china property 2009-10-21 rbs x

Produced and issued by: ABN AMRO Bank NV Hong Kong Branch+

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Important disclosures can be found in the Disclosures Appendix. +ABN AMRO group companies are subsidiary undertakings of The Royal Bank of Scotland Group plc.

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Property Radar China

Two cities, same complaint (2009#13)

During our visit to Shanghai we noted expensive housing is as challenging thereas it is in HK. While Shanghai may have more grounds to support solid pricegrowth in the medium term than HK, near-term policy risks are also higher, in our view. Poor performance of recent IPOs may be a drag on the overall sector.

Major Shanghai projects with highest the ASP

Area Developer Fitting cost

(Rmb k per sq m)Units

Total GFA (k sq m)

Room size (sq m)

Asking ASP (Rmb k per

sq m) Peninsula Residence* Bund side SPG Land na 39 15 275-435 200 Arch* Lujiazui SHKP na n/a 61 370-560 200 Tomsom Riveria Lujiazui Tomsom 10 220 142 433-1200+ 120 Bundfield North Bund Pengxin na 130 81 128-482 110 Casa Lakeville Luwan SHUI 10 474 140 89-427 100 Hysun Luwan Greenland 10 63 n/a 240-600+ 100 Huashan Residence Huashan Road Dinggu na 52 25 327-1202 95 Shimao Riveria Lujiazui SHIM 8 414 100 92-586 90 Shanghai Bay #2 Xuhui Glorious na 55 n/a 520-560 90 Central Residences Huashan Road KERR 4 60 n/a 240-483 90

Note: * yet to be launched, estimated ASP Source: Soufun, ABN AMRO

Market view – transaction volume rebounded in the second week of October

Transaction volume in Beijing, Shanghai, Guangzhou and Shenzhen rebounded 16%, 56%, 79% and 46% wow after a poor performance during ‘Golden Week’. However, we believe the overall volume trend will remain weak in the coming weeks, as our site visits indicated a low motivation to boost sales volume at many projects.

Policy view – criticism of heated property market toned down

Media reports about excessive property price growth (30-40% in Shanghai this year) and developers' profits seem milder now than two years ago when the market peaked. With the central government aiming to strike a balance between maintaining real estate investment momentum and curbing price growth in 2010, we may see a clearer policy direction after 3Q economic figures are announced on Thursday, 22 October.

Company news – two-thirds of new property stocks have fallen below their IPO price

By the end of mid-November, nine new China property companies will have listed this year. Poor performances post-IPO so far (China South City down 27%, Glorious down 18%, Powerlong up 3%) bode poorly for the valuations of the next five to list: Yuzhou (2 November), Excellence (3 November), MingFa (3 November), Evergrande (5 November) and Fantasia (10 November). The Hong Kong Economic Times has reported a 2010 PE range of 4.7x to 11.4x, lower than the median PE of existing China property stocks of 13x.

Actionable ideas – stick to blue-chips

Despite the 5% sector rebound in the past two days (which has been largely flat since 7 September) for no specific reason, we continue to recommend taking profits on high-beta China property stocks and switching to blue-chip defensive SOEs such as COLI, CRLN and FRAN. We also see Hong Kong property stocks as being more defensive due to lower policy risks. We see no near-term upside triggers for the China property sector.

21 October 2009

Analysts

David K C Ng, CFA Hong Kong +852 2700 5369 [email protected]

Frank Miao Hong Kong +86 21 2893 9727 [email protected] 38/F Cheung Kong Center, 2 Queen's Road Central, Hong Kong http://www.abnamroresearch.com

Sector performance

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RBS Property Index (LHS)MSCI China (RHS)

Market price movement

List co MCap 1 week Price (bn) change Rating COLI 17.96 147 4.1% Buy CRLN 19.22 97 9.0% Buy CGAR 3.21 53 7.0% Hold GR&F 15.96 51 12.2% Hold SHIM 15.20 54 8.1% Buy SOHO 4.42 23 2.6% Hold AGIL 10.44 37 10.4% Hold SINO 8.22 39 15.1% Buy SHUI 4.91 25 7.9% Hold FRAN 2.46 23 7.4% Buy HOPS 15.10 24 8.2% Sell KWGP 5.89 17 11.8% Hold GREE 12.62 21 14.1% Hold CCLN 4.51 12 5.1% Sell FORT 2.48 6 6.4% Hold Note: COLI: China Overseas Land & Investment Ltd CRLN: China Resources Land Ltd CGAR: Country Garden Holdings Co GR&F: Guangzhou R&F Properties Co Ltd SHIM: Shimao Property Holdings Ltd SOHO: SOHO China Ltd AGIL: Agile Property Holdings Ltd SINO: Sino-Ocean Land Holdings Ltd SHUI : Shui On Land Ltd FRAN: Franshion Properties China Ltd HOPS: Hopson Development Holdings Ltd KWGP: KWG Property Holding Ltd GREE: Greentown China Holdings Ltd CCLN: C C Land Holdings Ltd FORT: Shanghai Forte Land Co Prices as of 20 Oct 09 Source: Bloomberg, ABN AMRO

Property Radar China | News Highlights | 21 October 2009

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Views on news

Important: Land costs to moderate – Nanfang Daily (19 October)

Land costs have started to show signs of moderating after overheating in 2Q and 3Q this year. Greentown acquired a CBD land site in Hangzhou on 10 October for Rmb20k per sq m, lower than market expectations of Rmb25k and an earlier auctioned comparable site for Rmb24k per sq m. Shenzhen tendered four land sites in Futian CBD to four financial institutions at a low average cost of Rmb8k per sq m, much less than the surrounding office ASP of Rmb25k. Conditions for these sites are that a minimum of 60% is for self-use and the remaining 40% is leasable only to financial institutions. Guangzhou Poly won an urban redevelopment project (GFA of 1.04m sq m) in the Haizhu District of Guangzhou at a floor price of Rmb142m but must also budget relocation costs of Rmb4.5bn. We believe the aggressive bidding wars for land this year have both drawn down developers’ cash reserves and filled their current development needs. Given slower sales and greater land supply since September, we expect land costs to moderate for the rest of 2009.

Important: Third quarterly real estate report – National Bureau of Statistics (15 October)

According to the National Bureau of Statistics, growth in property sales, real estate investment, developer borrowing and mortgage lending continued to accelerate in September. Real estate investment was Rmb2.5tn in the first nine months of 2009, up 17.7% yoy, 3ppt higher than in ytd August. GFA under construction, GFA newly commenced and GFA completion was 2.8bn sq m (up 15.4% yoy), 732m sq m (down 0.4% yoy), and 334m sq m (up 24.7% yoy), respectively. GFA sold over the period reached 583m sq m (up 44.8% yoy, 1.9ppt higher than ytd August), or Rmb2.7trn (up 73.4% yoy, 3.5ppt higher than ytd August). ASP in 70 cities increased 2.8% yoy or 0.7% mom in September, of which overall residential ASP was up 3% yoy and that for small-size units was up 4.9% yoy. Total funding for real estate developers was up 38.8% yoy to Rmb3.9trn. Of this, internally generated funds accounted for Rmb1.3trn (up 14.5% yoy), presale proceeds accounted for Rmb1trn (up 52% yoy) and personal mortgages accounted for Rmb535bn (up 108% yoy). In contrast to this data, Soufun data for eight major cities suggests that volume has fallen for four consecutive months since June 2009, with September down 10% mom. Transaction volume in Beijing and Shanghai dropped 25% and 11% mom in the first 18 days of October while Shenzhen and Guangzhou saw increases of 73% and 39% mom. We believe transaction volume will continue to fall for the rest of this year but that ASP will remain high as developers have no reason to cut prices, especially given their strong cash positions and achieved sales.

