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February 3, 2017
China: Real Estate Developers
Equity Research
Poly H: Assessing asset value crystallization from possible M&A; up to Buy
Consolidation intensifying; SOE reform
accelerating; valuation has diverged
As the industry is facing another policy-driven
downturn in 2017, we expect consolidation to
intensify with: (1) leading developers’ market
share gains accelerating via significant
consolidation in the land acquisition market since
2015; (2) more M&A opportunities among SOEs
amid pick-up in SOE reform. However, the
valuation divergence between primary market
M&A and developers’ stocks has grown in the
past six months. While developers under our
coverage trade at an average 2017E P/B of 1.0X,
the P/B implied by recent M&A deals is 1.8X (1.0X
when we set our M&A framework in June). We
believe the rise in this implied P/B is mainly driven
by surging land prices, especially in higher-tier
cities on the back of a rapid ASP rise since 2H2015
and intense competition at public land auctions.
Refreshing M&A valuation for three stocks
After factoring in a new M&A multiple of 1.8X and
revisiting M&A potential for our coverage, we
raise Poly H/GT’s TPs by 45%/9% to HK$4.2/7.6
and keep COGO’s TP at HK$3.7 (see Ex. 18 inside).
Poly H up to Buy with 35% potential upside
We upgrade Poly H to Buy from Neutral as we
now view it as the most likely M&A target in our
coverage given potential restructuring with Poly
A. Though we take no view on the likelihood of a
deal taking place, we believe a restructuring
would likely drive a re-rating of the stock given
Poly H’s low valuation (0.5X 2017E P/B vs. 1.8X for
M&As). With 70% of its land bank located in tier-
1/2 cities and acquired before 2013, we estimate
its land bank value would be 50% higher if it were
marked to market; we note that the shares are at a
deep 73% discount to the reappraised value.
Prefer leaders with low valuations, small-
caps with re-rating opportunities
We expect leaders (COLI/Poly A; both CL-Buy) to
strengthen their market leadership and see their
valuations recover from their lows on the back of
accelerated industry consolidation and SOE
reform. We also expect the valuations of small-
caps (COGO, CL-Buy; Poly H, Buy) to re-rate from
their deep discounts to M&A-implied multiples on
either rising visibility of operational turnaround or
value crystallization from potential M&A.
SUMMARY OF OUR ACTIONABLE STOCK IDEAS
* denotes the stock is on our regional Conviction List. Priced as of Feb 2, 2017 market close.
Source: Datastream, Gao Hua Securities Research.
RELATED RESEARCH
Introducing China property M&A framework: Wanda, COGO,
Greentown, Poly HK best placed, June 13, 2016
Yi Wang, CFA +86(21)2401-8930 yi.wang@ghsl.cn Beijing Gao Hua Securities Company Limited Goldman Sachs does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
Vicky Li +86(21)2401-8926 vicky.li@ghsl.cn Beijing Gao Hua Securities Company Limited Scofield Chi +65-6654-5188 scofield.chi@gs.com Goldman Sachs (Singapore) Pte
Doris Chen +65-6654-5182 doris.chen@gs.com Goldman Sachs (Singapore) Pte
The Goldman Sachs Group, Inc. Global Investment Research
Rating LCYEnd-17E
NAV12-m TP
Potential
upside/
downside
Offshore listed
COGO Buy* (HK$) 7.36 3.70 39%
Sino Ocean Buy (HK$) 10.52 4.70 39%
Yanlord Buy (S$) 3.46 1.90 38%
COLI Buy* (HK$) 34.44 31.00 38%
Agile Buy (HK$) 12.51 5.60 36%
Poly Property (H) Buy (HK$) 9.13 4.20 35%
CRL Buy (HK$) 33.51 25.10 34%
R&F Buy (HK$) 18.17 12.70 30%
Longfor Buy (HK$) 27.95 14.00 29%
Evergrande Sell (HK$) 8.28 3.30 -37%
Onshore listed
CFLD Buy (Rmb) n.m. 30.10 26%
Poly (A) Buy* (Rmb) 12.94 11.60 25%
CMSK Buy (Rmb) 28.09 20.00 20%
OCT Buy (Rmb) 16.00 8.30 19%
Gemdale Sell (Rmb) 14.98 11.20 -10%
Vanke (A) Sell (Rmb) 25.17 17.60 -15%
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 2
Poly H: We expect re-rating on asset value crystallization from potential M&A; up to Buy
Source of opportunity
Since the start of this year, following the announcement of Poly H’s potential asset restructuring with sister
company Poly A, Poly H’s share price has rebounded from its trough valuation level (70% discount to end-17E
NAV and 0.4E 17E P/B). We believe investors that were previously hesitant about Poly H, mainly due to its weak
fundamentals on slower execution turnaround, will likely revisit the shares because of the deep valuation gap
between the shares and Poly H’s land bank value (given the potential for M&A on the back of accelerated SOE
reform). However, we note that the potential transaction has been put on hold pending further discussions and
we take no view on the likelihood of a deal taking place.
For Poly H, we raise our 12-month blended target price 45% to HK$4.20 after factoring in the higher M&A multiple
we now use in our M&A framework for the sector: (1) our fundamental value of HK$2.7 is unchanged (still a 70%
discount to end-2017E NAV of HK$9.13) but now has a 70% weight (prior 85%) while (2) the M&A value
component of our target price rises to HK$7.7 (from HK$3.5 on a 1.3X M&A multiple from 0.5X) and now has a
30% weight (prior 15%). Our new target price implies a 2017E P/B of 0.7X, at a discount to our offshore coverage
average of 1.0X, reflecting Poly H’s lower return profile and higher leverage. With our new 12-month target price
of HK$4.20 offering 35% potential upside, we upgrade Poly H to Buy from Neutral.
Catalyst
1. Operations finally bottoming out: Riding the market recovery, Poly H posted Rmb35 bn of presales in 2016,
beating its target by 16%, mainly due to management’s continued efforts on destocking and the strong sales
performance from projects in more resilient markets in the Yangtze River Delta and the Pearl River Delta. Though
we do not expect Poly H to deliver strong sales growth in the next two years given relatively limited land banking
in the past two years, we expect its profitability to bottom in 2016E and go on a gradually recovery trend from
2017E amid its more disciplined expansion and cost control (lower SG&A and interest expenses).
2. Potential asset restructuring with Poly A: We think positive news on potential M&A with Poly A would be a
strong catalyst to drive substantial upside given Poly H’s low valuation (0.5X 17E P/B vs. M&A deals implied avg
1.8X P/B). As c.70% of its end-16E unsold land bank is in tier-1/2 cities and 70% was acquired before 2013
(previous upturn in land market), we estimate its total land bank value, marked to market at the average rise over
the period held, is Rmb52bn (up 50% rise from Rmb35bn cost). Its share price is at a deep discount to its asset
value in all cases (55%/66%/73% discount to its end-16E BV, end-2017E NAV and mark-to-market land bank value).
Valuation
We expect rising visibility of the potential M&A with Poly A on the back of accelerated SOE reform will help drive
the valuation re-rating of Poly H from its current trough level vs. our offshore coverage (66% discount to end-
2017E NAV, 0.5X 2017E P/B vs. peer averages of 52%/0.9X).
Key risks
Sales/margin miss; cancellation of the M&A with Poly A.
Growth
Returns *
Multiple
Volatility Volatility
Multiple
Returns *
Growth
Investment Profile
Low High
Percentile 20th 40th 60th 80th 100th
* Returns = Return on Capital For a complete description of the investment
profile measures please refer to the
disclosure section of this document.
