China Property Snapshot ............................................................................................................................................... 4
Investment Case: Top Firms Recalibrating to Capture Market Share ....................................................................... 5
Valuations Have Recovered from Depressed Levels…........................................................................................................................5
…but We See Further Potential, on Mild Upside in Volumes and ASP….............................................................................................5
…Especially for High Sell-through Majors, Which Should Have Stable Sales Growth .........................................................................6
We Also See NAV Upside for Those that Releverage and Recalibrate Their Product Mix...................................................................7
Challenges: Margins and FCF Deficits .................................................................................................................................................7
Amid Macro Status Quo, We Expect Mild Volume & ASP Upside, Providing Moderate Share Price Upside........ 9
New Home Sales Volume to Edge Higher............................................................................................................................................9
Consensus Has Low ASP Expectations – We See Potential Upside .................................................................................................10
Inventory Build-up to Slow Down .......................................................................................................................................................10
Developers Releveraging and Recalibrating to Drive Sales & NAV......................................................................... 12
High Sell-through to Finance Stable Sales Growth ............................................................................................................................12
Releveraging, Recalibrating to Drive Sales and NAV.........................................................................................................................12
ASP/Margin Resilience Varies ...........................................................................................................................................................14
Capital Fundraising Risk Moderating .................................................................................................................................................15
Preferred Stocks: Upside in Sellable Resources & Sell-through Rate .................................................................... 16
What’s in the Price .............................................................................................................................................................................16
Where We See Outperformance ........................................................................................................................................................17
1) Growth in Sellable Resources............................................................................................................................................................................ 17
2) Improvement in Sell-through Rate ..................................................................................................................................................................... 17
3) Resilience in Margins and ROE ......................................................................................................................................................................... 18
What’s Changed?.......................................................................................................................................................... 20
Rating Changes .................................................................................................................................................................................20
Earnings and Price Target Changes ..................................................................................................................................................20
Our Valuation Methodology: Discount to Forward NAV ........................................................................................... 23
The NAV Calculation .............................................................................................................................................................................................. 23
Current NAV Estimates .......................................................................................................................................................................................... 23
Forward NAV Estimates ......................................................................................................................................................................................... 23
Target Discount to NAV.......................................................................................................................................................................................... 23
Key Stock Ideas............................................................................................................................................................. 24
China Vanke Co., Ltd: Utilizing balance sheet strength............................................................................................ 25
Longfor Properties: Acquisitions inject new impetus; upgrade to OW .................................................................. 26
China Resources Land: Asset quality shines amid competitive environment: OW.............................................. 27
Shimao Property: Assume coverage at OW: Hitting all the right notes .................................................................. 28
KWG Property Holding Limited: Deep-value stock: OW on attractive valuations.................................................. 43
Guangzhou R&F Properties: Steady sales, but yet to make the breakthrough: EW.............................................. 52
grace.chiu@citigroup.com GRACE CHIU 10/22/12 04:11:38 AM Citibank N.A.
3
M O R G A N S T A N L E Y R E S E A R C H
October 21, 2012
China Property
Financial Summaries and Risk-Reward Snapshots ..................................................................................................62
China Vanke: Financial Summary ............................................................................................................................... 63
Risk-Reward Snapshot: China Vanke (000002.SZ, Rmb8.44, OW, PT Rmb12.1).................................................... 64
Longfor: Financial Summary ....................................................................................................................................... 65
Risk-Reward Snapshot: Longfor (0960.HK, HK$12.68, OW, PT HK$15.30)............................................................. 66
CR Land: Financial Summary ...................................................................................................................................... 67
Risk-Reward Snapshot: CR Land (1109.HK, HK$17.18, OW, PT HK$19.70)............................................................ 68
Agile: Financial Summary ............................................................................................................................................ 69
Risk-Reward Snapshot: Agile Property (3383.HK, HK$8.68, OW, PT HK$12.2)...................................................... 70
Country Garden: Financial Summary.......................................................................................................................... 71
Risk-Reward Snapshot: Country Garden (2007.HK, HK$3.20, OW, PT HK$4.10) ................................................... 72
Sino Ocean: Financial Summary ................................................................................................................................. 73
Risk-Reward Snapshot: Sino Ocean (3377.HK, HK$4.91, UW, PT HK$3.60)........................................................... 74
COLI: Financial Summary ............................................................................................................................................ 75
Risk-Reward Snapshot: COLI (0688.HK, HK$20.35, EW, PT $17.7).......................................................................... 76
COGO: Financial Summary .......................................................................................................................................... 77
Risk-Reward Snapshot: COGO (81.HK, HK$8.22, EW, PT HK$7.8) .......................................................................... 78
Poly HK: Financial Summary ....................................................................................................................................... 79
Risk-Reward Snapshot: Poly Property (0119.HK, HK$4.45, EW, PT HK$4.5)..........................................................
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