7/28/2019 20100416 - China Reining in Rampant Property Prices

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This report is based on information available to the public. No representation is made that it is accurate or complete. This report is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. China

International Capital Corporation Limited and others associated with it (CICC) may have positions in, and may effect transactions in securities of companies mentioned herein and may also perform or seek to perform investment

banking services for those companies. This report may also be made available (1) in Hong Kong by China International Capital Corporation Hong Kong Securities Limited, and (2) in Singapore only to accredited investors and/or

institutional investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act and Regulations in Singapore, by China International Capital Corporation (Singapore) Pte. Limited (CICCSG). By virtue of

distribution by CICCSG to these categories of investors in Singapore, disclosure under Section 36 of the Financial Advisers Act (which relates to disclosure of a financial advisers interest and/or its representatives interest in securities)

is not required. Recipients of this report in Singapore should contact CICCSG in respect of any matter arising from or in connection with this report. Copyright of this report belongs to CICC. Any form of unauthorized distribution,

reproduction, publication, release or quotation by any institution or individual is prohibited without CICC's written permission.

Sector Update

Peter Hongwei BAISFC CE Ref:AMB141

baihw@cicc.com.cn

What's new:

In a regular State Council conference held on April 14, Premier Wen Jiabao unveiled the central government would

implement a series of measures to check the rampant property price upsurges seen in some Chinese cities. These

measures include: 1) setting a 50% minimum downpayment for the purchase of a second home and raising mortgage rates

for such homes at no less than 1.1x the benchmark rates, with a hope to rein in inappropriate housing demand; 2) increasing

effective housing supply; 3) speeding up policy housing construction; and, 4) intensifying market supervision.

The conference also added that property price stabilization and housing safeguards are the responsibilities of provincial

governments and the specific tasks of city-level governments.

Comments:

Generally speaking, this move is within market expectations and makes the levying of a property holding tax less likely in thenear term. A new round of real estate tightening is confirmed and the market will enter a policy detailing/observation period.

The government has a clear knowledge of the root cause of rampant house prices and has made a decisive move to stemtheir rise. The governments efforts to check property prices through mortgage differentiation, in line with ourexpectation, reduces the likelihood of launching a property holding tax in the near term and will bring closure to this

round of discussion on real estate tightening.

The government clearly knows supply expansion is critical to checking the rise of house prices. Together with reforms tothe system of selling land to the highest bidder, we believe the frequent occurrence of land kings will be reined in and

the rampant housing price surges will be checked, positive to bringing overly high property prices down.

In our view, it is an effective policy combination: home mortgage control over speculative demand, scaling up supply ofland, small/mid-sized properties and policy housing, and crack down on property hoarding, reluctance to sell land and

land idling. Going ahead, we believe property prices will level off soon and correct in 2H10 on increased supply.

To better carry out the tightening policy, local governments and relevant government bodies will release correspondingpolicy details, such as the area and structure of land supply, the criteria for the classification of second homes and

minimum downpayment for second home purchases. We predict regions with overly inflated property prices will

implement harsh policy details.

Recommendation:

Property prices will enter a period of correction while real estate stocks have fully priced in market pessimism. With the

other shoe dropping, real estate stocks wont have much downside room, though a decent rally is also unlikely as investors

will wait for policy details and market reactions. The real estate sector is expected to perform well in 2H10. We maintain our

call that at this stage investors should buy real estate stocks rather than physical houses; investors with a mid/long horizon

should buy on dips and wait patiently.

Risks:

1) A second dip in the economy combined with policy tightening; 2) over-aggressive policies.