Poly Property Group (0119.HK)
Asia Pacific Property Peer Group Average
Key data Current
Price (HK$) 3.12
12 month price target (HK$) 4.20
Market cap (HK$ mn / US$ mn) 11,424.0 / 1,472.8
Foreign ownership (%) 0.0
12/15 12/16E 12/17E 12/18E
EPS (HK$) (0.90) (0.01) 0.08 0.11
EPS growth (%) (1,727.2) 99.1 993.1 46.2
EPS (diluted) (HK$) (0.77) (0.01) 0.08 0.11
EPS (basic pre-ex) (HK$) (0.77) (0.01) 0.08 0.11
P/E (X) NM NM 41.0 28.1
P/B (X) 0.5 0.4 0.4 0.4
EV/EBITDA (X) 68.3 23.2 15.4 12.7
Dividend yield (%) 0.0 0.0 0.0 0.0
ROE (%) (10.2) (0.1) 1.1 1.6
CROCI (%) (1.3) 0.1 1.1 1.4
7,500
8,000
8,500
9,000
9,500
10,000
10,500
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Jan-16 Apr-16 Aug-16 Nov-16
Price performance chart
Poly Property Group (L) Hang Seng China Ent. Index (R)
Share price performance (%) 3 month 6 month 12 month
Absolute 23.5 45.9 48.1
Rel. to Hang Seng China Ent. Index 22.8 36.5 23.6
-2146826273
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 3
Poly Property Group: Summary financialsProfit model (HK$ mn) 12/15 12/16E 12/17E 12/18E Balance sheet (HK$ mn) 12/15 12/16E 12/17E 12/18E
Total revenue 24,933.4 27,348.3 30,005.8 30,765.8 Cash & equivalents 17,908.1 23,259.2 29,804.4 35,281.4
Cost of goods sold (22,064.7) (22,921.0) (25,018.1) (25,665.9) Accounts receivable 8,102.8 8,887.6 9,751.2 9,998.2
SG&A (2,273.4) (2,218.2) (2,155.0) (2,053.2) Inventory 84,404.8 84,984.5 73,474.5 61,394.1
R&D -- -- -- -- Other current assets 1,955.6 2,417.9 2,353.5 2,413.1
Other operating profit/(expense) 133.5 (198.3) (198.3) (198.3) Total current assets 112,371.4 119,549.2 115,383.6 109,086.9
EBITDA 728.7 2,010.8 2,634.5 2,848.3 Net PP&E 2,118.5 2,062.9 2,019.1 1,980.5
Depreciation & amortization (150.9) (156.0) (152.9) (150.2) Net intangibles 281.3 270.2 259.0 247.9
EBIT 577.8 1,854.8 2,481.6 2,698.2 Total investments 12,858.4 14,005.1 15,253.3 16,678.4
Interest income 390.0 447.7 465.2 447.1 Other long-term assets 1,948.9 1,569.4 1,569.4 1,569.4
Interest expense (1,091.7) (975.6) (1,006.1) (1,006.1) Total assets 129,578.5 137,456.8 134,484.5 129,563.1
Income/(loss) from uncons. subs. 20.7 77.4 67.2 61.5
Others (1,132.6) (99.9) 0.0 0.0 Accounts payable 18,979.4 18,839.2 17,135.7 15,469.9
Pretax profits (1,235.8) 1,304.4 2,007.9 2,200.6 Short-term debt 17,854.8 21,697.0 21,697.0 21,697.0
Income tax (1,536.4) (1,166.7) (1,544.9) (1,567.1) Other current liabilities 26,168.1 31,792.7 29,698.0 25,164.4
Minorities 87.0 (65.0) (80.7) (122.4) Total current liabilities 63,002.3 72,328.9 68,530.7 62,331.2
Long-term debt 35,652.7 34,199.2 34,199.2 34,199.2
Net income pre-preferred dividends (2,685.3) 72.7 382.3 511.0 Other long-term liabilities 1,497.6 1,459.2 1,459.2 1,459.2
Preferred dividends (131.8) (103.8) (103.8) (103.8) Total long-term liabilities 37,150.3 35,658.4 35,658.4 35,658.4
Net income (pre-exceptionals) (2,817.1) (31.1) 278.4 407.2 Total liabilities 100,152.6 107,987.3 104,189.1 97,989.6
Post-tax exceptionals 0.0 0.0 0.0 0.0
Net income (2,817.1) (31.1) 278.4 407.2 Preferred shares 1,227.5 884.3 884.3 884.3
Total common equity 25,560.0 25,528.9 25,807.4 26,214.6
EPS (basic, pre-except) (HK$) (0.77) (0.01) 0.08 0.11 Minority interest 2,638.5 3,056.3 3,603.7 4,474.6
EPS (basic, post-except) (HK$) (0.77) (0.01) 0.08 0.11
EPS (diluted, post-except) (HK$) (0.77) (0.01) 0.08 0.11 Total liabilities & equity 129,578.5 137,456.8 134,484.5 129,563.1
DPS (HK$) 0.00 0.00 0.00 0.00
Dividend payout ratio (%) 0.0 0.0 0.0 0.0 BVPS (HK$) 6.98 6.97 7.05 7.16
Free cash flow yield (%) (2.7) 28.0 48.6 38.6
Growth & margins (%) 12/15 12/16E 12/17E 12/18E Ratios 12/15 12/16E 12/17E 12/18E
Sales growth (12.5) 9.7 9.7 2.5 CROCI (%) (1.3) 0.1 1.1 1.4
EBITDA growth (79.7) 175.9 31.0 8.1 ROE (%) (10.2) (0.1) 1.1 1.6
EBIT growth (83.2) 221.0 33.8 8.7 ROA (%) (2.2) 0.0 0.2 0.3
Net income growth (403.1) 98.9 995.4 46.2 ROACE (%) (3.2) 0.1 0.8 1.3
EPS growth (402.6) 98.9 995.4 46.2 Inventory days 1,399.8 1,348.7 1,155.9 959.0
Gross margin 11.5 16.2 16.6 16.6 Receivables days 142.1 113.4 113.4 117.2
EBITDA margin 2.9 7.4 8.8 9.3 Payable days 312.2 301.1 262.4 231.8
EBIT margin 2.3 6.8 8.3 8.8 Net debt/equity (%) 119.5 109.3 84.7 63.9
Interest cover - EBIT (X) 0.8 3.5 4.6 4.8
Cash flow statement (HK$ mn) 12/15 12/16E 12/17E 12/18E Valuation 12/15 12/16E 12/17E 12/18E
Net income pre-preferred dividends (2,685.3) 72.7 382.3 511.0
D&A add-back 150.9 156.0 152.9 150.2 P/E (analyst) (X) NM NM 41.0 28.1
Minorities interests add-back (87.0) 65.0 80.7 122.4 P/B (X) 0.5 0.4 0.4 0.4
Net (inc)/dec working capital 1,274.9 (1,504.8) 8,942.9 10,167.5 EV/EBITDA (X) 68.3 23.2 15.4 12.7
Other operating cash flow 1,037.1 5,348.6 (2,164.7) (4,716.2) EV/GCI (X) 0.8 0.7 0.7 0.7
Cash flow from operations (309.3) 4,137.6 7,394.0 6,234.9 Dividend yield (%) 0.0 0.0 0.0 0.0
Capital expenditures (81.4) (89.3) (97.9) (100.4)
Acquisitions 0.0 0.0 0.0 0.0
Divestitures 1,766.1 0.0 0.0 0.0
Others 3,368.3 (1,069.2) (1,181.0) (1,363.6)
Cash flow from investments 5,053.1 (1,158.5) (1,279.0) (1,464.0)
Dividends paid (common & pref) (278.3) (103.8) (103.8) (103.8)
Inc/(dec) in debt (683.0) 2,388.7 0.0 0.0
Common stock issuance (repurchase) 0.0 0.0 0.0 0.0
Other financing cash flows (2,111.4) 87.1 533.9 809.9
Cash flow from financing (3,072.6) 2,372.0 430.1 706.1
Total cash flow 1,671.1 5,351.1 6,545.2 5,477.1 Note: Last actual year may include reported and estimated data.
