China / Hong Kong Industry Focus China Property and

ed-CK/ sa-CS / DL

Where will Evergrande lead us to?

• Can Evergrande repay its debt?

• Is it really “too big to fail”?

• How should we position ourselves for this phenomenon?

Can Evergrande overcome its financial struggle? A question that was asked many times by various parties during the past week.

Here is our analysis:

What will Evergrande need to do to sustain its business? ........................... 2

What are the other factors that can come into play and help? .................. 3

Will disposal of its existing assets enough to fully service its outstanding

debts? ......................................................................................................................... 4

What would happen if Evergrande struggles to fulfil its debt obligations?

..................................................................................................................................... 6

Will the government step in? ............................................................................. 11

What is the impact on the sector in the longer term? ................................. 12

How should we position ourselves for this phenomenon? ......................... 13

How about banks? ................................................................................................. 15

HSI: 27,322

ANALYST

Danielle WANG CFA, +852 36684176 [email protected]

Cindy WANG +852 36684175 [email protected]

Ken HE CFA, +86 21 38562898 [email protected]

Jason LAM +852 36684179 [email protected]

Zoe ZHANG +86 21 38562892 [email protected]

Ben WONG +852 36684183 [email protected]

Recommendation & valuation

Price

Target

Price Rec Mkt Cap

FY22F

PE

HK$ HK$ US$bn x

Country Garden

(2007 HK)

8.25 12.45 BUY 23.4 3.8

CR Land

(1109 HK)

31.45 49.60 BUY 28.9 6.2

Longfor

(960 HK)

43.25 57.65 BUY 33.8 8.6

China Minsheng Banking

(1988 HK)

3.51 3.39 SELL 26.2 4.5

Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”)

DBS Group Research . Equity

China / Hong Kong Industry Focus

China Property and Banking Sector

26 Jul 2021

Refer to important disclosures at the end of this

report

https://www.dbs.com/insightsdirect/company/TR4295864398








Industry Focus


Page 2

What will Evergrande need to do to sustain its business?

Achieve presales target of Rmb750bn. Evergrande recorded c.Rmb357bn of contracted

sales in 1H21, which represented 2% y-o-y growth and locked in 48% of its Rmb750bn

presales target. YTD cash collection stood at Rmb321bn, which translates to a cash

collection of 90% for 1H21. Maintaining normal presales growth is a must to maintain

cash flow.

Obtain recognition from regulators regarding its deleverage plan

Convince domestic banks to provide loans as usual. In the wake of Guangfa Development

Bank’s legal action against one of Evergrande’s projects in Yixing, Jiangsu, whether other

banks will keep their credit lines and loans open to the developer for normal refinancing

purposes came under the spotlight. Having said that, Evergrande and Guangfa

Development Bank reached a settlement four days after the news was released. We

therefore believe banks will keep a close eye on the developer’s situation, but will likely

maintain their credit lines normal for Evergrande at this moment.

Introduce partners to jointly develop Shenzhen redevelopment projects in the near term.

Evergrande claims that the projects they have been confirmed as the operating entity

with exclusive rights in Shenzhen will in total derive c.Rmb1.6trillion worth of saleable

resources, or saleable GFA of over 30m sm, in our estimation. Of which, 21

redevelopment projects that we identified have already been included into Shenzhen’s

redevelopment plan, which amounts to c.10m sm in GFA or c.Rmb650bn in saleable

resources.

Roadmap of Evergrande’s redevelopment project pipeline in Shenzhen

Source: Company

Assuming Evergrande to dispose of 50% of its current stake at Rmb10k/sm (Shenzhen’s

AV stood at c.Rmb15k/sm in 2020), that would potentially translate to c.Rmb50bn-

c.Rmb150bn of cash that can be made available to the company. Assuming the above

takes place, along with the inclusion of its existing cash on hand of Rmb181bn,

Evergrande may potentially cover majority of its outstanding short-term debt as at Dec-20

of c.Rmb335bn. This could offer signs of comfort and confidence to various of

Evergrande’s debt holders and equity investors.

Industry Focus


Page 3

What are the other factors that can come into play and help?

Items 1-2 are relatively practical and within reach to execute; items 3-6 may

only be carried out once market concerns are addressed.

1. Disposal of interests in its development projects at hand

2. Distribute Evergrande New Energy Vehicle’s (708 HK) shares in species to existing

shareholders. This will strip away outstanding debts that are currently sitting under

708 HK’s level. Meanwhile, as new energy vehicle segment is supported by the

central government, and 708.HK is well on its way to start production and put its cars

for sale in 2022, 708 HK should be able to operate independently on its own in the

absence of 3333 HK’s support.

3. Spin-off of its Evergrande Spring business, which is currently being studied by the

company to raise a few million in USD.

4. Spin-off of its tourism-related property business, Evergrande Fairyland. According to

the company, this business has 27 tourism-related projects at hand to-date.