Important: Policy risk on the rise – China Land Surveying and Planning Institute (9 October)

The China Land Surveying and Planning Institute, the official think-tank of the Ministry of Land and Resources of the PRC issued a report on 9 September warning of the risk of a sharp ASP increase on the back of falling volumes. The report went on to detail possible measures, including limiting land supply for luxury projects and prohibiting land hoarding to cool the property market. Mr Qiji, the Deputy Minister of the Ministry of Housing and Urban-Rural Development (MOHURD), was widely quoted in the press (28 September) saying that the MOHURD does not support high property prices, and he urged local governments to increase low-cost housing. This is reportedly MOHURN’s first stance on rising property prices this year. Our site visits to some of the major Chinese cities confirm that mortgage tightening is real and implementation has been firm. Secondary market transactions are now also being closely monitored to ensure transactions are properly taxed. We believe rapidly rising ASPs have sparked central government concern. While we do not expect any new policies for the rest of this year, verbal warnings, reiteration of prior policies and any withdrawal of prior stimulus packages should be enough to hurt market sentiment.

Relevant: Accumulative housing fund loans for housing projects – MOHURD (16 October)

MOHURD and six other ministries jointly released a notice on 14 October allowing the idle accumulative housing fund to be loaned out for the development of low-income housing. The 36 cities to launch pilot programmes can take no more than 50% of the balance after minimum deposits are reserved. The interest rate should be 10% higher than the five-year public housing fund borrowing rate (currently 3.87%). We believe the immediate effect will be limited to increasing housing supply, as the estimated available funds (Rmb300bn) represent only a fraction of total funding for the real estate sector (Rmb2.5trn in 3Q09).

Chart 1: Confidence index

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Consumer expectation

Business cycle �

Aug 09: 89

Aug 09: 101

Source: National Bureau of Statistics (NBS)

Chart 2 : FAI and retail sales growth (yoy)

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Aug 09: 33.6%

Aug 09:15.4%

Source: NBS

Chart 3 : Enterprise revenue and profit growth (yoy)

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Source: NBS

Property Radar China | Macro Dynamics | 21 October 2009

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Views on stocks – IPO review

Three China property companies were listed in Hong Kong over the past three weeks. Another four have passed the listing hearing and will likely be listed in 4Q09. Poor stock performances post-IPO, however, should be a drag on the sector’s overall performance.

BBMG (2009 HK), a Beijing-based construction material manufacturer and property developer, raised HK$6.85bn at HK$6.38 per share. China South City (1668 HK), a developer and operator of a mega trade centre in Shenzhen, raised HK$3.15bn at HK$2.1 per share. Glorious Property (845 HK), a developer focusing on Shanghai, Beijing and Tianjin with landbank of 13.6m sq m, raised HK$9.9bn at HK$4.4 per share; the company forecasts it will achieve 2009 net earnings of Rmb2bn (including a revaluation gain of Rmb600m). Powerlong (1238 HK), a developer and operator of shopping centres in tier-2 cities with a landbank of 7m sq m, raised HK$2.75bn at HK2.75 per share; the company forecasts it will achieve 2009 net earnings of Rmb3bn (including a revaluation gain of Rmb1.8bn).

Chart 4 : Post IPO performance – China South City

Chart 5 : Post IPO performance – Glorious Property

Chart 6 : Post IPO performance – Powerlong

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Source: Bloomberg Price as of 20 October 2009



Four other China property companies have passed the listing hearing (Fantasia IPO delayed to 10 November)

Evergrande (3333 HK), a developer focusing on mega residential projects mainly in second- and third-tier cities with a landbank of more than 50m sq m, plans to raise no more than HK$6bn at HK$3-4 per share. (Hong Kong Economic Times)

Yuzhou Group (1628 HK), a Xiamen-focused regional developer with a landbank of 3.5m sq m GFA (1.6 m sq m in Xiamen), plans to raise no more than HK$2.22bn at HK$2.7-3 per share. The company forecasts it will achieve 2009 net profit of Rmb1.1bn (including a revaluation gain of Rmb699m). (Hong Kong Economic Times)

Excellence Group (1028 HK), a Shenzhen-based high-end residential/commercial developer with landbank of 12m sq m GFA, plans to raise HK7.8bn at HK$2.1-2.6 per share. Excellence’s Victoria Harbour project was the top-selling project in Shenzhen in 2008. (Hong Kong Economic Times)

MingFa Group (846 HK), an urban complex developer focusing on Xiamen and Jiangsu, plans to raise no more than HK$3.4bn at HK$3.03-3.79 per share. The company forecasts it will achieve 2009 net profit of Rmb861.5m (including a revaluation gain of Rmb358m). (Hong Kong Economic Times)

Table 1 : Valuation of developers soon be listed

IPO Price (HK$)

10F PE (x)

Evergrande 3.0 – 4.0 4.7 - 6.3 Yuzhou 2.7 - 3.7 5.2 - 7.1 Excellence 2.1 - 2.6 9.2 - 11.4 MingFa 3.03 - 3.79 5.8 - 7.2

Source: Hong Kong Economic Times


4

Views on the market

We visited 16 projects in Shanghai last week with a focus on remote, mass-market residential projects on the first day and high-end luxury apartments on the second. Our site visits confirm our belief that volumes are dropping amid rising ASPs.

In general, property prices have risen 30-40% since the market bottomed a year ago. However, compared with other cities, Shanghai has not corrected as much. For many projects in the primary market, prices are 20% or more above previous peak levels in 2007. Prices in the luxury segment reached new highs with more than 13 projects commanding more than Rmb100k per sq m. Compared with HK, where developers have tried hard to brand mid-end units as high-end ones, Shanghai’s mass-market residential apartments have maintained their branding status but have still appreciated by as much as their high-end equivalents. Most projects we visited, including one situated 1.5 hours away from the city centre, is now selling for more than Rmb10k per sq m.

Similar to what we saw in Beijing, Tianjin and Shenyang a month ago, almost all local sales staff in Shanghai seemed quite satisfied with their sales progress and do not seem to be in a hurry to boost sales in the remaining months of this year. Management teams noted that they are more interested in maintaining current high prices than improving asset churn. This supports our view that volume is likely to remain low while prices stay high for the rest of this year.

Meanwhile, the onset of mortgage tightening for second-home purchases since September should have a negative impact on property sales, as property investors tend to rely more on mortgage financing. We believe the more important factor causing volume decline is rapid price appreciation.

The more remote projects we visited were in Lingang New City, Fengxiang and Minhang. Lingang New City is about 35km south of Pudong International Airport and is at the ocean front close to Donghai bridge which connects the mainland to the Yangshan Deep Water Port. New projects – including large-scale residential projects, low-rise office buildings and resort hotels, such as Crowne Plaza (355 rooms) – are being developed around Dishui Lake. Greenland’s Future World was first launched in 2007 at an ASP of Rmb7k per sq m. Only a few semi-detached units charging Rmb11k-15k per sq m remain unsold. Lingang New City is part of the Nanhui District, which has a focus on logistics and manufacturing given its proximity to the airport and port. Recently, the State Council incorporated Nanhui into Shanghai Pudong New District. This has elevated the economic status of Lingang New City and solidifies Pudong’s position as both a financial hub and a maritime centre in the country. The Shanghai government has also committed to developing the area by including seven sites in Lingang New City – total GFA of 500k sq m of low-density residential units – on its land supply list. However, because the area faces adverse weather conditions and should mainly attract buyers working in the area, we think property prices in Lingang New City will take a few years to appreciate.

Shimao’s Emmen Royal County is located in the Spark Development Zone in Fengxiang District. The project is 50km south of Shanghai’s city centre and 35km east of Lingang New City. It is also close to the water front of Hangzhou Bay. Shimao bought the project in 2007 in the secondary market and took advantage of the natural surroundings of the project by developing a horse range adjacent to its townhouses. The company launched the project at the end of 2008, but poor market conditions resulted in slow sales until April 2009; the project was then selling for Rmb7k per sq m. Only 40 of the original 370 units are left, with the townhouses charging Rmb11k per sq m. The effective price is around Rmb9k per sq m with the 25% free GFA (underground or balcony). Real estate agents indicated strong interest from Shanghai city residents who intend to use the property as a weekend home, but also slower sales since the mortgage tightening in September.

Minhang, a villa district, is about 30 minutes away from the city centre. The area is well served by metro line No. 5, but some projects are located quite a distance from the stations, so prices vary. The sales offices of two projects we visited, Hopson Town and Forte Park Town, were relatively empty due to lack of supply of new units. Hopson Town was last launched with an ASP of Rmb8k-9k per sq m in February 2008 before the market began to correct. Because the 90/70 rule applies to this project, most units are smaller apartments. Sales so far this year have been moderate.

