5 4 6 Yum Cha 飲茶 3 - chinastock.com.hk1 23 May, 2017 With abundant net cash of HK$23bn (27% of market cap), Sino Land is well-positioned to replenish its land bank for future

1

Yum Cha 飲茶 May 23, 2017

INDICES Closing DoD%

Hang Seng Index 25391.3 0.9

HSCEI 10374.3 1.0

Shanghai COMP 3075.7 (0.5)

Shenzhen COMP 1828.2 (1.4)

Gold 1260.6 0.4

BDIY 954.0 (0.2)

Crude Oil, WTI(US$/BBL) 51.1 0.9

Crude Oil, BRENT(US$/BBL) 53.9 0.5

HIBOR, 3-M 0.8 (0.05)

SHIBOR, 3-M 4.5 0.2

RMB/USD 6.9 0.02

DATA RELEASES DUE THIS WEEK

May 24 Swift Global Payment CNY

May 26 Industrial Profit YoY

Source: Bloomberg

TALKING POINT - POTENTIAL SHAREHOLDER CHANGE OF VALUE PARNTERS

Value Partners (0806.HK) confirmed that its two founders, Cheah Cheng Hye and

Yeh V-Nee have been approached by third parties and are in discussions with a po-

tential offeror. They signed a non-binding MOU on 24 January 2017 in respect of a

possible transaction involving an acquisition of interests in the Company by the po-

tential offeror. No definitive agreement has been signed so far. Cheah and Yeh own

24.9% and 16.14% stakes in the Company, respectively. Value Partners was trading

at 3.93x PBR before trading was suspended. Excluding the super bull market in 2015,

the high end of the PBR range has been about 4.4x in the past five years. Therefore

further upside may be limited. However, we don’t rule out the possibility that investors

may revisit other local financial institutions, as the potential acquisition of Value Part-

ners shows that Mainland companies are still interested in setting up a financial plat-

form in Hong Kong. Currently, local financial institutions with a meaningful market cap

include Bright Smart (1428.HK; 1.93x PBR), Emperor Securities (0717.HK; 0.89x

PBR) and Get Nice Financial (1469.HK; 0.9x PBR).

RESEARCH NOTES

SINO LAND [0083.HK; HK$13.34; NOT RATED] - With abundant net cash of

HK$23bn (27% of market cap), Sino Land is well-positioned to replenish its land bank

for future growth, in particular, after the recent tightening measures regarding loan to

value ratios launched by the HKMA. On the back of a good track record of dividend

payments, management targets maintaining a stable DPS of HK$0.51, implying a

3.8% dividend yield, slightly below its 5-year average of 4%. As the low-end of the

range is about 3.6% since 2013, we believe HK$12.30 is a better entry point, which

offers 15% upside if we set 3.6% dividend yield as the target.

2

3

4

5

6

7

8

9

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

14

Dec

-14

Mar

-15

Jun-

15

Sep-

15

Dec

-15

Mar

-16

Jun-

16

Sep-

16

Dec

-16

Mar

-17

PBR of Value Partners (0806.HK)

Sources: Bloomberg, CGIS Research

Analyst: Wong Chi-man, CFA

SNIPPETS

MSCI ANNUAL REVIEW - MSCI announced that it will conduct the annual market

classification review on June 20. The review will include whether the A-share market

will be included in the MSCI index series.

1

23 May, 2017

With abundant net cash of HK$23bn (27% of market cap), Sino Land is well

-positioned to replenish its land bank for future growth, in particular, after

the recent tightening measures regarding loan to value ratios launched by

the HKMA. On the back of a good track record of dividend payments, man-

agement targets maintaining a stable DPS of HK$0.51, implying a 3.8%

dividend yield, slightly below its 5-year average of 4%. As the low-end of the

range is about 3.6% since 2013, we believe HK$12.30 is a better entry

point, which offers 15% upside if we set 3.6% dividend yield as the target.

Business strategy

Management has adopted a steady and conservative approach to property

development. Sino Land has been active in land bidding within the range of

its gross profit margin target of 20%. As can be seen from its bidding rec-

ord, Sino Land is comfortable cooperating with other developers, including

PRC ones, as long as the investment concept and expected return are

consistent.

Successful urban residential redevelopment projects

In general, 3 types of development approaches are commonly seen in the

HK residential market: 1. tenders and auctions of government and MTRC

lots; 2. changing the use of agricultural land; and 3. urban redevelopment.

