
0 2 4 6 8 10 12 14 16
New start(m sm)
GDP: Tertiary industry(Rmb bn)
Source: CEIC, DBS Vickers
Appendix: Cumulative retail GFA new start (2009-2012) vs retail sales (2011)
Tianjin
Ningbo Hangzhou
WuhanShenzhen
Guangzhou
Shenyang
Chongqing
Beijing
Shanghai
0
100
200
300
400
500
600
700
800
0 5 10 15 20 25
New start(m sm)
Retail sales(Rmb bn)
Source: CEIC, DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 28
Appendix: Key management team
Manager (year appointed, age)
Current Appointment Profile Ownership (%)
Lu Zhifeng (2008, 59)
Executive Director and Chairman
He is also the Chairman of Guangzhou Yue Xiu Holdings Ltd. (GZ Yue Xiu), and Yue Xiu Enterprises (Holdings) Ltd. (Yue Xiu).
He holds an MBA degree and the qualification of senior economist.He was the managing director of Guangzhou Automobile Industry Group Co., Ltd., vice chairman of Guangzhou Automobile Group Co., Ltd., chairman of Guangzhou Honda Automobile Co., Ltd., vice chairman and executive director of Denway Motors Ltd., general manager of Guangzhou Yangcheng Automobile Group Co., and vice chairman and m
anaging director of Guangzhou Yangcheng Automobile Co., Ltd.
n.a.
Zhang Zhaoxing, (2008, 59)
Executive Director, Vice Chairman and general m
anager
He is also a vice chairman and general manager of GZ Yue Xiu and Yue Xiu, and chairman of Yue Xiu Transport Infrastructure Ltd.
He holds an MBA degree awarded by Huazhong University of Science and Technology, and possesses the qualification of senior accountant in China.
He was the director and general manager of Guangzhou Radio Group Co., Ltd., chairman and general manager of Haihua Electronics Enterprises Corp., chairman of Guangzhou Guangdian Real Estate Development Co., Ltd. and a director of GRG Banking Equipmen
t Co., Ltd.
n.a.
Tang Shouchun (2006, 49)
Executive Director He is also a deputy general manager of GZ Yue Xiu and Yue Xiu, and is responsible for overseeing the Group’s financial and treasury affairs.
Graduated from Nanjing Agricultural University and is a senior accountant, senior economist and registered asset appraiser in China.
He holds a Doctor degree in Agricultural Economics and Management.Taught at Southwestern University of Finance and Economics in Chengdu and was a vice
professor of South China Normal University in Guangzhou.Was a director and chief accountant of Guangzhou City Construction & Development
Group Co., Ltd.
1,620,375 options
Cheng Zhihong (2011, 50)
Executive Director and general manager of
operations
He holds a MBA degree of the South China University of Technology and the qualifications of economist and engineer in China.
He was a deputy general manager and general manager of the corporate management department and general manager of the investment department in Yue Xiu.
He was a deputy general manager of the Company and a deputy managing director of Guangzhou City Construction & Development Co., Ltd.
He worked for Guangzhou Paper Group for 20 years and had been engaged in the operational management of the enterprise and has been seconded to Restructuring Commiss
ion of Guangzhou Municipality to participate in economic restructuring.
0.01% and 623,221options
Lam Yau Fung, Curt (2010, 43)
Executive Director He is also a director of capital markets of Yue Xiu.He holds a CFA qualification and an MBA degree from Rice University in the US.
He was head of corporate finance and business development at GOME Electrical Appliances Holding Ltd.
He worked in investment banking and capital markets at Schroders Asia, ABN AMRO Rothschild, and Deutsche Bank.
n.a.
Source: Company
China / Hong Kong Company Focus
Yuexiu Property
Page 29
Appendix: Corporate structure
Source: Company, DBS Vickers
Guangzhou Yuexiu Holdings Ltd.
Yue Xiu Enterprises (Holdings) Ltd.
Yuexiu Property (123.HK)
60.65%
100%
Yuexiu REIT (405.HK)
49.88%
35.14%
Yuexiu Transport Infrastructure (1052.HK)
0.34%
Previous public unit holders
Placees
PICC
24.69%
35.55%
4.28%
Guangzhou Municipal Government
Guangzhou SASAC.