Source: Company data, Goldman Sachs Research estimates.
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 4
Deep asset value: Land bank value would be 50% higher if marked to market...
Poly H’s transformation to a property firm was largely done through four rounds of asset injection from its parent:
In August 2006, China Poly Group injected GFA of about 1 mn sqm.
In April 2008, China Poly Group injected GFA of about 4 mn sqm.
In October 2009, China Poly Group injected development projects and 1 investment project with GFA up to 2.2 mn sqm.
In April 2010, China Poly Group injected four development projects with GFA up to 2.7 mn sqm.
As of 3Q2016, Poly H’s total attributable land bank amounted to GFA14mn sqm across 19 cities in China. The average land bank cost
for Poly H is around Rmb2,700/sqm, representing 23% of its average selling price for the unsold land bank vs. 30% for Poly A and
the peer average of 26%.
Exhibits 6-7 summarize Poly H’s land bank size/value breakdown by city-tier and acquisition year. To estimate the land bank value
for Poly H assuming the land bank is sold in the market today, we take the average land price increase (broken down by tier/1/2/3
cities) in 2010-2016. As 80% of Poly H’s end-2016E unsold land bank is located in tier-1/2 cities and c.70% was acquired before 2013
(when the previous upturn in the land market took place), we estimate Poly H’s total land bank value, marked to market at the
average increase over the period held, is about Rmb52 bn (50% higher than its cost of Rmb35 bn).
We then apply this implied appreciation of Rmb17 bn to Poly H’s total assets and deduct its total liabilities and minorities (all as of
1H2016), to derive our estimated appraised common equity value of HK$42bn, or HK$11.5 per share. As Exhibit 5 shows, Poly H’s
current share price of HK$3.12 (Feb 2’s closing price) is at a deep discount to all the scenarios.
Exhibit 1: As of 3Q2016, Poly H owned attributable land bank of GFA14mn sqm across 19 cities... Poly H’s attributable land bank breakdown by city as of 3Q2016
Source: Company data.
17%
10%10%
9%
7%
6%6%
5% 5% 5%4%
3%3% 3% 3%
2%
1% 1% 1%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0
500
1,000
1,500
2,000
2,500
Attributable land bank size by 2016Q3 (LSH) As % of total (RHS)(K sqm)
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 5
Exhibit 2: ...with a majority of its land bank located in tier-1/2 cities Poly H’s end-2016E unsold land bank and end-2017E GAV breakdown by tier city
Source: Company data, Gao Hua Securities Research.
Tier-1,
31%
Tier-2,
49%
Tier-3,
20%
End 2016E unsold landbank (DP) value breakdown
Tier-1,
12%
Tier-2,
61%
Tier-3,
27%
End 2016E unsold landbank (DP) volume breakdown
Tier-1,
35%
Tier-2,
45%
Tier-3,
21%
End-2017E NAV breakdown
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 6
Exhibit 3: 70%+ of Poly H’s unsold land bank was acquired before 2013...
End-16E unsold landbank size breakdown by acquisition year
Exhibit 4: ...and land bank value would be 50% higher if marked to market Poly H’s unsold landbank value at cost vs. marked to market breakdown by
acquisition year
Source: Company data.
Source: CREIS, Company data, Gao Hua Securities Research
Exhibit 5: The current share price is at deep discount to its asset value in all cases Current price vs. end-16E common equity, end-17E NAV for existing land bank and mark-to-market its land bank value
Source: CREIS, Company data, Gao Hua Securities Research.
End-16E unsold landbank size breakdown by acquisition year
Pre-2009
2009
2010
2011
2012
2013
2014
2015
2016
0% 5% 10% 15% 20% 25%
7.0
9.1
11.5
0
2
4
6
8
10
12
14
0
5
10
15
20
25
30
35
40
45
End-16E common equity End-17E NAV for existing
land bank
Mark-to-market its land
bank value
Total (LHS) Per share (RHS)(HK$ bn) (HK$)
Current share
price level
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 7
...but weak execution; valuation deeply discounted
During the periods of asset injection, Poly H’s share price reacted positively given strong growth from a low base (it delivered a 72%
presales CAGR in 2007-2010, vs. the peer average of 50%, and a 132% underlying profit CAGR in 2008-2011 from a low base vs. the
peer average of 60%).
However, Poly H has de-rated significantly vs. peers since 2011 due to decreasing capital efficiency on rapid land bank expansion
and its inability to improve asset turnover, which consequently led to deteriorating ROE and high financial leverage (see Exhibits 6-
9). Over the past four years, Poly H has worked to streamline its management structure and optimize its product structure and cash
flow (although this is progressing slowly).
As a reflection of the company’s slow improvement on destocking and deleverage, the shares have been trading at a deeper NAV
discount and one of the lowest P/B multiples among our offshore coverage universe. Even after the c.20% share price rebound since
the beginning of this year, Poly H still trades below its historical mean level NAV discount and P/B.
Exhibit 6: Poly H’s profitability substantially deteriorated after 2011 as
reflected in its faster-than-peers decline of GPM... Poly H, Poly A and offshore avg. GPM comparison
Exhibit 7: …as well as net margin, now both at big gap to peers Poly H, Poly A and offshore avg. NM comparison
Source: Company data, Gao Hua Securities Research
Source: Company data, Gao Hua Securities Research
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
Poly H Offshore avg. Poly A
GP Margin
Notes: GP margin is adjusted as (gross profit / net revenue).
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
Poly H Offshore avg. Poly A
Net Margin
Note: net margin is adjusted as (underlying profit / net revenue).
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 8
Exhibit 8: With poor cash flow management and slow destocking, Poly H’s
financial leverage is higher than Poly A’s and avg level for peers... Poly H, Poly A and offshore avg. net gearing comparison
Exhibit 9: ...while its ROE is lower than the ROE for both Poly A and peers
Poly H, Poly A and offshore avg. ROE comparison
Source: Company data, Gao Hua Securities Research.
Source: Company data, Gao Hua Securities Research.
Exhibit 10: After the c.20% rebound since the start of this year, Poly H still
trades below the historical mean level for both NAV discount... Poly H’s historical trading NAV discount
Exhibit 11: ...and P/B multiple
Poly H’s historical trading P/B (excl. revaluation gain)
Source: Datastream, Company data, Gao Hua Securities Research
Source: Datastream, Company data, Gao Hua Securities Research
0%
20%
40%
60%
80%
100%
120%
140%
160%
2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
Poly H Offshore avg. Poly A
Net Gearing
Notes: we treated PCS as debt and excluded cummulative revaluation gain from book value.
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
Poly H Offshore avg. Poly A
ROE
Notes: we treated PCS as debt and excluded cummulative revaluation gain from book value.
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%Share price discount to NAV Average Avg+1std Avg-1std
0.0
0.5
1.0
1.5
2.0
2.5
12mth trailing P/B(x) Average Avg+1std Avg-1std(X)
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 9
Possible asset restructuring with Poly A: Powerful catalyst that would drive a re-rating
Poly H is an affiliate of Poly A with the same parent, China Poly Group, which holds a 48% interest in Poly H. Poly H was established
in 1973 as a shipping company and was taken over by China Poly Group in 1993. Before 2005, it was a conglomerate with
businesses in infrastructure, property investment, energy, manufacturing, and insurance. Since 2005, Poly H has gradually shifted its
business focus to property development.