5. Spin-off of Fangchebao platform, which is currently the second largest in the

property agency sector in China with 38.7k agents, 43k stores and a Gross

Transaction Value (GTV) of Rmb2tr, as compared to Beike’s (BEKE US) 49.3k agents,

47k stores, GTV of Rmb3.5tr.

Industry Focus


Page 4

Will disposal of its existing assets enough to fully service its outstanding

debts?

Yes.

Taking into account 1) the company’s total outstanding debt as at Dec-20; 2) unpaid land

premium as at Dec-20 that is pending settlement; and 3) outstanding commercial papers,

we estimate that the company should be able to fully service the above items so long as it

is able to secure an average disposal discount of no more than 32% to their book value

during its asset liquidation. This excludes the above discussed redevelopment projects

that are currently held by Evergrande.

Market cap of subsidiaries

Note: based on share price at 26 Jul 2021

Source: Bloomberg, Company, DBS HK

Breakdown of Evergrande’s assets and debts

Source: Company, DBS HK

Market cap

(R mb bn)

3333 HK's

interest (%)

Total d eb t

(R mb bn)

708 HK equity 123 65% 61.5

6666 HK equity 62 61% 0.0

136 HK equity 31 38% 0.0

FFIE US Equity 312 20% n.a.

Total market cap 529 36%

Attrib utab le market cap 192

Items (as at Dec-20) Rmb bn

Assets (at book value )

+Cash 159

+Restricted cash 22

+Construction cost 486

+Land 603

+Completed property 148

+Attributable market cap of listcos 192

+Prepaid land premium 123

Total 1,733

Maximum Discount on book value 32%

Value 1,237

Items to repay (at book value )

-Unpaid land premium 129

-Contracted liability 186

-Short term debt 335

-Long term debt 381

-Commercial paper 205

Total 1,237

Shortfal l /surplus 0

Industry Focus


Page 5

FY21F cashflow estimation

Source: Company, DBS HK

FY21F Cashf low (Rmb bn) Company guidance DBS Estimate Notes on DBS estimates

Other cash inflow 107 50

Includes proceeds from 1) introduction of strategic

investors to Fangchebao platform; and 2) share placements

of 708 HK and 136 HK

Presales proceed 680 600 Rmb750bn sales * 80% cash collection

Total inf low 787 650

Tax 45 45 As guidance

SG&A 70 70 The same as 2020

Interest 62 68 Total debt by end-2020*average funding cost

Construction cost 255 255 Higher than 2020 as guidance

Land 123 100 Including Rmb 86.6bn committed outstanding land premium

and some new land acquisition

Dividend 17 17

Car 9 9

Others 7 7

Total outf low 588 571

Cash outstanding as at Dec-20 181 181

Expected cash as at Dec-21 380 260

Increase of cash balance 199 29

Industry Focus


Page 6

What would happen if Evergrande struggles to fulfil its debt obligations?

Painful, but not too big to fail.

Banks: controllable, and there should be no systemic risk.

Loan alone accounts for 0.1% of banks’ total loans. According to WIND, the amount of

Rmb loans that were drawn down by Evergrande has come down to Rmb183bn in FY20,

or 2-year CAGR of -18%, after regulators asked China's banks to limit their lending

exposures to property developers since mid-2019. Evergrande’ bank loans actually only

represented 0.1% of total bank loans.

Adding up trust, debt accounts for 0.3% of banks’ total loans. However, trust is in fact the

major funding source for Evergrande – which are often funded by wealth management

products (WMPs) and acts as a channel financing through banks to Evergrande that is off-

balance sheet for banks and should be considered as well. Under our calculation, the

balance of Evergrande’s trusts stood at around Rmb324bn in FY20, down 11% y-o-y,

accounting for 1.6% of total trusts in China. Assuming all the funding for trusts came from

WMPs, this would represent for 1.3% of total WMPs. Together with Rmb loans, the total

debt exposure for banks would be Rmb507bn, or 0.3% of total loans.

Limited impact on banks’ NPL. Based on our scenario analysis, this would lead to around

1-4% increase in NPLs or 2-7bps increase in the NPL ratio, based on 20-40% secured

assets’ haircut.

Outstanding mortgages under Evergrande’s guarantee were Rmb550bn as at end-2020

based on the company’s FY20 annual report. If Evergrande cannot deliver the units and

buyers do not serve their mortgages. This accounts for c.1.5% of banks’ total outstanding

mortgages as of 1Q21.

While the market instinctively thinks that Chinese banks will likely take a potentially

unbearable hit under the hypothetical scenario that Evergrande falls, our estimations

show that on a sector-wise perspective, the hit would be a painful, but not an intolerable

one.