Chart 7 : CPI and PPI

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Source: CEIC

Chart 8 : Electricity consumption growth and PMI

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Chart 9 : Auto production/ sales monthly growth (yoy)

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Local sales agents target an ASP of Rmb12k per sq m for the launch of 210 units next week, representing 30% price growth from the initial launch in 2008.

Forte Park Town is located 10 minutes drive north of Hopson Town. It has mainly detached villas selling for Rmb25k per sq m or Rmb5m-7m per villa unit, vs Rmb20k per sq m at the end of 2007, representing 25% price growth from the last peak. The project targets mainly white-collar buyers working in the southern part of Shanghai. 70% of launched units were sold at the launch last week.

Figure 1 : Shanghai sites visited on 15 October

Source: ABN AMRO

Figure 2 : Lingang New City (Greenland’s Future World) Figure 3 : Lingang New City (Dishui Lake)

Source: ABN AMRO Source: ABN AMRO


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Figure 4 : Shimao Emmen Royal County Figure 5 : Shimao Emmen Royal County


Figure 6 : Hopson Town Figure 7 : Hopson Town


Figure 8 : Forte Park Town Figure 9 : Forte Park Town



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We think future phases will sell at higher prices We saw the properties and construction sites of 12 luxury property developments and identify two distinct categories: 1) quality projects built by reputable developers who are keen to sell the units quickly; and 2) those that focus more on maximising selling prices and profit margins than sales speed or the land appreciation tax implications. Not all high-end properties can sell quickly given mispricing, weak marketing or disappointing product quality. On this front, the primary property market in Shanghai appears to be more efficient and rational than the HK property market, where primary supply is scarce and developers have marketed nearly every new project as a ‘luxury’ development, despite nearby properties selling at a huge discount vs when the project was originally launched. Shanghai home buyers still have abundant choices in the primary luxury market and can differentiate projects according to location and quality.

On average, the ASP of luxury properties is Rmb50k-60k per sq m for those located at the border of the inner ring road, Rmb70k-90k per sq m for prime districts within the inner ring road, and Rmb100k per sq m or above for the most prestigious areas with views of the Huangpu River. However, as the market continues to heat up, more projects will likely become overpriced.

Shanghai Star River is one of the best luxury projects we saw in Shanghai. Although this is the very first project developed by Star River in Shanghai and the project’s access to the subway is not as convenient as competing projects, the units’ spaciousness, quality, detail, layout, landscaping, greenery and furnishings are exceptional, in our view. ASP is Rmb60k per sq m vs management’s initial guidance of Rmb46k per sq m. Sales hit Rmb4bn on the first day of the launch, a record in Shanghai. Almost all 322 units launched are now sold and the next launch will occur in two years. The project has auxiliary facilities such as a conventional hall, sports facilities, a hotel and catering services. Buyers of Guangzhou Star River and Beijing Star River reportedly flew to Shanghai for the launch but still failed secure units. We believe management aims to establish its reputation in the city by offering premium quality products at a reasonable price. The site was purchased in 2007 at what was then considered a very high price (more than Rmb10k per sq m). Due to its superior quality Star River beat Gemdale and CRLN to win the site despite having offered a lower bid. We believe Star River now trumps Yanlord’s Riverside City in setting the standard for well-run, high-quality and large-scale luxury property in Shanghai.

Shanghai Shimao Riviera Garden’s location is more desireable but the quality of this project is somewhat lower compared to Star River. The project is made up of seven mega towers (3,200 units), which was first launched in 2000 with much fanfare. Its waterfront location is within a five-minute drive from Pudong Lujiazui, an area that attracts many locals and foreigners working in the financial industry. This has supported fast sales at a high selling price. The project was the most important project for the company between 2002 and 2006 and achieved Rmb2bn sales in 2005 and Rmb4bn in 2006. Its plan to launch the last tower at an ASP of Rmb65k per sq m was derailed by the market correction in late-2008 and ASP fell to as low as Rmb40k-50k per sq m in March 2009. The market recovery in 2Q09 then quickly boosted sales, with sales of 280 units (out of a total of 414) generating Rmb2.5bn. In view of the buoyant market and difficulty in securing new prime sites in Shanghai, management deliberately slowed sales after July by raising the asking price to Rmb90k-120k per sq m for units above the 30th floor. Cheaper units sold earlier this year are mostly below the 30th floor, which have views of the river partially blocked by SHKP’s The Arch. The Arch should be launched in two years with a estimated ASP of more than Rmb200k per sq m.

Like Shanghai Shimao Riviera Garden, Glorious’ Shanghai Bay is also a large-scale waterfront residential project (total GFA of around 900k sq m), but the former is in the mature financial district of Pudong while the latter is in Puxi, a still-developing residential area. With sales of Rmb2.6bn the project ranked second in Shanghai in 2008, according to Soufun. Prices have jumped significantly from Rmb30k per sq m in 2008 to Rmb60k per sq m with the recent launch of Tower 8 and to Rmb90k per sq m for Tower 2, which is situated at the waterfront. These prices significantly exceed previous market expectations, thanks to the record-breaking price (Rmb27k per sq m) achieved for a nearby government site. The integrated project includes two hotels, a shopping mall and offices, with the Kempinski Hotel targeted to open in 2010. As a luxury property, we believe Shanghai Bay’s ability to fetch Rmb90k per sq m in a non-prime location indicates that the market is overheating.

The developers do not appear to be in a hurry to seel their luxury projects, thus we think future phases will sell at higher prices


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Figure 10 : Shanghai sites visited on 16 October

Source: ABN AMRO


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Figure 11 : Shanghai Star River Figure 12 : Shanghai Star River


Figure 13 : Shanghai Shimao Riviera Figure 14 : Shanghai Shimao Riviera


Figure 15 : Glorious’ Shanghai Bay Figure 16 : Glorious’ Shanghai Bay



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SHUI’s three Shanghai projects: KIC, Ruihong Xincheng and Casa Lakeville

We view SHUI as the best proxy for the Shanghai market with almost 100% of its revenue came from the financial capital between 2004 and 2006 (91% in 2007 and 81% in 2008).

SHUI’s Xintiandi project, known as Casa Lakeville, which is now in phase 3, is a very successful integrated development that has preserved the historic buildings in the area. To many foreigners, it is viewed as being among the first and most well-known luxury properties in Shanghai and in all of China. The best three towers of Casa Lakeville were first launched in June 2008 at an ASP of Rmb85k per sq m. Tower 11, which does not have a lake view, was launched in May 2009 at a discounted price of Rmb57k per sq m. Tower 12, also without a lake view, saw immediate take-up despite a 20% price increase from the previous month’s launch. The last tower, which has the worst view, was launched in August at Rmb70k per sq m and was cleared almost immediately. The remaining units of Casa Lakeville now command Rmb80k-120k per sq m.

Five low-rises (mainly duplexes) remain under construction above a retail podium in Casa Lakeville. We think the target selling price will likely exceed Rmb100k per sq m. The next phase of the Xintiandi project is the construction of Corporate Avenue P2, which is to be completed in 2011. Relocation of the next residential phase, lot 116, is still ongoing but negotiations with local residents will likely take time.

SHUI’s second major project in Shanghai is Ruihong Xincheng (RHXC), a large-scale (1.3m sq m GFA) mass-market residential project located in the centre of Hongkou District above a subway station. The quality of the project’s Phase 3 has improved significantly from Phase 2, which was sold in 2006 for Rmb16k per sq m. Almost all 248 units of Phase 3 (mostly large-size units) were sold at launch at Rmb30k per sq m. The next phase (lot 4) is situated between Phase 1 and Phase 2 and is currently under construction. The sales staff aim to launch the project at the end of 2010 at an ASP of Rmb35k per sq m for the predominantly small-size apartments (80-90 sq m). After lot 4, lot 6 will be next to go through relocation.