Market focus on the potential for restructuring between Poly H and Poly A increased after the appointment of Xu NianSha as Poly
Group’s chairman in 2013. Since then, Poly A’s chairman, Ms. Song Guangju, has made public comments on this several times.
At the FY2013 results briefing on April 1, 2014, Ms. Song said for the first time that Poly A and Poly Property H could cooperate
or even consolidate, and she emphasized that this is one of the China Poly Group’s strategic goals.
On April 21, 2014, during the shareholders meeting, Ms. Song further disclosed that consolidation of the two real estate
platforms is a strategic goal of the China Poly Group that could be put on the agenda in the coming one to two years.
Both Poly H and Poly A suspended trading on Nov. 29, 2016 and formally announced a potential asset swap for the first time.
Though the potential transaction has been put on hold pending further discussions, we note that asset integration has accelerated
among China property SOEs. Recent example include the acquisition of CITIC’s property assets in 2Q2016 by COLI (0688.HK; CL-
Buy), the acquisition of all the property assets from Aviation Industry Corporation of China (000043.SZ, NC) by Poly A (600048.SS; C-
Buy) in 3Q2016 and CRL’s acquisition of a 20.9% stake in China Enterprises (600675.SS, NC) in 4Q2016.
We take no view on the likelihood of any transaction as a concrete timeline and detailed plan for the restructuring has not yet been
announced. However, we note that Poly H is trading at a deep valuation discount to the median P/B implied by recent M&A deals
(0.5X P/B vs. 1.8X P/B); therefore, we believe any potential M&A with Poly A would likely drive a re-rating for Poly H.
Exhibit 12: Potential asset restructuring between Poly H and Poly A amid accelerated SOE reform Poly A and Poly H’s shareholding structure within China Poly Group
Source: Company data
SASAC
Poly Southern GroupPoly Holdings
Poly A (600048.SS)
Poly Property (0119.HK)
China Poly Group Corporation
100%
38.05%
100%
2.82%
40.39% 6.93%
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 10
Exhibit 13: Poly H’s total land bank size was one-fifth the size of Poly A’s as
of 1H2016... Total land bank size comparison between Poly H and Poly A
Exhibit 14: ...and will generate an avg 15% of Poly A’s total presales in 2017E-
2019E due to its slower turnover Presales performance comparison between Poly H and Poly A
Source: Company data.
Source: Company data, Gao Hua Securities Research.
Exhibit 15: Poly H’s MV is only 10% of Poly A and trades at half of the valuation multiples
Market cap and valuation comparison between Poly H and Poly A
Source: Datastream, Company data, Gao Hua Securities Research.
0
20
40
60
80
100
120
2009 2010 2011 2012 2013 2014 2015 2016 H1
Poly H land bank size Poly A land bank size(mn sqm)
-20%
0%
20%
40%
60%
80%
100%
120%
140%
0
50
100
150
200
250
2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E
Poly H contract sales (LHS) Poly A contract sales (LHS)
Poly H contract sales yoy% (RHS) Poly A contract sales yoy% (RHS)
(Rmb bn)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0
2
4
6
8
10
12
14
16
18
Poly H Poly A
Market cap (US$ bn)
0.5X 17E P/B & 66%
disc to end-17E NAV
(X)
1.1X 17E P/B & 28%
disc to end-17E NAV
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 11
Updating M&A multiple and weight used in our M&A framework
Refreshing M&A valuation for Poly H, COGO and Greentown
Since we introduced our M&A framework in June 2016, we have seen the divergence between the valuation of developers’ M&A
deals in the primary market and the valuation that property stocks have traded at. As shown in Exhibit 17, the implied P/B for M&A
deals (since 2Q2016) has jumped to a median of 1.8X vs 1.0X (in 2014-1Q2016) when we set down our M&A framework (see
Introducing China property M&A framework: Wanda, COGO, Greentown, Poly HK best placed, June 13, 2016). In this report, we
incorporate this trend and new events for some companies into our framework and refresh M&A values for Poly H, COGO and
Greentown.
We raise the M&A multiple used in our framework to 1.8X from 1.0X to reflect the recent market trend, and we revise our M&A
score for Poly H (to 1 from 2) and COGO (to 3 from 2) to reflect the increased likelihood they will engage in M&A (further details
below). Accordingly, we modify M&A weights of Poly H (to 30% from 15%) and COGO (to 0% from 15%), which results in 12-month
target prices of HK$4.20 for Poly H (+45%) and HK$3.70 for COGO (unchanged due to small M&A value). We also raise Greentown’s
12-month target price by 9% to HK$7.60 based on an unchanged 15% M&A weight and the increase in our M&A multiple.
We now view Poly H as the most likely M&A target within our coverage given: 1) potential asset restructuring with its sister
company Poly A on the back of accelerated SOEs reform; 2) its deep asset value but weak execution on destocking and
deleveraging (we expect a roughly breakeven year for 2016E after a HK$3.3 bn loss in 2015); 3) its relatively small market cap
and higher percentage of free float; and 4) its high leverage ratio and low valuation. We therefore revise our M&A score on Poly
H to 1 from 2 and raise its M&A weight to 30% (from 15%) accordingly. Our 12-month target price is now HK$4.20, up 45% on
the rise in the M&A-implied P/B multiple (to 1.8X from 1.0X) and the higher weighting we apply to the M&A component of our
target price. Reflecting these factors, we upgrade Poly H to Buy from Neutral.
COGO announced an asset acquisition from COLI in October 2016 (see COGO (0081.HK): Transformational transaction, no more
a value trap; up to Buy, onto CL, October 21, 2016) and it was approved at the EGM in November 2016 (see COGO (0081.HK):
COLI’s Chairman change has no impact on proposed asset injection, November 21, 2016). We believe the assets would not only
double COGO’s land bank size to increase its long-term growth visibility, but also clear market concerns of business delineation
between COGO and COLI and thus rebuilding expectations on COGO as the growth engine in tier-3 cities for COLI. Given the
unchanged ongoing support from COLI, we believe there is a lower possibility for COGO to remain as an M&A target.
Accordingly, we revise COGO’s M&A score to 3 from 2 and remove its M&A weight. We maintain our 12-month target price of
HK$3.70 for COGO and reiterate our Buy rating (Conviction List).
Greentown’s M&A weight remains unchanged at 15%, but its 12-month target price is raised to HK$7.60 (+9%) on the back of
our new M&A P/B multiple. We maintain Neutral.
Vanke (A/H): We incorporate Vanke (A)/(H) into our China property developers M&A framework and assign it an overall M&A
rank of 3 to reflect a relatively low probability of M&A due to its large market cap, higher relative valuation, lower leverage and
low management willingness. As a result, we do not incorporate an M&A component into our target prices, which leaves our
12-month target prices unchanged at Rmb17.6 for Vanke A and HK$1.0 for Vanke H. We maintain our Sell rating on Vanke A and
our Neutral rating on Vanke H.
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 12
Exhibit 16: Our M&A framework suggests Poly H and Greentown have relatively high M&A potential after removing COGO’s weight M&A scores for our developer coverage under various ownership, financial and valuation metrics
Note: 1) Strong markets refer to Hong Kong, Macau and Strong cities (among top 40 cities in China) we defined in “Deep downturn priced in, two positive developments; COLI to CL-Buy” published on January 10, 2017, which include Beijing, Shanghai, Guangzhou, Shenzhen, Xiamen, Fuzhou, Wenzhou, Yinchuan, Shijiazhuang, Haikou, Hefei, Nanchang, Nanjing, Sanya, Beihai.