100%
100%
China / Hong Kong Company Focus
Yuexiu Property
Page 30
Key Assumption
Sensitivity Analysis
F Y Dec 2012F 2013F 2014FK ey A ssumpt ionsProperty price growth 0% 0% 0%Rental for office 0% 0% 0%
Rental for retail 0% 0% 0%
ADR growth for hotel 0% 0% 0%
Property price
growth rate
FY13 EPS
(Rmb)
FY13 EPS chg
Bear case -10% 0.19 -21%
Base case 0% 0.24 0%
Bull case 10% 0.28 20%
Source: DBS Vickers Source: DBS Vickers
Segmental Breakdown (HK$m) F Y Dec 2 010A 2011A 2012F 201 3F 2014F
Rev enuesProperty dev elopment 4,301 8,477 8,584 13,337 18,429Property management 344 351 369 387 406Property inv estment 289 445 412 402 524Others 700 296 296 296 296T o t al 5 ,63 4 9 ,569 9 ,661 14 ,422 19 ,655
Source: Company, DBS Vickers
Income Statement (HK$m)
Margin Trends
F Y Dec 2 0 1 0 A 2 0 1 1 A 2 0 1 2 F 2 0 1 3 F 2 0 1 4 F
Turnov er 5,634 9,569 9,661 14,422 19,655Cost of Goods Sold (3,753) (5,565) (4,528) (8,460) (11,678)G ro ss Pro f it 1 ,8 8 1 4 ,0 0 4 5 ,1 3 2 5 ,9 6 2 7 ,9 7 7Other Opg (Exp)/Inc (80) 4,078 (325) (1,579) (2,121)O p erat in g Pro f it 1 ,8 0 1 8 ,0 8 2 4 ,8 0 7 4 ,3 8 3 5 ,8 5 6Other Non Opg (Exp)/Inc 120 222Associates & J V Inc 255 480 126 218 304Net Interest (Exp)/Inc (177) (420) (370) (287) (376)Exceptional Gain/(Loss)Pre- t ax Pro f it 2 ,0 0 1 8 ,3 6 4 4 ,5 6 2 4 ,3 1 4 5 ,7 8 5Tax (1,021) (3,108) (2,322) (2,042) (2,691)Minority Interest (61) (120) (71) (73) (112)
Net Pro f it 9 1 9 5 ,1 3 7 2 ,1 6 9 2 ,1 9 9 2 ,9 8 2
EBITDA 1,865 8,149 4,841 4,418 5,893Sales Gth (%) 20.6 69.8 1.0 49.3 36.3EBITDA Gth (%) 43.3 336.8 (40.6) (8.7) 33.4Opg Profit Gth (%) 44.8 348.7 (40.5) (8.8) 33.6Effectiv e Tax Rate (%) 51.0 37.2 50.9 47.3 46.5
0
20
40
60
80
100
2010
A
2011
A
2012
F
2013
F
2014
F
Operating marginNet margin
HK$m
Source: Company, DBS Vickers Source: Company, DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 31
Balance Sheet (HK$m)
Asset Breakdown
F Y Dec 2 0 1 0 A 2 0 1 1 A 2 0 1 2 F 2 0 1 3 F 2 0 1 4 F
Net F ixed Assets 2,747 3,183 1,249 1,214 1,176Inv ts in Assocs & J V s 1,719 2,109 6,180 6,398 6,702Other LT Assets 8,831 12,786 3,936 5,643 5,187Cash & ST Inv ts 7,473 6,128 5,909 6,033 7,224Other Current Assets 30,012 36,991 45,152 47,189 50,130T o t al A sset s 5 0 ,7 8 1 6 1 ,1 9 6 6 2 ,4 2 6 6 6 ,4 7 6 7 0 ,4 2 0
ST Debt 6,034 10,591 10,591 10,591 10,591Other Current Liab 13,288 12,768 16,691 18,814 20,103LT Debt 11,703 11,191 6,691 6,691 6,691Other LT Liabilities 3,410 5,908 5,908 5,908 5,908Shareholder's Equity 15,860 20,288 22,113 23,968 26,511Minority Interests 486 450 431 504 616T o t al Cap . & L iab . 5 0 ,7 8 1 6 1 ,1 9 6 6 2 ,4 2 6 6 6 ,4 7 6 7 0 ,4 2 0
Non-Cash Wkg. Cap 16,724 24,223 28,461 28,375 30,027Net Cash/(Debt) (10,264) (15,655) (11,373) (11,249) (10,058)
Invts in Assocs &
JVs3%
Net F ixed Assets5%
Other LT Assets21%
Other Current Assets61%
Cash & ST Invts10%
Source: Company, DBS Vickers Source: Company, DBS Vickers
Cash Flow Statement (HK$m)
Operating cashflow
F Y Dec 2 0 1 0 A 2 0 1 1 A 2 0 1 2 F 2 0 1 3 F 2 0 1 4 F
Pre-Tax Profit 2,001 8,364 4,562 4,314 5,785Dep. & Amort. 64 67 34 35 37Tax Paid (565) (530) (2,322) (2,042) (2,691)Assoc. & J V Inc/(loss) (255) (480) (126) (218) (304)Chg in Wkg. Cap. (6,835) (6,351) (4,238) 86 (1,652)Other Operating CF (1,401) (6,014) (645) (51) (48)N et O p erat in g CF (6 ,9 9 2 ) (4 ,9 4 4 ) (2 ,7 3 4 ) 2 ,1 2 4 1 ,1 2 7Capital Exp. (net) (742) (1,132) 1,900 - - Other Inv ts. (net) 1,545 (458) 9,450 (1,707) 456Inv ts. in Assoc. & J V 86 12 (3,946) - - Div from Assoc. & J V - - - - - Other Inv esting CF 43 53 45 51 48N et In v est in g CF 9 3 3 (1 ,5 2 5 ) 7 ,4 4 9 (1 ,6 5 5 ) 5 0 3Div Paid - (303) (344) (344) (440)Chg in Gross Debt 5,317 5,324 (4,500) - - Capital Issues 2,927 1 - - - Other F inancing CF - - - - - N et F in an c in g CF 8 ,2 4 4 5 ,0 2 2 (4 ,8 4 4 ) (3 4 4 ) (4 4 0 )Net Cashflow 2,185 (1,447) (129) 124 1,191
(8,000)
(6,000)
(4,000)
(2,000)
0
2,000
4,00020
10A
2011
A
2012
F
2013
F
2014
F
HK$m
Source: Company, DBS Vickers Source: Company, DBS Vickers
China / Hong Kong Company Focus
Yuexiu Property
Page 32
DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
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SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
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ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the analyst and his / her spouse and/or relatives and/or associate who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities, directorships and trustee positions).
China / Hong Kong Company Focus
Yuexiu Property
Page 33
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBSVHK and its subsidiaries do not have a proprietary position in the securities recommended in this report as of the date the
report is published.
2. DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates may beneficially own a total of 1% or more of any class of common
equity securities of the subject companies mentioned in this document as of the latest available date of the updated information.
3. Compensation for investment banking services: DBSVHK, DBSVUSA, DBS Bank Ltd and/or other affiliates have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from China Overseas Grand Oceans Group Ltd (81 HK).
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