SHUI’s third project in Shanghai is located in Yangpu District close to several reputable universities. The project provides a mix of low-rise office buildings and retail space, called KIC Plaza, and a low-density residential area, called KIC Village. KIC Village Phase 2 offers 600 units with a wide range of sizes that sell for an average of Rmb28k per sq m, versus Rmb22k per sq m at the beginning of the year. The general image of the KIC project and the adjacent Wujiaochang area has improved, thanks to the addition of several major shopping malls such as Wanda Plaza in 2006, Orient Shopping Centre and Bailian Youyicheng in 2007 and the future Shanghai Hopson International Plaza, which is currently under construction. We expect the area to become more popular as tenants, workers and residents move into KIC Plaza and KIC Village.

Management has committed to increase its asset churn in the coming years and indicated that it has sped up progress in relocations. SHUI’s brand, its product quality and superb master planning should help consolidate its position in Shanghai, but we also believe landbank replenishment in Shanghai remains crucial, especially as the company’s projects in other cities will take time to make a meaningful contribution to the bottom line.


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Figure 17 : Shui On Land’s Xintiandi Figure 18 : Xintiandi’s Conrad Hotel and Corporate Avenue


Figure 19 : Shui On Land’s Ruihong Xincheng (RHXC) P3 Figure 20 : RHXC’s adjacent lots to be resettled


Figure 21 : Shui On Land’s KIC residential portion Figure 22 : Shui On Land’s KIC office portion



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KERR’s Shanghai Central Residence, Yuchang’s Prince Hills, SPG Land’s Peninsula Shanghai, and Pengxin’s Bundfield did not sell well during the bull market

Bundfield is located along the North Bund, just north of FRAN's Shanghai Port International Cruise Terminal project. It offers a spectacular view of the Huangpu River, at the northern part of the Pudong Lujiazui financial district and The Bund. However, views below the 14th floor will be blocked by the Banyan Tree hotel after it is constructed. Prices therefore vary significantly: prices for 128-278 sq m units below the 14th floor have risen to Rmb70k per sq m from Rmb50-60k per sq m in January, while prices for 304-371 sq m units above the 14th floor have risen to Rmb120k-160k per sq m from Rmb100k per sq m in January. Sales have been slow due to weak marketing, mediocre product quality, inconvenient access and the wide price premium versus previous phases of the same project that were developed by a different company. The project launched more than 130 units in 2008 but only 30 have been sold so far. We believe the company aims to maximise selling prices and profit rather than volume for this project.

We are slightly disappointed with the sales performance of KERR’s Shanghai Central Residences Phase 2. The company launched 30 units of Tower 2 (all below the 20th floor) in August but only managed to sell 16 at an ASP of Rmb86k per sq m, despite a improved market environment. We believe the poor performance was due to the project’s average interior décor standards. In contrast, nearby projects such as Huashan Residence (Jin’an District; selling for Rmb95k per sq m) saw a better response at its launch last week. Another competing project in the area is Wharf’s No.1 Xinhua Road, which launched recently at Rmb75k per sq m. For KERR’s Shanghai Central Residence, the remaining units above the 20th floor will be launched at the end of October. Management plans to raise prices 3-4%. The other two towers of Phase 2 are for lease: Tower 3 offers 154 units (135-200 sq m) but is only 70% occupied, and Tower 1 offers 60 units (238-341 sq m) and is 92% occupied. Daily rents average around Rmb5.5 per sq m, implying less than a 3% yield versus 4-5% at the peak of the market.

Another project with slow sales is Prince Hills located at a busy intersection in Changning District. The project includes two residential towers, an office tower, a shopping podium and Hotel Nikko (388 rooms), which is scheduled to open in 2010. Despite its prime location and supporting facilities, more than 20 units remain unsold out of a total of 100 two years after the initial launch. Prices have been relatively flat; the latest target price of Rmb70k per sq m is up slightly from the Rmb50-60k per sq m at the launch in September 2007. CBRE is the sales agent for the project. We believe the developer prefers to maximise prices rather volume given the scarcity value of the project.

SPG is developing the Peninsula Shanghai in a joint venture with Hong Kong and Shanghai Hotels. The hotel offers 235 hotel rooms and suites with impeccable interior décor. The introductory room rate of around Rmb2,500 per night is nearly double that of SHIM’s Hyatt on the Bund. One of its largest suites has two huge balconies, each of the size of a basketball court with a 360-degree view of Shanghai Puxi and Pudong. The rack rate is Rmb85k. We believe the hotel’s F&B and wedding banquet businesses should do well as Peninsula Shanghai provides a classic European atmosphere quite unlike most of the modern five-star accommodation provided by international hoteliers in Shanghai. Its entrance lobby mimics The Peninsula Hong Kong, a popular rendezvous spot for high tea. Adjoining the hotel building is a serviced apartment, which has no river view. The showroom was closed for redesigned during our visit, but the hotel staff said that the 275-435 sq m units will likely command more than Rmb200k per sq m when launched for sale towards the end of this year.


13

Figure 23 : Pengxin’s Bundfiled Figure 24 : Franshion's International Cruise Terminal


Figure 25 : Kerry’s Central Residences Figure 26 : Kerry’s Central Residences


Figure 27 : SPG Land’s Peninsula Shanghai Figure 28 : SPG Land’s Peninsula Residences



14

GREE’s Bund House and CRLN’s Bound of Bund are still under construction

Bund House had no public showroom when it was launched in August. All 86 units were sold at launch at an ASP of Rmb52k per sq m for total sales proceeds of Rmb1.5bn. Another batch is to be launched later this year with a target ASP of Rmb70k per sq m. GREE’s CEO Shou Bainian has purchased a unit in Bund House.

The Bound of Bund is just across the street and was originally the Phase 2 of The Bund Side, which was first launched in 2005 at an ASP of Rmb18k per sq m. The latest selling price is Rmb40k per sq m. The Bound of Bund has a total GFA of 100k sq m and is selling 288 units in six towers. The cheapest units are 188 sq m and start at Rmb55k per sq m. However, the sales staff emphasised that the company has not set a target maximum selling price or average price and prefers to sell the project slowly over three years to maximise profit.

Figure 29 : Greentown’s Bund House Figure 30 : Greentown’s Bund House


Figure 31 : CR Land’s The Bound of Bund Figure 32 : CR Land’s The Bound of Bund


Both sites are located in the Dongjiadu area of South Bund and have partial river views


15

Company figures

Chart 10 : Secondary property price index of major cities

100

120

140

160

180

200

220

240

260

280

May-04 May-05 May-06 May-07 May-08 May-09

Shanghai Guangzhou Beijing Shenzhen

Aug Shanghai: +29%from low in Feb 09

Aug Guangzhou: +47% from low in Feb 09

Aug Beijing: +17% from low in Feb 09

Aug Shenzhen: +38% from low in Feb 09

Charts 11-14: Beijing, Shanghai, Shenzhen and Chongqing posted volume drops of 16.8%, 22.7%, 14.6%, and 7.1% in September 2009 vs August 2009.

Charts 11-14: In the second full week of October (October 12th-18th ), Beijing, Shanghai and Shenzhen showed wowincreases in transaction volume of 16%, 56%, and 46%. This is partially due to the low base effect of poor sales in “Golden Week”.

Charts 11-14:In the first 18 days of October, transaction volume in Beijing ,Shanghai dropped 25% and 11%, espectively. While Shenzhen increased 73%. During the same period, ASP in Beijing and Shenzhen increased 12.7% and 1.7% mom while dropped 3.3% in Shanghai.