2) For companies with valuation-implied impairment to assets showing a negative number, it means no impairment is priced in the stock.
Source: Gao Hua Securities Research.
Exhibit 17 summarizes the major transactions by our coverage developers in the past year. The implied P/B valuation on median is
about 1.8X, which we set as the new basis of our M&A target multiple for the M&A component of our target prices.
Company Mgmt stance Rank Probability
Name
Mkt Cap (US$bn)
Free Float %
of Market
Cap
Floating market
cap (US$bn)
Single major shareholder ownership %
Score 1-4 NAV
exposure to strong markets
17E PB (exclude
revaluation gain)
Prem/Disc to 5 yr
historical PB
PB Prem/Disc vs. peers
Valuation implied
impairment to assets
End-16E net
gearing (incl. PCS)
End-16E total levearge (incl.
PCS, excl. revaluation
gain)
Score 1-4 Management openness
Score 1-4 Score 1-4 % likelihood
OffshoreAgile 2.1 37% 0.8 63% 3 25 0.4x -45% -52% 17% 76% 72% 3 Low 3 3 0%China Vanke (H) 3.3 58% 1.9 15% 3 47 1.5x -7% 71% -13% -2% 78% 4 Low 3 3 0%COGO 0.8 37% 0.3 37% 2 34 0.5x -70% -43% 7% 85% 82% 3 Low 3 3 0%COLI 31.3 35% 10.9 50% 4 49 0.9x -45% 5% -4% 23% 57% 3 Low 3 3 0%CRL 16.7 39% 6.4 61% 4 50 1.1x -31% 21% -7% 42% 67% 3 Low 3 3 0%CG 12.3 26% 3.2 41% 3 3 1.1x -7% 23% -3% 95% 84% 3 Low 3 3 0%Evergrande 9.2 26% 2.4 68% 4 12 2.3x 36% 157% -6% 456% 95% 3 Low 3 3 0%China Jinmao 3.0 29% 0.9 54% 4 60 0.8x -13% -7% 3% 74% 70% 3 Low 3 3 0%Greentown 1.8 28% 0.5 25% 2 31 0.6x -30% -36% 8% 102% 80% 3 Medium 2 2 15%R&F 4.0 29% 1.2 34% 2 31 0.8x -30% -15% 3% 152% 83% 3 Low 3 3 0%Joy City 1.8 41% 0.8 67% 3 100 0.7x -34% -21% 11% 63% 65% 3 Low 3 3 0%KWG 1.8 39% 0.7 56% 3 52 0.6x -28% -37% 8% 81% 79% 3 Low 3 3 0%Longfor 8.1 23% 1.9 44% 3 25 1.0x -38% 16% -3% 56% 71% 4 Low 3 3 0%Poly (H) 1.4 53% 0.8 28% 2 38 0.5x -4% -47% 10% 116% 81% 3 High 1 1 30%RSM 3.6 22% 0.8 68% 3 80 1.5x -24% 64% -17% 29% 66% 3 Low 3 3 0%Shimao 4.5 32% 1.4 56% 3 49 0.7x -43% -25% 9% 61% 70% 3 Low 3 3 0%Shui On Land 1.7 43% 0.7 18% 2 61 0.4x -30% -56% 16% 87% 73% 2 Low 3 2 0%Sino Ocean 3.3 38% 1.2 30% 2 71 0.5x -38% -40% 12% 55% 70% 3 Low 3 3 0%SOHO China 2.6 36% 0.9 32% 2 100 1.2x 10% 36% -4% 26% 65% 3 Low 3 3 0%Sunac 3.3 46% 1.5 53% 3 25 1.0x -2% 9% -1% 180% 87% 3 Low 3 3 0%Yanlord 2.1 31% 0.7 68% 3 42 0.7x -6% -24% 7% 15% 66% 4 Low 3 3 0%OnshoreCFLD 10.4 33% 3.5 62% 4 0 2.1x -56% 36% -31% 41% 82% 4 Low 3 4 0%Gemdale 8.1 40% 3.2 30% 3 53 1.7x 26% 9% -27% 40% 66% 4 Low 3 3 0%OCT 8.3 36% 2.9 53% 4 74 1.2x -63% -23% -11% 46% 64% 3 Low 3 3 0%Poly (A) 15.9 45% 7.1 38% 4 48 1.1x -31% -32% -5% 82% 73% 3 Low 3 3 0%SMC 2.8 26% 0.7 44% 2 40 0.9x -10% -45% 4% 38% 57% 4 Low 3 3 0%Vanke (A) 29.1 49% 14.3 17% 3 47 1.8x 16% 14% -22% -2% 78% 4 Low 3 3 0%CMSK 17.7 24% 4.2 66% 4 75 2.2x -14% 40% -42% 43% 72% 3 Low 3 3 0%
M&A chance
Ownership
SHOULD (Asset profile) WOULD
Balance sheetValuation
CAN (Share structure)
SizeAsset
Attrativeness
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 13
Exhibit 17: Recent M&A deals imply median 1.8X P/B for acquired assets Major M&A deals under our coverage since 2Q2016
Source: Company data.
Meanwhile, different asset portfolios – in terms of geographic exposure and target product segment – all lead to differences in asset
attractiveness. Companies with stressed balance sheets might be more willing to compromise on price than those that are less
distressed. Therefore, in order to set a reasonable M&A target multiple for individual stocks, we apply a premium/discount similar to
their historical trading P/B-ROE premium/discount vs. the sector trend line in 2H13-14 (same with our fundamental valuation; for
details, see Deep downturn priced in, two positive developments; COLI to CL-Buy, January 10, 2017).
Exhibit 18 summarizes our 12-month target price methodology, which is a blend of the fundamental and M&A values, across our
coverage.
Date Ticker Buyer Seller CurrencyConsideration
(bn)Book value
(bn)P/B Detail
Sep-16~Jan-17 1918.HK Sunac Jinke Rmb 5.7 3.7 1.5X23% stake in A-share listed developer Jinke, currently with 75
projects and available land reserves exceeding 17mn sqm
Nov-16 1918.HK Sunac Qingdao Calxon Rmb 3.7 0.9 4.2X Qingdao project with total unsold GFA of 980k sqm.
Nov-16 1109.HK CRLChina
EnterpriseRmb 7.3 3.8 1.9X
20.9% stake of China Enterprise with land bank of GFA 2.83mn
sqm post restructuring
Aug-16 1109.HK CRL CRH Rmb 6.2 3.7 1.7XShenzhen Bay projects (GFA 462k sqm) and 23 car park projects
in 8 cities (GFA 673k sqm)
Jul-16 1918.HK Sunac Top Spring HK$ 5.0 3.1 1.6X7 property projects with a total GFA of 1.3mn sqm in 6 major
cities
May-16 0272.HK CITIC China Shui On Land Rmb 4.5 1.6 2.9X 2 projects in Wuhan with saleable GFA of 232k sqm
Apr-16 3333.HK EvergrandeChina Calxon
GroupRmb 3.6 1.0 3.8X
53% stake of A-share listed developer China Calxon Group with
50 projects and remaining saleable area of 6mn sqm.
Mar-16 0688.HK COLI CITIC HK$ 37.1 23.0 1.6XAll residential-focused property development projects owned by
CITIC with total GFA of 24mn sqm in 25 cities
Median 1.8X
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 14
Exhibit 18: We adjust our 12-month target prices for Poly H and Greentown after updating the M&A multiple and weighting M&A scoring impact on 12-month target prices
Note: (1) prices are based on Feb 2, 2017 closing. (2) *denotes the stock is on our Conviction List.