Evergrande’s RMB loans came down since FY19 after regulators tightened

banks loan quota to developers

Source: WIND, DBS HK

103135

457

188

273241

183

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

0

50

100

150

200

250

300

350

400

450

500

2014 2015 2016 2017 2018 2019 2020

Evergrande's Rmb loan YoY (RHS)

(Rmb bn)

Industry Focus


Page 7

Evergrande’s outstanding borrowings by type

Source: Company, WIND, DBS HK

Debt breakdowns by due period

Source: Company, WIND, DBS HK

183241

324

364

151

13745

4514

13

0

100

200

300

400

500

600

700

800

900

2020 2019

Convertible bonds PRC bonds Senior notes Trusts Bank loans

(Rmb bn)

122 107

214 265

167206

204

183

1138

0

100

200

300

400

500

600

700

800

900

2020 2019

6 months or less 6-12 months 1-2 years 2-5 years Over 5 years

(Rmb bn)

Industry Focus


Page 8

Scenario analysis on China banks’ NPLs/NPL ratio impacts (1) Scenario analysis on China banks’ NPLs/NPL ratio impacts (2)

Source: Company, DBS HK Source: Company, WIND, DBS HK

(Rmb bn) FY20

a) Evergrande's bank and other borrowings 506.7

b) Evergrande's secured loans (excl restricted cash) 366.4

c) Hair cut 30%

d) Cash 158.8

e) Restricted cash 22.0

f) = a-b*(1-c)-d-e Amount to write-off 69.5

g) Bank's NPLs in 1Q21 2788.0

h) = f/g % increase in NPLs 2.49%

i) Bank's NPL ratio in 1Q21 1.80%

j) Bank's NPL ratio after Evergrande default 1.84%

k) = j-i bps increase in NPL ratio 4bps

Scenario analys is

Evergrands' collateral haircut 20% 25% 30% 35% 40%

% increase in NPLs 1.18% 1.84% 2.49% 3.15% 3.81%

bps increase in NPL ratio 2bps 3bps 4bps 6bps 7bps

Industry Focus


Page 9

Downstream: “Special” and “First” class general contractors may take a

meaningful hit.

According to the WIND database, there are c. 71.4k general contractors in the

construction sector in 2019, c.8.2k of which are graded either as “Special” or “First” class.

Being one of the largest developers in China, we believe Evergrande would typically deal

with “Special” and “First” class contractors, and thus our analysis on the impact have

primarily focused on general contractors in these two classes.

In 2019, total revenue of the two classes of general contractors stood at c.Rmb148tr, with

a thin average net profit margin of 3% or Rmb4,703bn in consideration terms. As at Dec-

19, the two subsegments hired a total of 28.5m employees and reported an aggregate

outstanding trade receivables of Rmb35,730bn.

Given the relatively small-scale involved even for individual “Special” and “First” class

general contractors, we believe those that are involved in Evergrande’s development

projects may take a meaningful hit under the scenario where Evergrande become unable

to meet its financial obligations.

Evergrande has 798 projects by end-2020, which may mean that it has interacted with

slightly less than 10% of “Special” and “First” class contractors in 2019 – assuming that it

appoints a separate general contractor for every one of their projects. Under the

assumption that all of the company’s outstanding c.Rmb206bn of commercial papers are

issued solely for the purpose of settling its payments to general contractors, this would

represent c.1% of the average total revenue for the general contractors that has involved

in Evergrande’s projects, c.45% of these contractor’s average net profit and c.6% of their

outstanding receivables.

Basic information of general contractors in the construction industry in 2019

Basic information of general contractors on a per company basis in the

construction industry in 2019

Estimated business relevance with Evergrande (those engaged in construction

contracts with Evergrande)

Source: WIND, DBS HK

Aggregate basis

Overall

general

contractors

Specia l and

F irst class% of tota l

Contracted amount (Rmb bn) 509,656.21 406,398.94 80%

Revenue (Rmb bn) 207,701.89 147,695.70 71%

Net profit (Rmb bn) 7,295.12 4,703.61 64%

NPM (%) 3.5% 3.2% n.a.

No. of employee (m) 48.60 28.51 59%

No. of company 71,430 8,204 11%

Per company basis Overall general

contractors

Specia l and F irst

class

Contracted amount (Rmb m) 7,135.04 49,536.68

Revenue (Rmb m) 2,907.77 18,002.89

Net profit (Rmb m) 102.13 573.33

NPM (%) 3.5% 3.2%

No. of employee 680.32 3,474.95

Per company basisSpecia l and

F irst class

Impact from

Evergrande% of total

Revenue (Rmb bn) 18.00 0.26 1%

Net profit (Rmb bn) 0.57 0.26 45%

Trade receivables outstanding

(Rmb bn) 4.36 0.26 6%

Industry Focus


Page 10

Buyers: Approximately 600k families may be waiting for project delivery. Evergrande has

c.Rmb500bn of sold but undelivered property sales as at end-Dec-20. Assuming that

Evergrande struggles to service its financial obligations and its presold projects pending

delivery are left incomplete, we estimate this could affect around 600k families that have

already paid their down-payments upfront and drawn out mortgages from banks. Upon

increased odds of project incompletion, value of these yet-to-deliver projects may

potentially come into question, and this may affect the LTV ratios of these families’

mortgages, together with their unchanged obligations to continue servicing their

mortgages.