Charts 15-16: Vanke sold GFA 537k sq m in September at an ASP of Rmb10k per sq m. COLI sold GFA 387k sq m in September at an ASP HK$11.6k per sq m. Source: Centaline

Chart 11 : Beijing primary transaction prices and volumes Chart 12 : Shanghai primary transaction prices and volumes

8,0009,000

10,00011,00012,000

13,00014,000

15,00016,000

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-0902004006008001,0001,2001,4001,6001,800

GFA (RHS 000 Sqm) ASP (LHS Rmb)

Oct ASP: Rmb:15,336

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-090

500

1,000

1,500

2,000

2,500

3,000

3,500


Oct ASP: Rmb:11,266

Source: Soufun * Last bar refers to transaction volume in the first 18 days of October


Chart 13 : Shenzhen primary transaction prices and volumes

Chart 14 : Chongqing primary transaction prices and volumes

8,000

10,000

12,000

14,000

16,000

18,000

20,000



Oct ASP: Rmb:19,753

2,000

2,500

3,000

3,500

4,000

4,500

5,000


500

1,000

1,500

2,000

2,500

3,000


Oct ASP: Rmb:4,527



Chart 15 : Vanke monthly contracted sales and ASP Chart 16 : COLI monthly contracted sales and ASP

100

200

300

400

500

600

700

800

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-096,000

7,000

8,000

9,000

10,000

11,000

GFA sold (000 sqm LHS) 3MA GFA soldASP (Rmb psm RHS) 3MA ASP

Sep 09: ASPRmb 10,168 psm

Nov 07 ASP: Rmb10,353 June 08 ASP:Rmb10,308

0

100

200

300

400

500

600

700

07H1 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-090

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

GFA sold (000 sqm LHS) 3MA GFAASP (Rmb psm RHS) 3MA ASP

July 08 ASP: HK$11,172

Dec 07 ASP: HK$ 14,607

Feb 08 ASP: HK$7,029 Sep 09 ASP: HK$11,644psm

Source: Company data Source: Company data


16

Chart 17 : GDP, FAI and consumption breakdown in 2007

Food

UrbanNon-real estate urban FAI

Gross Capital Formation

Residence

Rural

Residential

ConsumptionTransport

Other propertyGovernment

Health, clothing, financial,

household

Inventories

0%

20%

40%

60%

80%

100%

GDP breakdown FAI breadown Consumptionbreakdown

UrbanConsumption

Exports Rural

Recreational

Chart 18: Real estate investment growth dropped from 39% in October 2007 to 7% in March 2009 and then rebounded to 35% in August 2009. FAI growth rose to 34% in August 2009 from 22% in December 2008.

Chart 19: GFA sold in September of 2009 was 82m sq m GFA (up 58.3% yoy), while national GFA completed was 36m sq m (up 27.7% yoy).

Chart 20: Shanghai stock market increased 4% mom in September, but down 18.5% from July. PboC has left interest rate unchanged for 10 months now.

Table 2: National ASP for the primary property market has gone up seven months in a row since March (4.9% accumulatively). Guangzhou (up 12.9% since March) and Shenzhen (10.4% since March) have had the strongest accumulated growth.

Source: CEIC

Chart 18 : Growth of property investment and FAI (yoy) Chart 19 : Growth of GFA sold and GFA completed (yoy)

0%5%

10%15%20%25%30%35%40%45%

Feb 07 Aug 07 Feb 08 Aug 08 Feb 09 Aug 0915%

20%

25%

30%

35%

40%

Real estate investment (LHS) FAI (RHS)

Aug 09: up 34% yoy

Aug 09: up34% yoy

-40%-30%-20%-10%

0%10%20%30%40%50%60%

Feb 07 May 07 Aug 07 Nov 07 Mar 08 Jun 08 Sep 08 Dec 08 Apr 09 Jul 09

GFA Completed GFA Sold

Sep 09: Nationa GFA sold up 58% yoy,National GFA completed up 28% yoy

Source: NBS Source: NBS

Chart 20 : Lending rates and stock index Chart 21 : Growth of developer and mortgage loans (yoy)

5%

6%

6%

7%

7%

8%

8%

Mar 06 Jul 06 Nov 06Mar 07 Jul 07 Nov 07Mar 08 Jul 08 Nov 08Mar 09 Jul 091,000

2,000

3,000

4,000

5,000

6,000

Shanghai Stock Index (RHS) 1year lending rate (LHS)5+ yearlending rate (LHS)

189 bpts cut

216 bpts cut

5%

15%

25%

35%

45%

55%

1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q095%

10%

15%

20%

25%

30%

35%

40%

Developers Loan growth (LHS) Mortgage growth (RHS)

2Q09 Mortgage growth: 18.8%

2Q09 Developer loan growth: 20.5%

Source: SHEX, People’s Bank of China Source: PBoC

Table 2 : Selling price change in the primary markets of 10 major cities (mom)

Secondary mom Beijing Shanghai Guangzhou Shenzhen Hangzhou Nanjing Shenyang Tianjin Chengdu Chongqing National Sep-08 -0.30% -0.90% -1.40% -5.60% -0.20% -2.90% 1.20% 0.10% -0.10% 0.00% -0.30% Oct-08 -0.10% -0.30% -1.80% -2.50% -0.20% -0.80% 0.00% -0.20% -0.50% 0.50% -0.30% Nov-08 -0.50% -0.40% -1.10% -2.40% 0.00% -2.20% -0.10% -0.10% -0.20% -0.80% -0.60% Dec-08 -1.10% -0.30% -3.10% -0.20% -0.10% -0.40% -0.20% -0.50% -0.30% -0.40% -0.70% Jan-09 -0.10% -0.10% 0.30% -0.20% -0.10% -0.10% -0.10% -0.30% -0.40% -1.10% -0.30% Feb-09 -0.10% 0.00% -0.20% -0.10% -1.30% 0.00% 1.30% 0.20% -0.10% -0.20% -0.20% Mar-09 0.20% 0.00% 0.20% 0.50% -0.10% 0.70% 0.30% 0.20% 0.40% 0.20% 0.10% Apr-09 0.40% 0.10% 2.10% 2.00% -0.60% 0.20% -0.10% 0.30% 0.10% 0.10% 0.30% May-09 0.50% 0.50% 1.40% 1.70% 0.70% 0.30% 0.10% 0.90% 0.70% 0.10% 0.70% Jun-09 0.30% 1.00% 3.60% 0.90% 0.60% 0.30% 0.20% 0.90% 0.40% 1.10% 0.80% Jul-09 1.40% 1.10% 2.70% 2.20% 1.20% 1.10% -0.10% 0.90% 0.40% 0.30% 1.10% Aug-09 1.30% 1.20% 1.50% 1.60% 1.90% 1.00% 0.20% 2.00% 0.40% 1.30% 1.10% Sep-09 0.40% 0.70% 1.40% 1.50% 2.00% 0.80% 0.40% 1.30% 1.20% 0.60% 0.80%

Source: National Development and Reform Commission

Property Radar China | Company Dynamics | 21 October 2009

17

Company figures

Table 3 : Price, PE multiples and NAV discounts of 15 property developers under our coverage

Target price Price Rating PE (x) NAV premium NAV/share (HK$) 2009F

(HK$) (HK$) 2009F 2010F 2011F 2009F 2010F 2011F 2009F 2010F 2011F gearing COLI 21.32 17.96 Buy 24 17 16 84% 76% 72% 9.8 10.2 10.4 47% CRLN 25.45 19.22 Buy 30 19 15 48% 39% 32% 13.0 13.8 14.6 45% CGAR 3.16 3.21 Hold 19 16 14 107% 101% 95% 1.5 1.6 1.6 46% GR&F 15.50 15.96 Hold 14 10 10 46% 41% 37% 10.9 11.3 11.7 128% SHIM 17.11 15.20 Buy 24 17 11 56% 38% 33% 9.7 11.0 11.4 18% SOHO 4.86 4.42 Hold 20 8 20 50% 70% 78% 3.0 2.6 2.5 -41% AGIL 9.69 10.44 Hold 17 11 10 2% -5% -13% 10.2 11.0 12.0 15% SINO 7.69 8.22 Buy 24 18 13 41% 27% 25% 5.8 6.4 6.6 40% SHUI 4.24 4.91 Hold 10 21 19 31% 41% 13% 3.7 3.5 4.3 37% FRAN 2.93 2.46 Buy 22 15 11 9% -5% -12% 2.3 2.6 2.8 35% HOPS 10.28 15.10 Sell 10 9 9 -31% -39% -48% 21.9 24.8 28.8 60% KWGP 4.59 5.89 Hold 17 16 11 -10% -15% -22% 6.6 6.9 7.6 19% GREE 10.88 12.62 Hold 21 12 7 -44% -52% -51% 22.4 26.2 26.0 137% CCLN 3.45 4.51 Sell n/a n/a n/a -26% -31% -38% 6.1 6.5 7.2 -12% FORT 2.21 2.48 Hold 16 11 10 20% 5% -11% 2.1 2.4 2.8 154%