Source: Gao Hua Securities Research.
For the remaining stocks in our coverage (excluding Poly H and Greentown), we make no changes to estimates, 12-month NAV
based target prices or ratings. Exhibit 20 summarizes key risks for each stock.
Company Rating LCYPrice as of
Feb 2
Fundamental
value
Fundamental
value implied
17E PB
2016E
BVPS
Sector
M&A PB
M&A PB
discount
M&A
value
M&A
weight
New
blended
TP
TP chg
Potential
upside/do
wnside
Offshore LCY LCY (X) RCY (X) % LCY % LCY % %
0081.HK COGO Buy* HK$ 2.66 3.70 0.7X 4.5 1.8 20% n.a. 0 3.70 0% 39%
3377.HK Sino Ocean Buy HK$ 3.38 4.70 0.8X 5.3 1.8 -10% n.a. 0 4.70 0% 39%
YNLG.SI Yanlord Buy SG$ 1.38 1.90 0.9X 8.9 1.8 10% n.a. 0 1.90 0% 38%
0688.HK COLI Buy* HK$ 22.45 31.00 1.3X 20.6 1.8 30% n.a. 0 31.00 0% 38%
3383.HK Agile Buy HK$ 4.13 5.60 0.6X 8.1 1.8 -20% n.a. 0 5.60 0% 36%
0119.HK Poly (H) Buy HK$ 3.12 2.70 0.5X 6.1 1.8 -30% 7.7 30% 4.20 45% 35%1109.HK CRL Buy HK$ 18.78 25.10 1.5X 15.2 1.8 40% n.a. 0 25.10 0% 34%
2777.HK R&F Buy HK$ 9.77 12.70 1.0X 10.5 1.8 -20% n.a. 0 12.70 0% 30%
0960.HK Longfor Buy HK$ 10.88 14.00 1.3X 8.5 1.8 20% n.a. 0 14.00 0% 29%
0272.HK Shui On Land Neutral HK$ 1.63 2.10 0.5X 3.6 1.8 0% n.a. 0 2.10 0% 29%
0813.HK Shimao Neutral HK$ 10.24 12.80 0.8X 12.5 1.8 -10% n.a. 0 12.80 0% 25%
0207.HK Joy City Neutral HK$ 1.00 1.20 0.9X 1.2 1.8 n.a. n.a. 0 1.20 0% 20%
3900.HK Greentown Neutral HK$ 6.44 6.50 0.6X 9.7 1.8 -20% 14.0 15% 7.60 9% 18%1813.HK KWG Neutral HK$ 4.47 5.20 0.7X 6.6 1.8 -30% n.a. 0 5.20 0% 16%
0817.HK China Jinmao Neutral HK$ 2.23 2.54 1.0X 2.4 1.8 10% n.a. 0 2.54 0% 14%
1528.HK Red Star Macalline Neutral HK$ 7.89 8.80 1.7X 4.6 1.8 n.a. n.a. 0 8.80 0% 12%
0410.HK SOHO China Neutral HK$ 3.84 4.20 1.3X 3.1 1.8 n.a. n.a. 0 4.20 0% 9%
2007.HK CG Neutral HK$ 4.44 4.80 1.2X 3.2 1.8 -10% n.a. 0 4.80 0% 8%
1918.HK Sunac Neutral HK$ 6.85 7.30 1.1X 5.7 1.8 -30% n.a. 0 7.30 0% 7%
3333.HK Evergrande Sell HK$ 5.26 3.30 1.5X 2.1 1.8 n.a. n.a. 0 3.30 0% -37%
Onshore600340.SS CFLD Buy Rmb 23.93 30.10 2.6X 8.9 1.8 0% n.a. 0 30.10 0% 26%
600048.SS Poly (A) Buy* Rmb 9.28 11.60 1.3X 7.6 1.8 -30% n.a. 0 11.60 0% 25%
001979.SZ CMSK Buy Rmb 16.63 20.00 2.7X 6.5 1.8 20% n.a. 0 20.00 0% 20%
000069.SZ OCT Buy Rmb 6.96 8.30 1.4X 5.2 1.8 20% n.a. 0 8.30 0% 19%
600823.SS SMC Neutral Rmb 7.14 7.00 0.9X 7.5 1.8 -10% n.a. 0 7.00 0% -2%
600383.SS Gemdale Sell Rmb 12.43 11.20 1.6X 6.8 1.8 30% n.a. 0 11.20 0% -10%
000002.SZ Vanke (A) Sell Rmb 20.74 17.60 1.5X 10.2 1.8 -20% n.a. 0 17.60 0% -15%
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 15
Exhibit 19: China property coverage valuation comparison
Note: (1) *denotes the stock is on our Conviction List. (2) Our 12-month target prices are based on end-2017E NAV for our coverage universe except for RSM, which is based on SOTP given it is not a developer, and Greentown, Poly Property (H), for which our TP is an blend of our fundamental valuation (based on end-2017E NAV) and M&A value. For M&A value, we derive M&A values based on the mean multiple implied by recent M&A deals, with the multiple adjusted for a premium/discount (P/B-ROE vs. sector), detailed in our report “Introducing China property M&A framework” published June 13, 2016. (3) Average P/E does not include SOHO, Poly (H), Joy City and Shui On Land, which are outliers.
Source: Company data, Datastream, Gao Hua Securities Research.