Employees: Evergrande had a total of c.123,276 employees as at end-Dec-20, of which

42,244 works for property management, and 8,796 for new energy vehicles. We believe

the jobs of these employees would depend highly upon Evergrande’s ability to overcome

its financial difficulties. Additionally, we estimate there could be c.2.7m of employees in

the general contractor segment that are related to Evergrande’s project constructions as

well.

Local government. Evergrande paid c.Rmb39.5bn tax on average during the past five

years and spent an average of Rmb160bn on land acquisition each year.

Industry Focus


Page 11

Will the government step in?

The government has always been there.

Evergrande is already under regulators’ close watch. We believe the central government is

fully aware of the company’s high debt levels and has been providing “window guidance”

to urge the developer to deleverage in a controlled manner. The recent news report

relating to a conversation that took place between the Financial Stability and

Development Committee (FSDC, a regulatory body directly under the State Council) and

Chairman Hui in Jun-21 would be a clear case in point, with the FSDC urging Evergrande

to consider the introduction of strategic investors as a potential way for deleveraging, and

the company’s overall debt reduction progress must be well controlled to ensure minimal

shocks for the economy.

Regulators incline to let Evergrande handle its own debt issues. In our view, we believe

regulators would prefer to stay on the sidelines and let Evergrande to resolve its issues,

so long as it has a complete and viable deleveraging plan. Nevertheless, we expect the

regulators to offer a hand and help to coordinate with various parties whenever

necessarily.

Industry Focus


Page 12

What is the impact on the sector in the longer term?

Contractors may demand better payment terms. Contractors are likely to be more

sceptical about developers’ repayment capability and thus, they will likely demand for

more guarantees/more favourable payment terms over construction payments going

forward.

Banks and regulators to impose stricter control over presales proceeds. In the attempt to

minimise risks from development loans, we expect banks and regulators to turn more

stringent over developers’ project level presales proceeds and ensure those money stays

in the escrow account.

Reduce operational leverage and capital efficiency. With general contractors asking for

better payment terms, and banks/regulators to become more stringent over the

utilisation of presales proceeds, we believe developers’ operational leverage and capital

efficiency will be reduced.

Landbank size to shrink... With lower operating leverage and capital efficiency, smaller

developers or highly levered companies may have to scale back and reduce their

landbank.

…with land market to see higher land supply through M&A; calmness likely to persist in

the land market. In anticipation of developers having to trim their landbanks, the land

market will see more opportunities on the M&A front for a prolonged period of time.

Meanwhile, developers will also be less capable of acquiring land at their current pace. All

in all, the land market will likely see some coolness, with land cost to moderate.

Ongoing property price controls. The above phenomenon will likely translate into a slower

development pace and therefore, lower housing supply. Thus, despite expected

moderation in land costs, property prices will likely continue to see upward pressure on

the back of supply shortage. Policy tightness will likely be maintained.

Industry Focus


Page 13

How should we position ourselves for this phenomenon?

We believe scenario 2 would be the likely outcome.

Capable to repay debt given sufficient time. As indicated from our analysis above, we

believe Evergrande should be well capable of servicing its outstanding debts in full via

asset disposals, raise funds via spin-off of various of its businesses, and to sell existing

stakes in their subsidiaries. However, this is based on the assumption that Evergrande

has sufficient time to execute the above processes.

Scenario 1 may require policy relaxations to smooth out possible short-term shocks,

which may unwind years of deleveraging effort from regulators. In our view, if scenario 1

happens – i.e. Evergrande has insufficient time to carry out our outlined measures and

fails to fully service its debt obligations – this will likely create a short-term shock to the

market that will likely impact the overall supply chain of the property development sector

and thus meaningfully affect other developers as well. Consequently, the central

government may have to ease out existing restrictive policies and initiate a round of

loosening to smooth out such impact. As a result. their overall goal to stablise property

prices and control risks (i.e. deleveraging) could be delayed.

Scenario 2 would likely land with manageable impact and at a more orderly and

controlled manner. Meanwhile, in scenario 2 where we assume Evergrande will be given

sufficient time to carry out necessary asset disposals and funding raise to repay its debts,

things will likely be maintained largely status quo and end in a more orderly and

controlled manner. Banks will likely remain largely normal in terms of their grant of

property loans to Evergrande and will slowly trim their exposures. Meanwhile,

Evergrande’s disposal of assets and trimming of scale will create limited impact to the

banking system and to the overall supply chain in the property development sector. We

therefore take the view that Scenario 2 will be the likely outcome.

Should Scenario 1 occur, we believe the best picks would be to stay with high beta names

like Sunac (1918 HK) and Zhongliang (2772 HK), both of which have seen their share price

and bond price affected by recent Evergrande’s news flow. Under scenario 2, things will

remain status quo and we believe large developers with stronger balance sheet and

execution capabilities will continue to extend their advantages from their financial

strength (thus better land accessibility under concentrated land supply reform) and stand

out from the crowd – thus our pick of CR Land (1109 HK)，Longfor (960 HK) and Country

Garden (2007 HK).