In the current circumstances, PRC developers have been aggressive in the

first approach. Therefore, in order to remain competitive, local HK property

developers focus on the latter two approaches.

The entry barrier for urban redevelopment projects for PRC developers is

relatively high, as local knowledge and practices are essential in project

planning and sales to secure an attractive profit margin.

Sino Land has partnered well with the Urban Renewal Authority (URA) on

many urban redevelopment projects, including The Avenue in Wan Chai

(attributable plot ratio area: 0.61m sq.ft), a very successful large-scale pro-

ject launched in recent years, demonstrating sustainability.

The upcoming Kwun Tong project to be the key growth driver

An upcoming project – Kwun Tong Town Center Development Areas 2 & 3

(attributable plot ratio area: 1.35m sq.ft, land cost HK$~ 5,000/sq ft) – is

going to be the highlight of Sino Land’s future sales. The project is expected

to be launched in 2018. Conservatively assuming an ASP of HK$15,000,

with land cost of ~HK$5,000 and construction cost of ~HK$4,500, the unit

gross profit will be HK$ 5,500 (not yet deducting profit sharing with URA).

Sino Land acquired another two small-scale URA projects during FY2017:

NKIL 6558 Sham Shui Po (attributable plot ratio area: 0.05m sq.ft) and the

Peel Street/Graham Street Project in Central (attributable plot ratio area:

0.08m sq.ft). On top of these urban redevelopment projects, another new lot

from government tender was added in FY17 – TPTL 228, Pak She Kok

(attributable plot ratio area: 0.41m sq.ft, land cost HK$ 3,931/sq ft)

Strong defensive business

Sino Land’s rental business has experienced moderate growth in recent

Company Visit SINO LAND COMPANY LIMITED [0083.HK; HK$13.34; NOT RATED] - STEADY THE BUFFS IN THE NEW CHALLENGING

ENVIRONMENT. SOLID DEFENSIVE BUSINESS AND EYE ON KWUN TONG RESIDENTIAL DEVELOPMENT.

Market Cap: US$10.8bn; Free Float: 40%; 3-months Average Daily Turnover: US$8.9m Analyst: Rachel Chui Tel: 3698 6391 Email: [email protected]

[Sino Land Company Limited]

years, providing strong operating cash flow to further facilitate the

Company’s property development business. Consequently, Sino Land

is able to maintain its DPS regardless of the fluctuation of profit booked

from property sales (Figure 2 and 5).

As shown in Figure 4, Sino Land’s rental portfolio is dominated mainly

by retail (mass and local market), but also includes office, industrial,

carpark and residential. As its malls are located mainly in local residen-

tial development areas, they are less dependent on tourist spending.

As for office leasing, most of its offices are in non-central areas. There-

fore, it is expected to see single-digit growth in rental rates this year.

Apart from the rental business, income from hotels has performed

steadily.

In FY17, non-residential land replenishment includes AIL 462, Wong

Chuk Hang (commercial, attributable plot ratio area: 0.17m sq.ft, land

cost HK$ 10,313/sq ft), Kwai Chung Town Lot No. 524 (industrial, at-

tributable plot ratio area: 0.18m sq.ft, land cost HK$ 2,543/sq ft), and

The Fullerton Hotel Ocean Park Hong Kong (hotel, attributable plot

ratio area: 0.26m sq.ft).

Future outlook depends on land bank replenishment progress

We estimate Sino Land's residential saleable resources in Hong Kong

should be enough for about 3 years of development. Since the Compa-

ny is not very active in accumulating agricultural land, its future outlook

will depend on whether it can use its strong balance sheet (net cash of

HK$23bn) to replenish land bank.

Risk factors: Rate hikes, residential price drop, and policy risks.

0

50,000

100,000

150,000

200,000

250,000

300,000

0

2

4

6

8

10

12

14

16

Trading value (HK$ 000) - RHS Price (HK$)

Key Financials FY15 FY16 FY17E FY18E

Revenue (HK$ m) 21,839 10,804 14,929 13,614

Underlying net profit (HK$ m) 5,301 5,351 5,216 5,150

PER (x) 15.89 15.74 16.15 16.36

PBR (x) 0.68 0.67 0.65 0.64

Dividend yield 3.75% 3.82% 3.82% 3.82%

Note: financial year end June

Source: Bloomberg, Company Data, CGIS Research

2

Figure 1: Company financials (June year-end)