April 19, 2010 Real Estate RESEARCH

China Reining in Rampant Property Prices

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Real Estate: April 19, 2010

This report is based on information available to the public. No representation is made that it is accurate or complete. This report is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. China

International Capital Corporation Limited and others associated with it (CICC) may have positions in, and may effect transactions in securities of companies mentioned herein and may also perform or seek to perform investment

banking services for those companies. This report may also be made available (1) in Hong Kong by China International Capital Corporation Hong Kong Securities Limited, and (2) in Singapore only to accredited investors and/or

institutional investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act and Regulations in Singapore, by China International Capital Corporation (Singapore) Pte. Limited (CICCSG). By virtue of

distribution by CICCSG to these categories of investors in Singapore, disclosure under Section 36 of the Financial Advisers Act (which relates to disclosure of a financial advisers interest and/or its representatives interest in securities)

is not required. Recipients of this report in Singapore should contact CICCSG in respect of any matter arising from or in connection with this report. Copyright of this report belongs to CICC. Any form of unauthorized distribution,

reproduction, publication, release or quotation by any institution or individual is prohibited without CICC's written permission.

2

Price(Rmb)

Target

Price

Total

Mkt_capCAGR

Total liab./

total assets

2 01 0- 4- 15 2 01 0- 4- 15 0 8A 09 A 10 E 1 1E 09 -11 E 0 8 A 0 9A 1 0E 1 1E 08A 09A 10 E 1 1E 0 9A 1 0E 09 A 10 E 08A

A share Property

Mainly for development

Vanke A 000002 BUY 9.1 n.a. 98.1 0.37 0.48 0.67 0.83 31% 24.8 18.8 13.6 11.0 3.1 2.7 2.3 1.9 10.6 11.6 -14% -21% 67% 30.6

Gemdale 600383 BUY 12.8 n.a. 31.8 0.34 0.72 0.96 1.25 3 2% 37.8 1 7.9 13.3 10.2 3.4 2.1 1.9 1.6 15.8 17.8 -19% -28% 70% 15.5

Financial Street 000402 BUY 10.4 n.a. 25.9 0.42 0.55 0.66 0.79 20% 24.9 19.0 1 5.8 1 3.2 1.8 1.7 1.5 1 .4 15.4 16.2 -32% -36% 46% 6.9

Beiji ng Capit al Devt. 600376 BUY 19. 4 n. a. 22. 2 0. 50 0.81 1. 00 1. 30 27% 39. 0 23. 9 1 9. 3 14. 9 5.6 2 .3 2 .1 1 .8 24.0 27. 3 -20% -29% 82% 12. 0

Poly 600048 ACCUMULATE 18.5 n.a. 65.3 0.64 1.00 1.25 1.40 18% 29.1 18.5 1 4.8 13.2 4.6 2.6 2.2 1.9 21.9 22.5 -15% -18% 71% 29.0

Ci tycham p Tart ong 600067 ACCUMULATE 13.7 n. a. 8.4 0.28 0. 46 1. 09 1 .41 74% 48.3 29. 6 12.6 9.7 4 .9 4 .1 3 .1 2. 4 15. 1 16. 4 - 9% -17% 77% 2.2

Huafa Industri al 600325 ACCUMULATE 15. 0 n.a. 12. 2 0. 80 0.83 1. 04 1 .14 17% 18. 8 18. 0 1 4. 4 1 3. 1 2.7 2 .4 2 .1 1.8 21.5 23. 3 -30% -36% 64% 7. 0

Bei ji ng U rb an Cons truc tion 60 02 66 ACCUMULATE 1 6.6 n .a . 1 2.3 0.44 1 .1 5 1 .1 2 1.05 -4% 3 7.7 14 .5 1 4.8 1 5.9 3 .4 2 .5 2.1 1 .8 19 .0 20.4 -13 % -1 9% 6 6% 3.4

Risesun 002146 ACCUMULATE 18.5 n.a. 16.6 0.41 0.68 1.08 1.41 44% 44.7 27.2 1 7.1 13.1 7.9 4.3 3.5 2 .8 12.4 16.0 49% 16% 68% 9.3

Nanjing Chixia 600533 HOLD 6.4 n.a. 6.7 0.18 0.21 0.33 0.42 41% 35.5 29.9 1 9.5 15.0 2.6 2.5 2.2 1.9 7.2 7 .9 -12% -19% 58% 2.2