Note: Prices at close 20 October 2009 throughout the report. PE based on our estimated adjusted EPS; negative NAV premium means NAV discount Source: ABN AMRO forecasts

Chart 22 : Price change (x-axis) vs forward consensus earnings change (y-axis), 17 April 2009 vs 16 October 2009

COLI

CRLN

CGAR

GR&F SHIM

SOHO

SINOAGIL

SHUI

FRAN

HOPS

GREE

CCLN

FORT

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

-70% -50% -30% -10% 10% 30% 50% 70% 90% 110% 130% 150%

% price change

% 6 months consensus forward earnings change

Acquisition taken place too late

Western China focus

Good business model

High gearing to persist

Expensive Land bank

Low transparency

KWGP Going national

Most bullish developer

Record revenue in 2009Defensive landlord

Property top pick

Blue chip leader

Staying power in GuangdongTop pick among high beta names

Need to resume growth

Source: Datastream

Table 4 : Revenue, earnings, EBITDA and EPS forecasts for 15 China property developers under our coverage

Revenue Adjusted earnings EBITDA Adjusted EPS (Rmb) Rmbm 2009F 2010F 2011F 2009F 2010F 2011F 2009F 2010F 2011F 2009F 2010F 2011F COLI* 34,891 42,417 41,015 6,241 8,385 9,108 10,857 15,185 15,013 0.76 1.03 1.12 CRLN* 15,243 24,653 32,138 3,270 5,088 6,601 6,251 11,077 13,374 0.65 1.01 1.31 CGAR 18,247 21,231 23,233 2,409 2,910 3,293 5,118 6,000 6,765 0.15 0.18 0.20 GR&F 19,464 25,316 25,587 3,217 4,744 4,671 6,789 9,961 9,453 1.00 1.47 1.45 SHIM 15,970 19,327 26,965 2,004 2,804 4,277 4,821 6,132 9,275 0.56 0.78 1.19 SOHO 7,176 11,869 7,013 1,125 2,737 1,109 2,541 6,216 2,175 0.20 0.48 0.19 AGIL 13,237 18,126 20,973 1,939 3,033 3,389 3,934 6,148 6,342 0.54 0.84 0.94 SINO 9,098 11,843 15,283 1,398 1,866 2,668 2,683 3,806 5,895 0.30 0.40 0.57 SHUI 7,599 5,300 6,585 2,025 960 1,073 3,938 2,190 3,166 0.44 0.21 0.23 FRAN* 7,238 8,884 9,318 1,024 1,533 1,988 2,782 3,879 3,679 0.11 0.17 0.22 HOPS* 12,278 14,452 16,812 2,439 2,567 2,733 4,472 5,449 6,634 1.53 1.61 1.72 KWGP 4,006 5,420 7,211 895 912 1,335 1,797 1,751 1,899 0.31 0.32 0.46 GREE 7,887 13,302 25,955 901 1,599 2,673 1,230 2,723 6,970 0.53 0.93 1.56 CCLN 1,135 1,533 3,652 (94) 85 134 54 237 599 (0.04) 0.03 0.05 FORT 4,727 5,243 5,221 340 493 549 795 971 1,364 0.13 0.20 0.22

*COLI, CRLN, FRAN, HOPS and CCLN figures are in HK$, while the rest are in Rmb. Source: ABN AMRO forecasts


18

Chart 23 : End–2009F breakdown of landbank by cost (Rmb/sq m)

-20%

0%

20%

40%

60%

80%

100%

COLI CRLN CGAR GR&F SHIM SOHO AGIL SINO SHUI FRAN HOPS KWGP GREE CCLN FORT

<500 500-1000 1000-2000 2000-3000 3000-5000 5000-10000 10000-20000 Above

Source: ABN AMRO forecasts

Chart 24 : End–2009F breakdown of landbank by selling prices (Rmb/sq m)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


<5000 5000-7500 7500-10000 10000-15000 15000-20000 20000-30000 30000-50000 Above

Source: ABN AMRO forecasts

Chart 25 : Revenue breakdown by city, 2009F

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


Beijing Shanghai Guangzhou Shenzhen 2nd-tier Others

Note: Second-tier cities include Tianjin, Dalian, Qingdao, Hangzhou, Suzhou, Nanjing, Chongqing, Chengdu, Zhongshan, Xianmen, and 17 other cities. Source: ABN AMRO forecasts


19

Table 5 : Scenario analysis, target price and NAV under different scenarios

Scenario analysis Worst Worse Better Best Central Price

2008 variance 0% 0% 0% 0% 0% 2009 growth -15% -10% -5% 5% varies 2010 growth -10% -5% 5% 10% varies

Volume 2008 variance 0% 0% 0% 0% 0% 2009 variance -20% -10% 0% 5% 0% 2010 variance -20% -10% 0% 5% 0%

Capitalisation rate Residential 12% 11% 10% 9% 6% Office 11% 10% 9% 8% 8% Retail 10% 9% 8% 7% 8% Hotel 13% 12% 11% 10% 10%

Cost of equity varies varies varies varies varies Interest rate 8% 7% 6% 5% 7% Medium-term growth ASP increase 0% 0% 5% 10% varies Land cost increase 5% 0% 0% 5% varies GFA increase 0% 5% 5% 10% varies Medium term duration 2 3 3 4 varies Beta 2 1.6 1.4 1.2 varies Target price (HK$/share)

COLI 6.26 9.36 15.08 25.34 21.32 CRLN 0.19 3.66 13.25 29.92 25.45 CGAR -0.35 0.45 2.90 8.20 3.16 GR&F -7.78 -2.94 12.05 36.31 15.50 SHIM -2.03 2.43 13.09 36.12 17.11 SOHO 1.20 2.98 6.81 13.43 4.86 AGIL -2.06 1.42 11.88 33.93 9.69 SINO -2.12 -0.24 5.83 16.71 7.69 SHUI -3.19 -1.68 2.31 9.25 4.24 FRAN 0.89 1.70 3.35 6.37 2.93 HOPS -7.13 -0.01 16.13 46.01 10.28 KWGP -1.23 0.41 5.18 13.46 4.59 GREE -20.67 -14.58 10.19 49.31 10.88 CCLN 1.51 2.16 3.93 7.82 3.45 FORT -4.82 -2.73 3.81 15.67 2.21

NAV (HK$/share) COLI 8.86 9.48 10.03 10.42 10.23 CRLN 6.65 8.97 12.23 15.86 13.83 CGAR 0.22 0.80 1.62 2.55 1.60 GR&F 2.07 5.08 9.24 13.99 11.29 SHIM 2.52 5.61 9.79 14.59 11.00 SOHO 2.50 3.04 3.80 4.60 3.68 AGIL 3.39 6.17 10.12 14.63 10.98 SINO 2.14 3.75 5.94 8.41 6.45 SHUI -1.72 0.13 2.87 6.25 3.48 FRAN 1.28 1.87 2.65 3.59 2.60 HOPS 6.20 12.86 23.00 34.53 24.8 KWGP 2.93 4.41 6.46 8.79 6.90 GREE 9.90 15.84 24.09 33.09 26.18 CCLN 3.93 4.94 6.48 8.25 6.54 FORT -1.12 0.20 2.07 4.13 2.37

Note: Central scenario assumes 2010 and 2011 price changes of 5-15% in major cities Source: ABN AMRO estimates

Our 12-month target price is the sum of our DCF valuation for development properties and end-2010F NAV for investment properties For our DCF, we divide the development properties into three periods with: 1) the near term, between 2009 and 2010, based on the existing landbank only; 2) the medium term, ranging from one to four years, assuming continuous replenishment but no growth of landbank with different assumptions about growth in land cost, ASP, GFA sold per year for different companies; and, 3) the long term, with 3% perpetual growth applied to all companies For NAV, we estimate rental, occupancy and capitalisation rates with a finite horizon of 2018 As a secondary reference, we also estimate the total NAV for the entire company, including both development and investment properties Table 5 lists all the assumptions we use for our target price and NAV calculations