Source: Company data, CGIS Research

Figure 2: Dividend per share and payout ratio

Source: Bloomberg, Company data, CGIS Research

0.36 0.36 0.36

0.41

0.46

0.50 0.50 0.50 0.51 0.51

0.00

0.10

0.20

0.30

0.40

0.50

0.60

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E

Dividend per share (HK$)

57%54% 56%

52% 51%

45%

59%57% 58%

0%

10%

20%

30%

40%

50%

60%

70%

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Payout ratio based on Underlying profit

3

Figure 3: Dividend yield


Figure 4: Rental business portfolio


7%

8%

3%

24%58%

Breakdown by rental revenue

Carpark

Industrial

Residential

Office

Retail

14%

16%

2%

29%

39%

Breakdown by floor area

Carpark

Industrial

Residential

Office

Retail

2,254

2,558 2,791

3,055 3,235 3,312

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY11 FY12 FY13 FY14 FY15 FY16

Rental business segment resultHK$m

2,642

2,936 3,185

3,451 3,684

3,834

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY11 FY12 FY13 FY14 FY15 FY16

Gross rental incomeHK$m

2.6

2.8

3

3.2

3.4

3.6

3.8

4

4.2

4.4

4.6

4.8

5

5.2

5.4

5.6

1/7

/20

12

1/9

/20

12

1/1

1/2

01

2

1/1

/20

13

1/3

/20

13

1/5

/20

13

1/7

/20

13

1/9

/20

13

1/1

1/2

01

3

1/1

/20

14

1/3

/20

14

1/5

/20

14

1/7

/20

14

1/9

/20

14

1/1

1/2

01

4

1/1

/20

15

1/3

/20

15

1/5

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15

1/7

/20

15

1/9

/20

15

1/1

1/2

01

5

1/1

/20

16

1/3

/20

16

1/5

/20

16

1/7

/20

16

1/9

/20

16

1/1

1/2

01

6

1/1

/20

17

1/3

/20

17

1/5

/20

17

Dividend yield since 1 July 2012 (%)

Dividendyield (%)

Averagesince 1 July2012(4.03%)

4

Figure 5: Segment results breakdown


Figure 6: Projects launched and to be booked in 2017/2018


1,790,904,011 46%

1,633,733,268 42%

133,601,129 4%

268,207,691 7%

32,622,576 1%

Segment Result 1HFY16 (HK$)

Property Sales

Property Rental

Property Managementand other services

Hotel Operations

Investments in Securities& Financing

2,427,687,477 53%

1,704,329,298 37%

145,601,063 3%

271,987,755 6%

62,891,240 1%

Segment Result 1HFY17 (HK$)

Property Sales

Property Rental


Hotel Operations


2,629,029,772 38%

3,311,631,337 49%

279,962,836 4%

525,722,447 8%

68,705,370 1%

Segment Result FY16 (HK$)

Property Sales

Property Rental


Hotel Operations


3,236,746,052 45%

3,234,544,559 44%

258,278,445 4%

473,323,731 6%

62,186,394 1%


Property Sales

Property Rental


Hotel Operations


1,854,571,445 32%

3,054,537,524 53%

230,395,986 4%

495,412,051 9%

108,229,835 2%


Property Sales

Property Rental


Hotel Operations


4,511,334,260 56%

2,790,520,018 34%

221,696,639 3%

490,565,929 6%

63,034,628 1%


Property Sales

Property Rental


Hotel Operations


Project Name/Site Location Usage Stake (%) Attributable Plot Ratio Area (Sq ft)

The Mediterranean Sai Kung Residential 100 249,133

The Spectra Long Ping (North) Residential 40 209,575

Commune Modern Fanling Residential 100 209,907

Park Mediterranean Sai Kung Residential 100 173,796

5

Figure 8: Projects acquired during FY17


Figure 7: Projects to be launched in 2017/2018



Figure 9: Peers comparison


NKIL 6313 Kowloon Bay Commercial 30 147,058

Lot 1181 in DD 215 Sai Kung Residential 100 51,592

TPTL 228 Pak Shek Kok Residential 100 412,530

Kwun Tong Town Center

Development Areas 2 & 3Kwun Tong Residential 90 1,346,383


TPTL 228 Pak Shek Kok Residential 100 412,530

AIL 462 Wong Chuk Hang Commercial 60 170,967

NKIL 6558 Sham Shui Po Residential/Retail JV with URA 52,571

The Fullerton Hotel Ocean

Park Hong KongOcean Park Hotel 60 262,017

Peel Street/Graham Street

Project (Site A)Central Residential JV with URA 84,260

Kwai Chung Town Lot No. 524 Kwai Chung Industrial 100% 176,905

Ticker Company Market cap PB (x) EV/EBITDA (x) Dividend yield (%)