China Enterprise 600675 HOLD 10.4 n.a. 11.3 0.43 0.58 0.53 0.66 6% 24.3 17.7 19.5 1 5.8 3.5 3.0 2.6 2 .3 11.9 13.1 -13% -21% 64% 2.4

Yangguang 000608 HOLD 8.7 n.a. 4.7 0.05 0.50 0.58 0.46 -4% 164.7 17.5 15.1 19.1 2.6 2.4 2.1 1.9 10.0 10.6 -13% -18% 63% 2.4

Yeland Group 000616 HOLD 6.7 n.a. 6.0 0.30 0.32 0.38 0.48 22% 22.2 20.6 17.6 13.9 2.4 2.2 1.9 1.7 5.8 6.2 1 6% 8% 50% 1.4

Dalong Weiye 600159 HOLD 13.8 n.a. 5.7 0.01 0.82 0.96 1.32 27% 2,416.3 16.8 14.3 1 0.4 4.6 3.6 2.9 2 .3 12.9 14.7 6% -6% 61% 9.4

Average 26% 33.2 20.9 15.9 13.4 3.7 2.7 2.3 1.9 -9% -18% 64%

Median 27% 32.7 18.8 15.1 13.2 3.4 2.5 2.1 1.9 -13% -19% 64%

For development and investment

Jinqiao A 600639 BUY 12.9 n.a. 9.3 0.33 0.43 0.46 0.54 1 2% 39.4 3 0.3 28.1 24.2 3.6 3.3 2.9 2.6 15.6 17.3 -17% -25% 43% 2.2

Lujiazui A 600663 HOLD 23.4 n.a. 37.7 0.47 0.61 0.62 0.65 3% 49.6 3 8.6 37.8 36.2 5.2 4.6 4.1 3.7 18.4 18.8 27% 24% 47% 3.6

China W orld Trade Center 600007 HOLD 11. 1 n.a. 11. 2 0. 35 0.29 0. 16 0 .36 12% 31. 6 38. 7 7 0. 0 3 1. 0 2.7 2 .6 2 .5 2.3 10.9 10. 9 2% 2% 48% 0. 5

Average 9% 40.2 35.9 45.3 30.5 3.8 3.5 3.2 2.9 4% 0% 46%

Median 12% 39.4 38.6 37.8 31.0 3.6 3.3 2.9 2.6 2% 2% 47%

B Share Property (HK$) (HK$) (HK$ bn) (HK$) (HK$) (HK$) (HK$) (HK$) (HK$)

Vanke B 200002 BUY 8.8 16.1 114.1 0 .43 0.55 0.78 1.01 3 5% 20.6 1 6.0 11.3 8.7 2.6 2.3 2.0 1.7 12.0 13.4 -27% -35% 67% 30.6

Jinqiao B 900911 BUY 7.5 14.1 10.8 0.38 0.48 0.53 0.65 1 6% 19.6 1 5.5 14.0 11.5 1.8 1.7 1.5 1.4 17.7 20.1 -58% -63% 43% 2.2

Lujiazui B 900932 BUY 13.5 17.5 43.8 0.55 0.69 0.72 0.79 7% 24.6 1 9.6 18.8 17.2 2.6 2.3 2.2 1.9 20.9 21.8 -35% -38% 47% 3.6

Average 24% 21.1 16.6 13.9 11.4 2.1 1.9 1.8 1.5 -42% -47% 53%

Median 26% 20.1 15.7 12.7 10.1 2.2 2.0 1.8 1.5 -42% -46% 52%

HK Listed Mainland Property (HK$) (HK$) (HK$ bn) (HK$) (HK$) (HK$) (HK$) (HK$) (HK$)

COLI 688 BUY 16.3 22.8 133.0 0.49 0.79 1.03 1.33 30% 33.4 20.6 15.9 12.2 4.0 3.2 2.7 2.3 17.3 19.0 -6% -14% 62% 30.6

CRLand 1109 BUY 15.9 22.0 80.1 0.33 0.53 0.78 1.16 48% 48.6 2 9.9 20.5 13.7 2.6 2.1 1.9 1.6 18.4 20.0 -14% -20% 55% 22.2

