China: Real Estate Developerspg.jrj.com.cn/acc/Res/CN_RES/INDUS/2017/2/3/fb63ba... · February 3, 2017 China: Real Estate Developers Goldman Sachs Global Investment Research 2 Poly

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 [email protected] 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 [email protected] Beijing Gao Hua Securities Company Limited Scofield Chi +65-6654-5188 [email protected] Goldman Sachs (Singapore) Pte

Doris Chen +65-6654-5182 [email protected] 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



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.



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)



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



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: 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



...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


Net Margin

Note: net margin is adjusted as (underlying profit / net revenue).



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



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


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


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)



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%



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



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



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.



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



Exhibit 17: Recent M&A deals imply median 1.8X P/B for acquired assets Major M&A deals under our coverage since 2Q2016


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



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.


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%



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 (%)



Exhibit 20: Summary of key risks for our coverage

Note: *denotes the stock is on our Conviction List.


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



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

positioned to deliver long term outperformance through sustained competitive advantage and superior returns on capital relative to their global industry peers. Leaders are identified based on

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



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)





Rating

Price target


Covered by Vicky Li



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)





Rating

Price target


Covered by Vicky Li



Index

Price

Stoc

kPric

e May 30 Dec 22 May 10B N S

FN


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)


Stock Price Currency : Chinese Renminbi



Rating

Price target


Covered by Yi Wang, CFA


Shanghai - Shenzhen 300

Index

Price

Stoc

kPric

e Dec 21 Jul 4B RS

FS


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)





Rating

Price target


Covered by Yi Wang, CFA,as of Jun 25, 2014



Inde

xPr

ice

Stoc

kPric

e Jun 25 May 10 Dec 21 Jul 4B N RS

FN




Regulatory disclosures

Disclosures required by United States laws and regulations

See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or

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Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if

with respect to multiple companies which are the subject of this report, on the Goldman Sachs website at http://www.gs.com/research/hedge.html.

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