Industry Focus


Page 14

Potential outcomes upon different scenarios and stock picks

Source: DBS HK

Scenar io 1: Shock to the market Scenar io 2: Gradual asset disposal and funding rais ing

Developers with an offshore credit rating below BB may take a hard hit in their bond prices Onshore and offshore bond market sentiment would progressively recover

Offshore refinancing window for most developers would be shut, except for SOEs and Investment Graded

developersIssuance window of the offshore bond market may reopen

More developers will offer price promotion to accelerate presales and cash collection Larger yield differentiation between investment grade and high yield developers

Some of developers will suspend land acquisitionsRegulators to have more flexibility on policy setting, with controls over the physical market to remain in place,

but liquidity to ease up on a progressive and controlled manner

More developers with weaker credit profiles may head into similar situation as Evergrande with banks to take

a more cautious attitude

A likely U-turn in policies and the government will inject liquidity to the system. Sector returns to pre-liquidity

squeeze situation

Highly levered companies will likely witness a strong rebound in share price


Upon injection of liquidity into the system, the move would unwind the years of efforts that regulators made

over property sector deleveragingAll developers will continue to deleverage as per existing guidance of regulators

Policy relaxation may spark another round of property price rally Larger yield differentiation between investment grade and high yield developers

Policy to tighten up again after the shocks were absorbed


Sunac (1918 HK) CR Land (1109 HK)

Zhongliang (2772 HK) Longfor (960 HK)

Country Garden (2007 HK)

Short term impacts to the sector

Medium term impacts to the sector

S tock picks

Industry Focus


Page 15

How about banks?

CMSB (1988 HK, SELL) has the highest loan balance from Evergrande, yet Jiangxi Bank

(1916 HK, NR) and Shengjing Bank (2066 HK, NA) have higher exposure in terms of loan

portfolio. Approximated with available 1H20 debt breakdown data on the company, more

than 80 banks and 120 non-bank financial institutions were Evergrande’ debtors – of

which concentration risks from each bank/FIs are actually low. Under China banks, CMSB

had the highest loan balance of Rmb29.3bn with Evergrande, followed by ABC of

Rmb24.2bn and Zheshang Bank of Rmb11.3bn, accounting for only 0.8%, 0.2% and 1% of

each bank’s total loans. Among the top 10 banks, Jianxi Bank and Shengjing Bank had the

higher loan exposure of 3.7% and 1.5%. Loan exposure for city/rural banks was higher

than JS/SOE banks given the former’s loan balance was much smaller than the latter’s,

while city/rural banks tend to support more POEs and local government projects which

were hit the most after shadow banking activities (channel financing) were constrained by

PBOC.

Among city banks, Shengjing Bank fuelled market concerns, as Evergrande controls 36%

of stake and it was fined for illegally financing real estate projects in May 2021. Different

from other China banks lowering developer loan in the portfolio, Shengjing Bank’s

exposure to developer loans surged 98% y-o-y to Rmb70bn in FY20, or 13% of its total

loans, much higher than the industry average of 9%, while its non-performing developer

loan ratio was 2.03% in FY20, up from 1.91% in FY19. However, the ratio was diluted from

rising developer loans as the absolute amount of non-performing developer loans

dramatically increased 110% y-o-y to Rmb1.4bn in FY20. As Evergrande is the biggest

shareholder, Shengjing Bank likely also do channel financing to trusts to compensate for

the liquidity squeeze from other banks. Thus, we believe Shengjing Bank could be the

hardest hit among China banks.

Top 10 bank exposures in Evergrande loans

Source: Companies, DBS HK

29.3

24.2

11.3 10.5 10.3 9.4 9.2 8.1 7.7 7.0

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

CM

SB

AB

C

Zh

esh

an

g B

an

k

CE

B

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C

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an

k

SP

DB

Ind

ust

ria

l Ba

nk

Jian

gxi

Ba

nk

Sh

en

gjin

g B

an

k

Bank loan % of each banks' loan balance (RHS)

(Rmb bn)

Industry Focus


Page 16

City/rural banks’ loan exposures are higher than JS/SOE banks


Shengjing Bank has higher concentration risks in developer loans


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

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of…

(Rmb bn)

Developer

loan

% of total

loan

Col lateral

ratio

Non-performing

developer loan ratio

Total banks ' NPL

ratio

Shengjing Bank 70.1 13.0% 61% 2.03% 3.26%

Jiangxi Bank 8.1 3.7% 31% 1.90% 1.73%

Industry Focus


Page 17

Valuation comparison

^ Denominated in SGD for price, ~ Simple average discount to NAV; Market cap weighted average NAV = 51%