Beijing Capital Land 2868 BUY 2.9 5.0 5.9 0.22 0.30 0.39 0.55 35% 13.3 9.6 7.4 5.3 1.2 1.1 1.0 0.9 6.9 7.1 -58% -59% 68% 8.6

Greentown 3900 BUY 9.6 19.1 15.7 0.52 0.63 1.00 1.73 6 6% 18.6 1 5.3 9.6 5.5 1.6 1.6 1.4 1.1 21.2 23.9 -55% -60% 76% 28.6

Sino Ocean 3377 ACCUMULATE 6.8 7.7 38.0 0.27 0.21 0.29 0.42 41% 25.3 31.9 23.4 1 6.1 2.0 1.4 1.3 1 .2 9.6 10.4 -30% -35% 59% 14.0

Franshion 817 BUY 2.4 3.1 22.4 0.09 0.11 0.13 0.16 19% 27.1 21.3 18.2 15.1 2.0 1.4 1.3 1.2 3.9 4.2 -38% -42% 60% 2.2

Shenzhen Investment 604 HOLD 2.7 3.9 9.6 0.19 0.22 0.28 0.38 33% 14.5 12.6 9.7 7.2 0.9 0.8 0.8 0.7 5.6 6 .5 -52% -58% 58% 22.5

Agile 3383 BUY 9.6 14.7 34.1 0.42 0.60 0.86 1.18 41% 22.8 16.1 11.2 8.1 2.3 2.1 1.8 1.5 14.6 16.3 -34% -41% 61% 28.7

Longfor 960 BUY 8.4 10.3 43.1 0.05 0.34 0.51 0.78 53% 155.9 25.0 16.5 10.7 11.9 3.1 2.6 2.0 8.8 10.3 -5% -18% 88% 26.1

Glorious 845 BUY 3.1 4.3 24.5 0.09 0.21 0.33 0.45 46% 33.9 14.9 9.6 7.0 22.9 1.9 1.5 1.2 4.7 5.4 -34% -42% 93% 16.9

R&F 2777 HOLD 12.5 15.2 40.3 0.73 0.79 1.19 1.67 46% 17.2 15.9 10.5 7.5 2.3 2.1 1.8 1.4 18.1 19.0 -31% -34% 73% 31.8

Shimao Property 813 HOLD 13.3 17.3 47.3 0.36 0.77 1.00 1.34 32% 37.0 17.2 1 3.3 9.9 2.2 1.8 1.6 1.4 17.4 19.2 -23% -31% 59% 30.4

Country Garden 2007 HOLD 2.7 3.2 45.1 0.10 0.14 0.16 0.22 23% 28.1 19.1 1 7.4 12.6 2.0 1.9 1.7 1.5 3.6 4 .3 -25% -36% 61% 45.2

Shui On 272 HOLD 3.8 4.9 19.2 0.35 0.51 0.31 0.37 -15% 10.9 7.4 12.3 10.3 1.0 0.8 0.7 0.6 6.6 7.1 -42% -46% 49% 13.1

Evergrande 3333 Not-rated 3.3 3.6 49.8 0.01 0.03 0.32 0.38 246% 292.4 104.7 10.4 8.8 8.0 3.7 2.7 2.0 3.0 4.0 9% -17% 80% 50.5

Powerlong 1238 Not-rated 2.6 3.8 10.5 0.09 0.26 0.36 0.40 23% 27.5 9.8 7.2 6.5 4.5 1.8 1.4 1.1 5.0 5.4 -48% -52% 76% 7.6

Average 35% 34.3 17.8 13.3 9.8 4.5 1.9 1.6 1.4 -26% -36% 67%

Median 35% 27.1 16.1 11.8 9.3 2.2 1.9 1.6 1.3 -30% -36% 61%

Total

GFA (Sqmmn)