20

Chart 26 : MSCI China sector price movement – one week

Chart 27 : MSCI China sector price movement – one month

Chart 28 : MSCI China sector price movement – three months

0% 2% 4% 6% 8% 10% 12%

Utilities

Capital Goods

Telecom

Transportation

Insurance

Banks

Metals/Mining

F&B

China

Retail

Property

Oil & Gas

IT

Automobiles

4.56%

0% 5% 10% 15% 20% 25%

Utilities

Capital Goods

Telecom

Metals/Mining

Transportation

Property

Insurance

Banks

China

Oil & Gas

F&B

Retail

IT

Automobiles

2.94%

0% 10% 20% 30% 40% 50%

Utilities

Property

Capital Goods

Telecom

Transportation

Metals/Mining

Insurance

China

Automobiles

Oil & Gas

Banks

Retail

F&B

IT

1.46%

Price as of 20 October 2009 Source: Datastream



Table 6 : Brokerage firm rating on 15 China property developers on 20 October 2009

COLI CRLN CGAR GR&F SHIM SOHO SINO AGIL SHUI FRAN HOPS KWGP GREE CCLN FORT Buy Hold Sell ABN AMRO Buy Buy Hold Hold Buy Hold Buy Hold Hold Buy Sell Hold Hold Sell Hold 5 8 2 Brokerage 2 Hold Buy Hold Hold Buy Buy Hold Buy 4 4 0 Brokerage 3 Buy Buy Buy Buy Buy Buy Hold 6 1 0 Brokerage 4 Buy Buy Sell Sell Buy Buy Buy Hold Buy Hold Sell Sell Buy 7 2 4 Brokerage 5 Hold Buy Hold Hold Buy Hold 2 4 0 Brokerage 6 Hold Buy Hold Buy Buy Buy Buy Hold 5 3 0 Brokerage 7 Sell Sell Sell Sell Sell Sell 0 0 6 Brokerage 8 Hold Buy Buy Buy Hold Buy 4 2 0 Brokerage 9 Hold Sell Buy Buy Buy Buy Hold Buy Hold Buy Hold Sell Buy 7 4 2 Brokerage 10 Buy Buy Buy Buy Buy Buy Buy 7 0 0 Brokerage 11 Hold Hold Hold Buy Buy Hold Hold Hold Buy 3 6 0 Brokerage 12 Buy Buy Sell Hold Buy Buy Hold Buy Buy Buy 7 2 1 Brokerage 13 Hold Buy Hold Buy Buy Sell 3 2 1 Brokerage 14 Hold Buy Buy Buy Hold Buy Hold Buy Hold Buy 6 4 0 Brokerage 15 Buy Buy Buy Buy Buy Buy Buy Buy Buy 9 0 0 Buy 6 11 4 5 8 6 7 6 4 3 3 5 1 2 4 75 Hold 7 1 3 6 1 1 4 4 3 0 2 4 4 0 2 37 Sell 1 2 3 2 0 0 0 1 0 0 2 1 2 1 1 18

Source: ABN AMRO, Bloomberg Note: For other brokerage firms we obtain their target prices from Bloomberg and apply 10% benchmark against current market price to derive the ratings (ie target price/current market price > 110% = Buy; <90% = Hold, in between = Hold)

Chart 29 : 12-month forward weekly rolling PE band based on consensus earnings forecasts

-

200

400

600

800

1,000

1,200

Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09

Thickest line = Market capitalization weighted RBS China Property Index

Highest = 24.4

+1STD = 15

Ave. = 11.2

-1STD = 7.4

Lowest = 4.9

19 October 2009 Index = 440, Forward PE =14.4x

Source: Datastream


21

Recent publications Real Estate China: Disappointing Golden Week Sale (6 October 2009)

Property Radar China: Timing is everything (25 September 2009)

CC Land Holdings (1224): Slim profits in 2010 (21 September 2009)

China Resources Land (1109): Defensive with upside potential (21 September 2009)

Greentown China : Growth at all costs (17 September 2009)

Table 7 : Regional property team

China and Hong Kong Hong Kong Taiwan David Ng, Head of Regional Property Research Raymond Liu Andre Chang, CFA +852 2700 5369 +852 2700 5524 +886 2 8722 3018 Email: [email protected] Email : [email protected] Email : [email protected] China Singapore Thailand Frank Miao Fera Wirawan Gift Srisomburananont +86 21 2893 9727 +65 6518 7238 +66 2 680 1025 Email : [email protected] Email: [email protected] Email: [email protected]

Source: ABN AMRO

Table 8 : Global sales team

Australia Ramesh Raghavan US Woon Millen +65 65187244 Juanita Halim +61 2 8259 5260 Email: [email protected] +1 203 97177059 Email: [email protected] Email: [email protected] China and Hong Kong London Saurabh Singhi Graham Lappin Mark O’Hanlon +1 203 9717087 +852 2700 5153 +44 207 6785434 Email: [email protected] Email: [email protected] Email: [email protected] Donald Floyd James McIntosh Marina Chow +1 203 897 7093 +852 2700 5691 +44 207 6782652 Email: [email protected] Email: [email protected] Email: [email protected] Jon Lanuza Joe Batchelor Sanjay Kanal +1 203 897 9842 +852 2700 5216 +44 207 6785418 Email: [email protected] Email: [email protected] Email: [email protected] Joy Kim Nelson Li Rajiv Nihalani +1 415 343 7003 +852 2700 5583 +44 20 7678 2347 Email: [email protected] Email: [email protected] Email: [email protected] Sandy Li Patrick Han +852 2700 5169 +44 20 7678 5288 Email: [email protected] Email: [email protected] Winson Liu India Korea +852 2700 5182 Anil Shah John Choi Email: [email protected] +9122 6715 5444 +822 2131 6407 Email: [email protected] Email: [email protected] Singapore Garett Lim Arvind Shah Kyoung Keun Lim +65 6518 5358 +9122 6715 5344 +822 2131 6422 [email protected] Email: [email protected] Email: [email protected] Julie Seol Roshan Sony Seung Lee +65 65187228 +9122 6715 5327 +822 2131 6413 Email: [email protected] Email: [email protected] Email: [email protected] Paul Rathband +65 65187226 Email: [email protected]

Source: ABN AMRO

Property Radar China | Disclosures Appendix | 21 October 2009

Recommendation structure Absolute performance, short term (trading) recommendation: A Trading Buy recommendation implies upside of 5% or more and a Trading Sell indicates downside of 5% or more. The trading recommendation time horizon is 0-60 days. For Australian coverage, a Trading Buy recommendation implies upside of 5% or more from the suggested entry price range, and aTrading Sell recommendation implies downside of 5% or more from the suggested entry price range. The trading recommendation time horizon is 0-60 days. Absolute performance, long term (fundamental) recommendation: The recommendation is based on implied upside/downside for the stock from the target price. A Buy/Sell implies upside/downside of 10% or more and a Hold less than 10%. For UK Small/Mid-Cap Analysis a Buy/Sell implies upside/downside of 10% or more, an Add/Reduce 5-10% and a Hold less than 5%. For UK-based Investment Funds research the recommendation structure is not based on upside/downside to the target price. Rather it is the subjective view of the analyst basedon an assessment of the resources and track record of the fund management company. For listed property trusts (LPT) or real estate investment trusts (REIT) the recommendation is based upon the target price plus the dividend yield, ie total return. Performance parameters and horizon: Given the volatility of share prices and our pre-disposition not to change recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 12 months. Sector relative to market: The sector view relative to the market is theresponsibility of the strategy team. Overweight/Underweight implies upside/downside of 10% or more and Neutral implies less than 10% upside/downside. Target price: The target price isthe level the stock should currently trade at if the market were to accept the analyst's view of the stock and if the necessary catalysts were in place to effect this change in perception within the performance horizon. In this way, therefore, the target price abstracts from the need to take a view on the market or sector. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value, the target price will differ from 'fair' value.

Distribution of recommendations The tables below show the distribution of ABN AMRO's recommendations (both long term and trading). The first column displays the distribution of recommendations globally and the second column shows the distribution for the region. Numbers in brackets show the percentage for each category where ABN AMRO has an investment banking relationship.