# Exclude outliners ~~Gross Gearing, ^^ FY21: FY22; FY22: FY23

Source: Thomson Reuters, *DBS HK

3-mth

daily Net Disc/

Mkt t rad ing 12-m EPS gth PE PE Yield Yield R OE ROE Gearing P/Bk NAV (Prem)

Price Cap value Recom target 21F 22F 21F 22F 21F 22F 21F 22F 2020A 21F to NAV

Company Name Code HK$ US$bn US$m HK$ % % x x % % % % % x HK$ %

Large cap

China Overseas* 688 HK 18.42 25.9 41.7 BUY 25.70 13 12 4.1 3.7 7.3 8.2 12.1 12.4 31.2 0.5 38.8 52.5

CR Land* 1109 HK 31.45 28.9 41.0 BUY 49.60 14 10 6.8 6.2 5.4 6.0 12.3 12.3 29.5 0.8 62.7 49.8

China Vanke 'H'* 2202 HK 22.60 40.2 24.9 BUY 45.56 10 12 4.7 4.2 6.3 7.1 19.4 19.0 18.1 0.9 41.1 45.0

Country Garden* 2007 HK 8.25 23.4 23.5 BUY 12.45 7 12 4.3 3.8 6.7 7.5 18.8 18.5 55.6 0.8 18.2 54.7

Evergrande* 3333 HK 7.26 12.4 39.8 BUY 22.94 25 2 2.7 2.7 18.4 18.8 17.8 16.7 152.9 0.5 33.9 78.6

Longfor* 960 HK 43.25 33.8 32.3 BUY 57.65 16 13 9.7 8.6 4.7 5.2 19.7 19.9 46.5 1.8 63.2 31.6

Shimao Group* 813 HK 17.40 7.9 14.3 BUY 36.07 16 10 3.6 3.2 11.9 13.2 15.5 15.6 55.5 0.5 48.9 64.4

Sunac China* 1918 HK 23.65 14.2 63.1 BUY 47.50 9 9 2.7 2.5 8.1 8.8 23.9 21.9 96.0 0.6 52.9 55.3

Average 13.7 10.1 4.8 4.4 8.6 9.4 17.4 17.0 60.7 0.8 54.0

Mid cap

Agile Property* 3383 HK 9.64 4.9 3.9 BUY 18.14 19 8 3.2 2.9 12.7 13.7 14.7 14.6 95.7 0.4 13.3 27.4

China Aoyuan* 3883 HK 5.74 2.0 7.1 BUY 11.27 21 21 2.2 1.8 16.0 19.3 28.7 28.7 82.7 0.6 n.a. n.a.

China Jinmao Hldgs* 817 HK 2.49 4.1 8.3 HOLD 3.00 61 27 4.0 3.2 10.9 12.4 13.2 13.9 44.7 0.4 9.0 72.3

CIFI Holdings* 884 HK 5.23 5.6 7.7 BUY 8.66 14 15 3.8 3.3 9.1 10.4 23.6 23.2 71.3 0.8 8.3 36.8

Seazen 1030 HK 6.77 5.4 7.7 NR n.a. (2) 11 3.5 3.2 8.5 9.5 24.3 22.5 50.7 0.8 n.a. n.a.

Guangzhou R&F 2777 HK 8.13 3.9 5.6 NR n.a. (15) 19 3.1 2.6 14.5 15.5 9.7 9.4 130.2 0.3 n.a. n.a.

KWG Property 1813 HK 9.95 4.1 6.0 NR n.a. 16 19 3.4 2.9 13.3 15.7 18.1 18.9 61.7 0.5 n.a. n.a.

Logan Property* 3380 HK 9.77 6.9 4.2 BUY 16.44 21 15 3.1 2.7 12.9 14.8 32.9 31.1 68.0 0.9 33.7 71.0

Shenzhen Inv 604 HK 2.25 2.6 1.5 NR n.a. 22 9 4.4 4.0 9.1 9.7 8.8 9.0 21.9 0.4 n.a. n.a.

Sino-Ocean Land 3377 HK 1.75 1.7 2.7 NR n.a. (8) 8 4.2 3.9 9.7 10.5 4.9 5.2 54.8 0.2 n.a. n.a.

Times China* 1233 HK 8.41 2.1 3.8 BUY 13.37 1 12 2.7 2.4 11.7 13.1 24.4 23.1 65.6 0.6 23.3 64.0

Average 13.6 14.8 3.4 3.0 11.7 13.2 18.5 18.2 67.9 0.5 54.3

23- Jul

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Page 18

Valuation comparison

^ Denominated in SGD for price, ~ Simple average discount to NAV; Market cap weighted average NAV = 51%

# Exclude outliners ~~Gross Gearing, ^^ FY21: FY22; FY22: FY23

Source: Thomson Reuters, *DBS HK

3-mth

daily Net Disc/

Mkt t rad ing 12-m EPS gth PE PE Yield Yield ROE ROE Gearing P/Bk NAV (Prem)

Price Cap value Recom target 21F 22F 21F 22F 21F 22F 21F 22F 2020A 21F to NAV

Company Name Code HK$ US$bn US$m HK$ % % x x % % % % % x HK$ %

Small cap

BJ Cap Land 'H' 2868 HK 2.51 0.3 4.1 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 203.2 n.a. n.a. n.a.