Company RatingTicker

NAV/share(Rmb)

Price to NAV

Disc./Prem.P/B (x)P/E(x)

EPS(Rmb)

Figure 1: Valuations of comparables

Source: Bloomberg, CICC Research

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Beijing

China International Capital Corporation Limited

28th Floor, China World Office 2

1 Jianguomenwai Avenue

Beijing 100004, P.R. China

Tel: (8610) 6505-1166

Fax: (8610) 6505-1156

Shanghai

China International Capital Corporation Limited

Shanghai Branch

32nd Floor, Azia Center

1233 Lujiazui Ring Road

Shanghai 200120, P.R. ChinaTel: (8621) 5879-6226

Fax: (8621) 5888-8976

Hong Kong

China International Capital Corporation

Hong Kong Securities Limited

29th Floor, One International Finance Centre

1 Harbour View Street

Central, Hong Kong, P.R. China

Tel: (852) 2872-2000

Fax: (852) 2872-2100

Hong KongChina International Capital Corporation

Hong Kong Asset Management Limited

29th Floor, One International Finance Centre

1 Harbour View Street

Central, Hong Kong, P.R. China

Tel: (852) 2872-2000

Fax: (852) 2872-2100

Singapore

China International Capital Corporation

(Singapore) Pte. Limited

39-04, 6 Battery Road

Singapore 049909

Tel: (65) 6572-1999

Fax: (65) 6327-1278

Beijing Jianguomenwai Avenue Branch1st Floor, SK Tower

6A Jianguomenwai Avenue

Beijing 100022, P.R. China

Tel: (8610) 8567-9238

Fax: (8610) 8567-9235

Shanghai Middle Huaihai Road Branch

1-B & 2-B, Century BaShi Building

398 Middle Huaihai Road

Shanghai 200020, P.R. China

Tel: (8621) 6386-1195

Fax: (8621) 6386-1180

Shenzhen Fuhuayilu Branch107 & 201, Annex Building

Shenzhen Duty Free Commercial Tower

6 Fuhua 1st Road

Futian District

Shenzhen 518048, P.R. China

Tel: (86755) 8832-2388

Fax: (86755) 8254-8243

Hangzhou Jiaogong Road Branch1F, Euro American Center

18 Jiaogong Road

Hangzhou 310012, P.R. China

Tel: (86571) 8849-8000

Fax: (86571) 8735-7743

Nanjing Zhongshan Road (North) Branch

2F, Greenland Plaza

1 Zhongshan Road (North)

Nanjing 210008, P.R. China

Tel: (8625) 8316-8988

Fax: (8625) 8316-8397

Guangzhou Tianhe Road Branch40F, Teemtower

208 Tianhe Road

Tianhe District

Guangzhou 510620, P.R. ChinaTel: (8620) 8396-3968

Fax: (8620) 8516-8198

This report is based on information available to the public. No representation is made that it is accurate or complete. This report is not an offerto buy or sell or a solicitation of an offer to buy or sell the securities mentioned. China International Capital Corporation Limited and othersassociated with it (CICC) may have positions in, and may effect transactions in securities of companies mentioned herein and may also performor seek to perform investment banking services for those companies. This report may also be made available (1) in Hong Kong by ChinaInternational Capital Corporation Hong Kong Securities Limited, and (2) in Singapore only to accredited investors and/or institutional investors,as defined in the Financial Advisers Regulations and the Securities and Futures Act and Regulations in Singapore, by China International Capital

Corporation (Singapore) Pte. Limited (CICCSG). By virtue of distribution by CICCSG to these categories of investors in Singapore, disclosureunder Section 36 of the Financial Advisers Act (which relates to disclosure of a f inancial advisers interest and/or its representatives interest insecurities) is not required. Recipients of this report in Singapore should contact CICCSG in respect of any matter arising from or in connectionwith this report. Copyright of this report belongs to CICC. Any form of unauthorized distribution, reproduction, publication, release orquotation by any institution or individual is prohibited without CICC's written permission.

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