Valuation and risks to target price Agile Property Holdings (RIC: 3383.HK, Rec: Hold, CP: HK$10.44, TP: HK$9.69): Our 12-month target price is the sum of our valuations of the company's development properties using a three-stage DCF method and its investment properties using end-2009F NAV. Upside risks to our target price include a cash windfall from further stake disposals. Downside risk would be: 1) market weakness in Guangdong; 2) slower than expected volume in Hainan project; 3) cash shortage due to capital withdraw from the Huizhou Bailuhu project; 4) delays inproject launches. C C Land Holdings (RIC: 1224.HK, Rec: Sell, CP: HK$4.51, TP: HK$3.45): Our target price is based on the sum of our DCF valuation of development properties and end-2009F NAV of investment properties. Upside risks to our target rice are: 1) a sudden rebound in transaction volumes and ASP; 2) unexpected positive government incentives; and 3) improved marketsentiment, due to lack of cooling measures. China Overseas (RIC: 0688.HK, Rec: Buy, CP: HK$17.96, TP: HK$21.32): Our target price is based on the sum of our three-stage DCF valuation of its development properties and end-2009F NAV of its investment properties. Downside risks include tightening of the macro lending environment, further tightening of mortgage on second home purchases, and the inability of the company to accumulate prime land site at reasonable cost. China Resources Land (RIC: 1109.HK, Rec: Buy, CP: HK$19.22, TP: HK$25.45): Our target price is based on the sum of our three-stage DCF valuation of its development properties and end-2009F NAV of its investment properties. Upside risks include better-than-expected launches in Shenzhen. Downside risks include 1) thin margin due to high land cost; 2) less support from the parent due to a slowing economy; and 3) weak demand for high-end projects. Country Garden Holdings (RIC: 2007.HK, Rec: Hold, CP: HK$3.21, TP: HK$3.16): Our target price is based on the sum of our three-stage DCF valuation of its development properties and end-2009F NAV of its investment properties. Upside risks include strong ramp-up of sales contribution from its Shenyang, Chaohu and Inner Mongolia projects. Downside risks includefurther deterioration in sales performance of projects in the south and further book losses on its financial derivatives. Franshion Properties (RIC: 0817.HK, Rec: Buy, CP: HK$2.46, TP: HK$2.93): Our target price is based on the sum of our three-stage DCF valuation of its development properties and end-2009F NAV of its investment properties. Downside risks are: 1) construction delays in Shanghai; 2) rental and occupancy deterioration in the investment property market; and 3) unexpected cooling measures. Upside risks include faster and better selling prices at its Shanghai Huishan project and acquisition of prime sites. Greentown China (RIC: 3900.HK, Rec: Hold, CP: HK$12.62, TP: HK$10.88): Our target price is based on the sum of our three-stage DCF valuation of its development properties and end-2009F NAV of its investment properties. Upside risks include improvement of net gearing through stake disposals and a new available financial channel. Downside risks include cooling measures introduced by the government and an inability to acquire a new financing channel. Guangzhou R&F (RIC: 2777.HK, Rec: Hold, CP: HK$15.96, TP: HK$15.50): Our target price is based on the sum of our three-stage DCF valuation of the development properties and end-2009F NAV of the investment properties. Upside risks include acquisitions of land for further development. Downside risks are inability to reduce net gearing, lack of buyers for the company's investment properties, and a delay in bond issuance. Hopson Development (RIC: 0754.HK, Rec: Sell, CP: HK$15.10, TP: HK$10.28): Our target price is based on the sum of our three-stage DCF valuation of the company's development properties and NAV of its investment properties. Upside risks include stronger-than-expected sales performance in Beijing and Guangzhou and the ability to continue to expand landbankcheaper than land cost. Another upside risk is the unexpected increase in GFA delivery. KWG Property Holding (RIC: 1813.HK, Rec: Hold, CP: HK$5.89, TP: HK$4.59): Our target price is based on the sum of our valuation of the company's development properties using athree-stage DCF method and its investment properties using end-2009F NAV. Upside risks include a faster-than-expected recovery of the Chengdu market. Downside risks include prolonged market weakness in Guangdong and a drying up of liquidity due to foreign capital withdrawal. Shanghai Forte Land (RIC: 2337.HK, Rec: Hold, CP: HK$2.48, TP: HK$2.21): Our target price is based on the sum of our three-stage DCF valuation of FORT's development properties and end-2009F NAV of its investment properties. Downside risks include delayed corporate bond issuance, difficulty in rolling forward existing debt, and further property-market deterioration. Upside risks are a faster-than-expected domestic bond listing and a faster-than-expected warming of the Wuhan and Chongqing markets. Shimao Property (RIC: 0813.HK, Rec: Buy, CP: HK$15.20, TP: HK$17.11): We use three-stage DCF and NAV analyses to calculate our target price. Downside risks include financial difficulties leading to project delays and disposals, damage to brand equity from aggressive price cuts, and an inability to grow landbank in prime locations due to competitors bidding up the price. Another downside risk is that the company may be overly optimistic about the outlook for China's real estate market, thus engaging in over-expansion and buying landbank at an unjustifiably high cost. Shui On Land (RIC: 0272.HK, Rec: Hold, CP: HK$4.91, TP: HK$4.24): Our target price is based on the sum of our three-stage DCF valuation of development properties and end-2009F NAV of investment properties. Downside risks include completion delays due to relocation issues and further deterioration of the investment property market. Upside risks include faster-than-expected pick-up in the investment property market in Shanghai and stronger ASP increases in Chongqing and Wuhan. Sino-Ocean Land (RIC: 3377.HK, Rec: Buy, CP: HK$8.22, TP: HK$7.69): Our TP is based on the sum of a DCF value of the company's development properties and end-2009F NAV of its investment properties. Downside risks include further cooling measures in the property market, lower than expected transaction volume due to change of market sentiment, and inability to expand landbank at reasonable cost. SOHO China (RIC: 0410.HK, Rec: Hold, CP: HK$4.42, TP: HK$4.86): Our target price is based on the sum of our three-stage DCF valuation of SOHO's development properties and end-2009F NAV of its investment properties. Downside risks include further deterioration in the Beijing market, failure to negotiate a favourable purchase price for its potential acquisitionsand inability to sell acquired projects at an appropriate profit. Upside risks include surprise land acquisition at cheap cost, or any bank expansion through other means of acquisition.

Long Term recommendations (as at 21 Oct 2009)

Global total (IB%) Asia Pacific total(IB%)

Buy 512 (3) 358 (1)Add 0 (0) 0 (0)Hold 378 (3) 228 (0)Reduce 0 (0) 0 (0)Sell 128 (0) 84 (0)Total (IB%) 1018 (3) 670 (0)

Source: ABN AMRO

Trading recommendations (as at 21 Oct 2009)

Global total (IB%) Asia Pacific total (IB%)

Trading Buy 4 (0) 4 (0) Trading Sell 1 (0) 1 (0)Total (IB%) 5 (0) 5 (0)

Source: ABN AMRO

Property Radar China | Disclosures Appendix | 21 October 2009

Regulatory disclosures Subject companies: 3383.HK, 1224.HK, 0688.HK, 1109.HK, 2007.HK, 0817.HK, 3900.HK, 2777.HK, 0754.HK, 1813.HK, 2337.HK, 0813.HK, 0272.HK, 3377.HK, 0410.HK ABN AMRO beneficially own 1% or more of a class of common equity securities of this company: 2777.HK, X2777.SS

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The Royal Bank of Scotland plc is authorised and regulated in the UK by the Financial Services Authority. ____________________________________________________________________________________________________________________________________________________The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and, (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations is a factor in theperformance appraisals of analysts. ____________________________________________________________________________________________________________________________________________________For a discussion of the valuation methodologies used to derive our price targets and the risks that could impede their achievement, please refer to our latest published research on those stocks at www.abnamroresearch.com. Disclosures regarding companies covered by ABN AMRO group can be found on ABN AMRO's research website at www.abnamroresearch.com. ABN AMRO's policy on managing research conflicts of interest can be found at https://www.abnamroresearch.com/Disclosure/Disclosure.AspX?MI=5. Should you require additional information please contact the relevant ABN AMRO research team or the author(s) of this report.

china property 2009-10-21 rbs x

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