Central China* 832 HK 1.75 0.7 3.2 BUY 2.91 (10) 4 2.6 2.5 13.5 14.0 13.5 12.5 13.6 0.3 7.9 77.8

China Merchants Land 978 HK 1.08 0.7 0.2 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a. 10.2 n.a. 31.3 n.a. n.a. n.a.

China SCE 1966 HK 3.07 1.7 3.1 NR n.a. 4 22 2.7 2.2 11.5 13.9 17.8 18.8 59.2 0.4 n.a. n.a.

COGO* 81 HK 4.89 2.2 2.0 BUY 6.91 17 14 3.1 2.7 7.6 8.7 18.4 18.1 45.5 0.5 12.3 60.3

Gemdale Props 535 HK 0.96 2.0 2.2 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 52.3 n.a. n.a. n.a.

Greenland 337 HK 2.07 0.7 0.5 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 54.4 0.7 n.a. n.a.

Greentown 3900 HK 10.56 3.4 9.4 NR n.a. 7 21 7.9 6.5 3.9 4.5 7.9 8.9 116.6 0.5 n.a. n.a.

Hopson Dev 754 HK 33.30 9.3 6.6 NR n.a. (18) 3 6.6 6.4 3.7 3.8 9.4 8.7 88.9 1.4 n.a. n.a.

Joy City 207 HK 0.45 0.8 0.2 NR n.a. (3) 0 5.7 5.7 6.9 n.a. 2.6 n.a. 54.9 0.2 n.a. n.a.

Kaisa Group 1638 HK 2.36 2.1 6.2 NR n.a. 10 16 2.1 1.8 10.9 13.9 16.9 16.4 99.4 0.2 n.a. n.a.

LVGEM* 95 HK 1.92 1.3 1.0 BUY 2.96 193 26 9.5 7.5 2.6 3.4 5.8 6.7 76.2 0.5 13.2 85.4

Modern Land (China) 1107 HK 0.70 0.3 0.0 NR n.a. (5) 29 2.3 1.8 n.a. n.a. 13.4 12.1 95.7 0.2 n.a. n.a.

Poly (Hong Kong) 119 HK 2.02 1.0 1.5 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 109.5 n.a. n.a. n.a.

Powerlong 1238 HK 6.02 3.2 7.0 NR n.a. (18) 23 4.1 3.4 9.4 11.6 15.0 16.6 75.7 1.0 n.a. n.a.

Road King 1098 HK 9.57 0.9 0.5 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 118.2 n.a. n.a. n.a.

Ronshine China 3301 HK 4.42 1.0 1.1 NR n.a. (18) 22 3.4 2.8 9.9 12.1 8.8 9.2 82.8 n.a. n.a. n.a.

Shui On Land* 272 HK 1.26 1.3 1.6 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 44.0 n.a. n.a. n.a.

Soho China 410 HK 4.03 2.7 14.5 NR n.a. (32) 19 48.0 40.5 n.a. n.a. 1.3 1.5 41.8 0.5 n.a. n.a.

Yanlord Land*^ YLLG SP 1.13 1.6 1.9 HOLD 1.25 87 32 4.0 3.0 6.4 6.6 8.1 9.9 62.9 0.3 4.0 71.7

Yuzhou Properties* 1628 HK 1.97 1.4 2.6 SELL 1.33 200 9 4.5 4.1 18.6 18.6 8.3 8.9 96.8 0.4 7.8 74.7

Zhenro Properties 6158 HK 4.38 2.5 6.3 NR n.a. 17 19 5.5 4.6 4.0 5.1 13.5 14.1 71.1 0.6 n.a. n.a.

Zhong An 672 HK 0.375 0.3 0.2 NR n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 83.9 n.a. n.a. n.a.

Zhongliang Holdings* 2772 HK 4.62 2.1 1.7 BUY 5.93 9 9 3.4 3.1 11.7 12.8 8.3 8.9 65.8 1.0 23.9 80.7

Average# 21.6 17.7 3.7 3.2 9.3 10.6 11.8 12.3 79.3 0.5 74.0

Average (Overall)# 16.9 14.8 3.9 3.4 10.0 11.2 15.4 15.5 72.5 0.6 59.4~

23- Jul

Industry Focus


Page 19

DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return, i.e., > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)

*Share price appreciation + dividends

Completed Date: 26 Jul 2021 17:29:38 (HKT)

Dissemination Date: 26 Jul 2021 19:08:36 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers

Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by

any means or (ii) redistributed without the prior written consent of DBS HK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected

and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any

information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as

to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any

recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the

information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts

no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given

in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with

any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may

also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be

consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be

incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in

this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating

to any issuer.