Company Ticker
16E 17E 18E 19E 16E 17E 18E 19E 16E 17E 18E 19E
Hong Kong listed
Agile 3383.HK 2.1 Buy 4.13 (HK$) 5.60 36 -55% 12.51 (67) 5.0 4.1 3.9 4.3 0.4 0.4 0.4 0.4 8.2 10.2 10.9 10.1
China Vanke (H) 2202.HK 3.3 Neutral 19.58 (HK$) 19.00 (3) -30% 26.78 (27) 9.4 8.0 7.2 7.1 1.7 1.6 1.4 1.3 4.9 5.8 6.6 6.7
COGO 0081.HK 0.8 Buy* 2.66 (HK$) 3.70 39 -50% 7.36 (64) 5.4 4.5 3.9 3.7 0.6 0.5 0.5 0.4 0.0 0.0 0.0 0.0
COLI 0688.HK 31.5 Buy* 22.45 (HK$) 31.00 38 -10% 34.44 (35) 7.1 5.8 5.9 5.8 1.1 1.0 0.9 0.8 3.5 4.3 4.3 4.3
CRL 1109.HK 16.7 Buy 18.78 (HK$) 25.10 34 -25% 33.51 (44) 7.9 6.9 6.4 6.2 1.2 1.1 1.0 0.9 3.6 4.1 4.4 4.6
CG 2007.HK 12.3 Neutral 4.44 (HK$) 4.80 8 -30% 7.38 (40) 7.9 6.3 5.7 4.9 1.2 1.1 1.0 0.9 3.8 4.9 5.5 6.5
Evergrande 3333.HK 9.2 Sell 5.26 (HK$) 3.30 (37) -60% 8.28 (36) 10.1 12.2 10.5 10.2 2.1 2.3 2.3 2.3 10.3 8.6 10.3 10.6
China Jinmao 0817.HK 3.1 Neutral 2.23 (HK$) 2.54 14 -40% 4.23 (47) 8.1 6.9 6.5 6.2 0.9 0.8 0.8 0.7 4.1 4.8 5.1 5.4
Greentown 3900.HK 1.8 Neutral 6.44 (HK$) 7.60 18 -50% 14.43 (55) 6.9 6.1 6.1 6.2 0.6 0.6 0.5 0.5 0.0 0.0 0.0 0.0
R&F 2777.HK 4.0 Buy 9.77 (HK$) 12.70 30 -30% 18.17 (46) 4.5 4.2 4.2 4.1 0.8 0.8 0.7 0.6 9.0 9.8 10.0 10.5
Joy City 0207.HK 1.8 Neutral 1.00 (HK$) 1.20 20 -45% 2.11 (53) 21.5 14.5 11.9 11.0 0.7 0.7 0.7 0.7 5.5 1.8 2.2 2.4
KWG 1813.HK 1.8 Neutral 4.47 (HK$) 5.20 16 -45% 9.45 (53) 4.2 4.0 3.7 3.6 0.6 0.6 0.5 0.5 7.9 8.4 9.3 9.6
Longfor 0960.HK 8.1 Buy 10.88 (HK$) 14.00 29 -50% 27.95 (61) 6.9 6.6 6.4 7.5 1.1 1.0 1.0 0.9 4.4 4.6 4.9 4.2
Poly Property (H) 0119.HK 1.5 Buy 3.12 (HK$) 4.20 35 -70% 9.13 (66) n.m. 41.0 28.1 24.8 0.5 0.5 0.5 0.5 0.0 0.0 0.0 0.0
Red Star Macalline 1528.HK 3.7 Neutral 7.89 (HK$) 8.80 12 -35% 13.34 (41) 9.1 9.4 9.7 9.7 1.5 1.5 1.4 1.3 6.7 6.6 6.6 6.6
Shimao 0813.HK 4.5 Neutral 10.24 (HK$) 12.80 25 -55% 28.35 (64) 4.8 4.7 4.9 4.9 0.7 0.7 0.6 0.6 6.4 6.6 6.5 6.5
Shui On Land 0272.HK 1.7 Neutral 1.63 (HK$) 2.10 29 -55% 4.77 (66) n.m. n.m. n.m. n.m. 0.4 0.4 0.4 0.4 3.2 1.9 2.0 2.1
Sino Ocean 3377.HK 3.3 Buy 3.38 (HK$) 4.70 39 -55% 10.52 (68) 6.4 5.0 4.7 4.1 0.6 0.5 0.5 0.5 4.4 5.7 6.3 7.1
SOHO China 0410.HK 2.6 Neutral 3.84 (HK$) 4.20 9 -45% 7.63 (50) 34.7 25.5 20.3 18.4 1.1 1.2 1.2 1.2 11.6 4.1 5.3 5.8
Sunac 1918.HK 3.4 Neutral 6.85 (HK$) 7.30 7 -45% 13.22 (48) 24.3 11.6 5.0 4.5 1.0 1.0 0.9 0.7 0.9 1.8 4.3 4.7
HK listed average 20 (52) 8.0 6.7 5.9 5.8 0.9 0.9 0.9 0.8 4.9 4.7 5.2 5.4
A-share listed
CMSK 001979.SZ 17.8 Buy 16.63 (Rmb) 20.00 20 -30% 28.09 (41) 15.3 12.7 10.6 10.0 2.5 2.2 1.9 1.7 2.0 2.4 2.8 2.8
CFLD 600340.SS 10.2 Buy 23.93 (Rmb) 30.10 26 n.m. n.m. n.m. 10.9 8.5 6.7 5.7 2.7 2.1 1.6 1.3 0.9 1.2 1.5 1.5
Gemdale 600383.SS 8.1 Sell 12.43 (Rmb) 11.20 (10) -25% 14.98 (17) 17.6 14.6 14.6 14.6 1.8 1.7 1.6 1.6 3.4 4.0 4.1 4.1
OCT 000069.SZ 8.3 Buy 6.96 (Rmb) 8.30 19 -50% 16.00 (56) 11.6 10.6 9.6 9.4 1.3 1.2 1.1 1.0 1.1 1.2 1.3 1.3
Poly (A) 600048.SS 15.9 Buy* 9.28 (Rmb) 11.60 25 -10% 12.94 (28) 8.0 6.4 6.1 5.8 1.2 1.1 0.9 0.8 3.3 3.9 4.1 4.1
SMC 600823.SS 2.8 Neutral 7.14 (Rmb) 7.00 (2) -25% 9.34 (24) 8.8 9.4 9.3 10.2 0.9 0.9 0.8 0.8 1.3 1.1 1.1 1.1
Vanke (A) 000002.SZ 29.2 Sell 20.74 (Rmb) 17.60 (15) -30% 25.17 (18) 11.5 9.2 8.1 8.0 2.0 1.8 1.6 1.4 3.9 4.9 5.5 5.5
Onshore average 13 (31) 10.5 8.9 8.1 8.0 1.8 1.6 1.4 1.2 2.3 2.7 2.9 2.9
Singapore listed
Yanlord YNLG.SI 2.1 Buy 1.38 (S$) 1.90 38 -45% 3.46 (60) 7.8 6.3 5.9 6.3 0.8 0.7 0.6 0.6 1.9 2.4 2.5 2.5
Simple average of above 20 (49) 10.6 9.9 8.4 8.1 1.1 1.0 0.9 0.9 4.1 4.0 4.4 4.6
Target price disc.
to NAV
Potential upside/
downside (%)
End-17 NAV
Shr price (disc)/ prem
to NAV
12 mth Price target
Mkt Cap (US$ bn) Rating
Price as of
2/Feb/17
FD Core P/E (x)P/B (exclude revaluation gain)
(x) Dividend yield (%)
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 16
Exhibit 20: Summary of key risks for our coverage
Note: *denotes the stock is on our Conviction List.
Source: Gao Hua Securities Research.
Company Ticker Ratings Key risksOffshoreCOLI 0688.HK Buy* Weaker than expected margins; macro hard landing
COGO 0081.HK Buy* Sales/margin miss; diminishing support from COLI
R&F 2777.HK Buy Sales/margin miss, aggressive land banking hurts balance sheet
Agile 3383.HK Buy Slower than expected margin recovery, aggressive land bank hurts balance sheet
Sino Ocean 3377.HK Buy Booking miss, lower-than-expected contract sales
CRL 1109.HK Buy Below expectation sales/rental performance
Longfor 0960.HK Buy Weaker-than-expected margins/sales performance; sell-off from key stakeholder
Yanlord YNLG.SI Buy Sales/margin miss, policy tightening that affects high-end market in high-tier cities
Poly (H) 0119.HK Buy Sales/margin miss; cancellation of the M&A with Poly A
Shimao 0813.HK Neutral Better/weaker-than-expected sales performance; margin recovery above/below expectations
Shui On Land 0272.HK Neutral Sales/rental beat or miss; positive developments in its planned disposal of non-core assets
Joy City 0207.HK Neutral Rental performance/portfolio growth above/below expectations
China Jinmao 0817.HK Neutral Sales/margins beat or miss; mis-step in expansion
KWG 1813.HK Neutral Sales/margins, leverage rates for expansion
Sunac 1918.HK Neutral Sales/margin miss or beat; further deterioration/improvement in the balance sheet
Greentown 3900.HK Neutral Synergy with CCCG; sales/margins beat or miss
CG 2007.HK Neutral Margins above (+)/below (-) expectations; significant balance sheet deterioration (-)
RSM 1528.HK Neutral Rental & managed mall pipeline growth beat or miss
SOHO China 0410.HK Neutral Faster/slower than expected asset disposals; weaker than expected rental performance
Vanke (H) 2202.HK NeutralSales/margin beat or miss; better/worse-than-expected execution on deploying capital;
continuous share purchase by Evergrande and/or others parties
Evergrande 3333.HK Sell Above expectation margins/balance sheet
OnshorePoly (A) 600048.SS Buy* Weaker-than-expected margins and sales
CMSK 001979.SZ Buy Significant unexpected decline in Shenzhen property prices, execution slippage
OCT 000069.SZ Buy Slowdown in economic activity; inability to improve operation of tourism business
CFLD 600340.SS Buy Slow local government execution, macro hard landing
SMC 600823.SS Neutral Better-/worse-thanexpected sales/execution of its diversified business
Gemdale 600383.SS Sell Better-than-expected sales/margins, positive strategic action from key shareholders
Vanke (A) 000002.SZ SellContinuous share purchase by Evergrande and/or others parties; betterthan-expected
execution on deploying capital
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 17
Disclosure Appendix
Reg AC
We, Yi Wang, CFA and Vicky Li, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We
also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Investment Profile
The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth,
returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage
universe.