Industry Focus


Page 20

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant

uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will

vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation

and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as

recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

Industry Focus


Page 21

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect

his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research

analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in

the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is

responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2

in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the

production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in

place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment

banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in China Evergrande Group (3333 HK), China Minsheng Banking Corp Ltd (1988 HK), China

Overseas Land & Investment Ltd (688 HK), China Resources Land Ltd (1109 HK), China Vanke Co Ltd (2202 HK), Country Garden Holdings Co Ltd (2007 HK), Longfor Group Holdings Ltd (960

HK), Shimao Group Holdings Ltd (813 HK), Sunac China Holdings Ltd (1918 HK), Agile Group Holdings Ltd (3383 HK), Guangzhou R&F Properties Co Ltd (2777 HK) and Sino-Ocean Group

Holding Ltd (3377 HK) recommended in this report as of 22 Jul 2021.

DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in Yanlord Land Group Ltd (YLLG SP) recommended in this report as of 30 Jun 2021.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates have a net long position exceeding 0.5% of the total issued share capital in China Minsheng Banking Corp Ltd (1988 HK)

recommended in this report as of 22 Jul 2021.

4. DBS Bank Ltd, DBS HK, DBSVS, DBS Vickers Securities (USA) Inc (“DBSVUSA”), or their subsidiaries and/or other affiliates beneficially own a total of 1% of the issuer's market capitalization of

Postal Savings Bank of China Co Ltd (1658 HK) as of 22 Jul 2021.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor

step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement

between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an

issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Industry Focus


Page 22

5. Compensation for investment banking services:

DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from China

Minsheng Banking Corp Ltd (1988 HK), China Minsheng Banking Corp Ltd (600016 CH), Agricultural Bank of China Ltd (1288 HK), Agricultural Bank of China Ltd (601288 CH), China Everbright

Bank Co Ltd (601818 CH), Industrial & Commercial Bank of China Ltd (1398 HK), Industrial & Commercial Bank of China Ltd (601398 CH), China CITIC Bank Corp Ltd (998 HK), Shanghai Pudong

Development Bank Co Ltd (600000 CH), Industrial Bank Co Ltd (601166 CH), Huaxia Bank Co Ltd (600015 CH), China Aoyuan Group Ltd (3883 HK), China Jinmao Holdings Group Ltd (817 HK),

Times China Holdings Ltd (1233 HK), Central China Real Estate Ltd (832 HK), China Overseas Grand Oceans Group Ltd (81 HK), Greentown China Holdings Ltd (3900 HK), Hopson Development

Holdings Ltd (754 HK), LVGEM China Real Estate Investment Co Ltd (95 HK) and Yanlord Land Group Ltd (YLLG SP) as of 30 Jun 2021.

DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek compensation for investment banking services from

China Minsheng Banking Corp Ltd (1988 HK), China Minsheng Banking Corp Ltd (600016 CH), Agricultural Bank of China Ltd (1288 HK), Agricultural Bank of China Ltd (601288 CH), China

Everbright Bank Co Ltd (601818 CH), Industrial & Commercial Bank of China Ltd (1398 HK), Industrial & Commercial Bank of China Ltd (601398 CH), China CITIC Bank Corp Ltd (998 HK),

Shanghai Pudong Development Bank Co Ltd (600000 CH), Industrial Bank Co Ltd (601166 CH), Bank of Shanghai Co Ltd (601229 CH), Huaxia Bank Co Ltd (600015 CH) and Logan Property

Holdings Co Ltd (3380 HK) as of 30 Jun 2021.

6. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Agricultural Bank of China Ltd (1288 HK),

Industrial & Commercial Bank of China Ltd (1398 HK), China CITIC Bank Corp Ltd (998 HK), Shanghai Pudong Development Bank Co Ltd (600000 CH), China Aoyuan Group Ltd (3883 HK), Logan

Property Holdings Co Ltd (3380 HK), Times China Holdings Ltd (1233 HK), Central China Real Estate Ltd (832 HK), China Overseas Grand Oceans Group Ltd (81 HK), Greentown China Holdings

Ltd (3900 HK), Hopson Development Holdings Ltd (754 HK), LVGEM China Real Estate Investment Co Ltd (95 HK) and Yanlord Land Group Ltd (YLLG SP) in the past 12 months, as of 30 Jun

2021.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment

banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any

security discussed in this document should contact DBSVUSA exclusively.

7. Disclosure of previous investment recommendation produced:

DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments

recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations

published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

Industry Focus


Page 23

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Industry Focus


Page 24

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Industry Focus


Page 25

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Contact: Chanpen Sirithanarattanakul

989 Siam Piwat Tower Building,

9th, 14th-15th Floor

Rama 1 Road, Pathumwan,

Bangkok Thailand 10330

Tel. 66 2 857 7831

Fax: 66 2 658 1269


Company Regn. No 0105539127012

Securities and Exchange Commission, Thailand

Documents

China / Hong Kong Industry Focus China Property and