The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:
Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI,
ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month
volatility adjusted for dividends.
Quantum
Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make
comparisons between companies in different sectors and markets.
GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well
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quantifiable analysis of three aspects of corporate performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the
environmental, social and governance issues facing their industry).
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Yi Wang, CFA: A-share Property, China Property. Vicky Li: A-share Property, China Property.
A-share Property: CFLD, China Merchants Shekou Inds Zone, China Vanke (A), Gemdale Corp., Poly Real Estate Group, Shanghai Shimao Co., Shenzhen Overseas Chinese Town.
China Property: Agile Property Holdings, China Evergrande Group, China Jinmao Holdings, China Overseas Grand Oceans Group, China Overseas Land, China Resources Land, China Vanke (H),
Country Garden Holdings, Greentown China Holdings, Guangzhou R&F Properties, Joy City Property Ltd., KWG Property Holding, Longfor Properties Co., Poly Property Group, Red Star Macalline
Group, Shimao Property, Shui On Land, Sino-Ocean Land Holdings, SOHO China, Sunac China Holdings, Yanlord Land.
Company-specific regulatory disclosures
The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of
Goldman Sachs and referred to in this research.
Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be aggregated under US securities law) as of the
second most recent month end: China Vanke (A) (Rmb20.68) and China Vanke (H) (HK$19.50)
Goldman Sachs has received compensation for investment banking services in the past 12 months: China Overseas Grand Oceans Group (HK$2.66)
Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: China Overseas Grand Oceans Group (HK$2.66), China Vanke (A) (Rmb20.68),
China Vanke (H) (HK$19.50) and Greentown China Holdings (HK$6.38)
Goldman Sachs had an investment banking services client relationship during the past 12 months with: China Overseas Grand Oceans Group (HK$2.66), China Vanke (A) (Rmb20.68), China Vanke (H)
(HK$19.50) and Greentown China Holdings (HK$6.38)
Goldman Sachs had a non-securities services client relationship during the past 12 months with: China Overseas Grand Oceans Group (HK$2.66), China Vanke (A) (Rmb20.68), China Vanke (H)
(HK$19.50), Greentown China Holdings (HK$6.38) and Poly Property Group (HK$3.02)
Goldman Sachs makes a market in the securities or derivatives thereof: China Vanke (A) (Rmb20.68), China Vanke (H) (HK$19.50) and Poly Property Group (HK$3.02)
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global Equity coverage universe
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 18
Rating Distribution Investment Banking Relationships
Buy Hold Sell Buy Hold Sell
Global 32% 54% 14% 64% 60% 51%
As of January 1, 2017, Goldman Sachs Global Investment Research had investment ratings on 2,902 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment
Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by the FINRA Rules. See 'Ratings, Coverage groups
and views and related definitions' below. The Investment Banking Relationships chart reflects the percentage of subject companies within each rating category for whom Goldman Sachs has provided
investment banking services within the previous twelve months.
Price target and rating history chart(s)
7.17.7
6.6
6
5.5
5
5.95.4
3.6
3.4 2.72.78
2.663.3
6,0007,0008,0009,00010,00011,00012,00013,00014,00015,00016,000
2.00
3.00
4.00
5.00
6.00
7.00
8.00
China Overseas Grand Oceans Group (0081.HK)
Goldman Sachs rating and stock price target history
Stock Price Currency : Hong Kong Dollar
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 12/31/2016.
The price targets show n should be considered in the context of all prior published Goldman Sachs research, which may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.
Rating
Price target
Price target at removal
Covered by Vicky Li
Not covered by current analyst
Hang Seng China Ent. Index
Inde
xPr
ice
Stoc
kPr
ice
Oct 21, 2016 to B from N
Apr 16 Aug 1N B N
F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D2014 2015 2016
4.65 4.22
5.4
5.27.3
6.72.9
2.922.7
2.22.35 2.43
6,0007,0008,0009,00010,00011,00012,00013,00014,00015,00016,000
0.001.002.003.004.005.006.007.008.00
Poly Property Group (0119.HK)
Goldman Sachs rating and stock price target history
Stock Price Currency : Hong Kong Dollar
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 12/31/2016.
The price targets show n should be considered in the context of all prior published Goldman Sachs research, which may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.
Rating
Price target
Price target at removal
Covered by Vicky Li
Not covered by current analyst
Hang Seng China Ent. Index
Inde
xPr
ice
Stoc
kPr
ice
Jan 19 Oct 4N B
FN
M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D2014 2015 2016
1614
9.69.1
9.5 6.6
6.4
12.812.3
11.2
8.49.2
8.57.1
6.16.34
6.48
6,0007,0008,0009,00010,00011,00012,00013,00014,00015,00016,000
5.00
7.00
9.00
11.00
13.00
15.00
17.00
19.00
Greentown China Holdings (3900.HK)
Goldman Sachs rating and stock price target history
Stock Price Currency : Hong Kong Dollar
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 12/31/2016.
The price targets show n should be considered in the context of all prior published Goldman Sachs research, which may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.
Rating
Price target
Price target at removal
Covered by Vicky Li
Not covered by current analyst
Hang Seng China Ent. Index
Index
Price
Stoc
kPric
e May 30 Dec 22 May 10B N S
FN
M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D2014 2015 2016
12.1 12.2
19.8
18.6 19.6
15.616.1
16.5
2,0002,5003,0003,5004,0004,5005,0005,5006,000
5
10
15
20
25
30
China Vanke (A) (000002.SZ)
Goldman Sachs rating and stock price target history
Stock Price Currency : Chinese Renminbi
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 12/31/2016.
The price targets show n should be considered in the context of all prior published Goldman Sachs research, which may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.
Rating
Price target
Price target at removal
Covered by Yi Wang, CFA
Not covered by current analyst
Shanghai - Shenzhen 300
Index
Price
Stoc
kPric
e Dec 21 Jul 4B RS
FS
M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D2014 2015 2016
20.220.4 24.7
23.223.9
1818.5
19
6,0007,0008,0009,00010,00011,00012,00013,00014,00015,00016,000
10.00
12.00
14.00
16.00
18.00
20.00
22.00
24.00
China Vanke (H) (2202.HK)
Goldman Sachs rating and stock price target history
Stock Price Currency : Hong Kong Dollar
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 12/31/2016.
The price targets show n should be considered in the context of all prior published Goldman Sachs research, which may or may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.
Rating
Price target
Price target at removal
Covered by Yi Wang, CFA,as of Jun 25, 2014
Not covered by current analyst
Hang Seng China Ent. Index
Inde
xPr
ice
Stoc
kPric
e Jun 25 May 10 Dec 21 Jul 4B N RS
FN
M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D2014 2015 2016
February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 19
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February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 20
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February 3, 2017 China: Real Estate Developers
Goldman Sachs Global Investment Research 21
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