(US$ m) 2016A 2017E 2018E 2016A 2017E2018E 2016A 2017E 2018E 2016A 2017E

16 HK Equity SHK Properties 113.80 42,327 8.5 12.9 11.9 0.7 0.7 0.7 8.3 11.9 10.7 3.4 3.5

17 HK Equity New World Development 9.66 12,163 9.3 12.4 11.8 0.5 0.5 0.4 10.5 16.7 15.0 4.6 4.5

12 HK Equity Henderson Land 49.20 22,985 8.2 14.9 15.2 0.7 0.7 0.7 12.9 22.3 22.9 3.2 3.2

101 HK Equity Hang Lung Properties 19.50 11,264 14.2 16.2 18.0 0.7 0.7 0.7 11.6 12.8 13.8 3.8 3.9

14 HK Equity Hysan Development 36.25 4,867 31.2 14.7 15.6 0.6 0.6 0.5 15.4 15.4 14.9 3.7 3.8

1113 HK Equity Cheung Kong Property 57.60 27,622 11.4 11.7 10.7 0.8 0.8 0.8 8.5 8.0 7.5 4.0 2.9

1972 HK Equity Swire Properties 25.80 19,385 10.0 18.2 20.1 0.7 0.7 0.6 10.7 17.2 19.4 2.8 2.8

41 HK Equity Great Eagle 38.15 3,335 9.3 12.1 12.6 0.5 0.4 0.4 18.6 29.2 28.7 2.0 2.5

83 HK Equity Sino Land 13.34 10,821 12.3 15.9 16.0 0.7 0.7 0.6 10.2 12.2 14.0 3.8 3.8

Note: Year end June for Sino Land, SHK Properties and New World Development. Year end Dec for others

Price

(local currency)

PE (x)

6


Figure 10: Hong Kong residential projects presale area over the year


Figure 11: Saleable resources of Hong Kong residential projects

Saleable resourcesSino Land's

stake

GFA

Attributable

to Sino Land

(Sq ft)

Lot 1181 in DD215 100% 51,592

TPTL 228, Pak Shek Kok 100% 412,530

Kwun Tong Town Center Development Areas 2&3 *** 90% 1,346,383

NKIL 6558, Sham Shui Po *** 100% 52,571

Peel Street/Graham Street Project (Site A), Central *** 100% 84,260

Residual units from project launched and completed (approximate) 800,000

Total: 2,747,336

*** URA projects.

Presale since

launched till

financial year

end

Sino Land's

stake

Project Total

GFA (Sq ft)

GFA

Attributable

to Sino Land

(Sq ft)

GFA sold

during FY

(Sq ft)

FY16 The Mediterranean 逸瓏園 54% 100% 249,133 249,133 134,532

Commune Modern 囍逸 98% 100% 135,894 135,894 133,176

The Spectra 朗屏8號 * 30% 40% 523,938 209,575 62,873

FY16 Total 330,581

FY15 Corinthia By The Sea 帝景灣 97% 60% 417,047 250,228 242,721

Dragons Range 玖瓏山 81% 40% 1,031,470 412,588 334,196

FY15 Total 576,918

FY14 The Graces • Providence Bay 海鑽．天賦海灣 71% 50% 323,824 161,912 114,958

Park Metropolitan 觀月．樺峯 79% 100% 232,825 232,825 183,932

The Avenue 囍匯 ** 92% 50% 731,393 365,697 336,441

Mayfair by the Sea I 逸瓏灣I 73% 85% 675,710 574,354 419,278

Mayfair by the Sea II 逸瓏灣II 65% 100% 675,710 675,710 439,212

FY14 Total 1,493,820

* K. Wah [hk.173] was in charge of this project's development and sales. Sino Land holds 40% stake.

** Joint venture with Hopewell, assume 50-50 structure.

Note: Some small-scale luxury projects like Cluny Park, Botanica Bay are not included.

Presale area over the year

7

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BUY share price will increase by >20% within 12 months in absolute terms :

SELL share price will decrease by >20% within 12 months in absolute terms :

HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :

Documents

5 4 6 Yum Cha 飲 茶 3 - chinastock.com.hk1 23 May, 2017 With abundant net cash of HK$23bn (27% of market cap), Sino Land is well-positioned to replenish its land bank for future

5 4 6 Yum Cha 飲茶 3 - chinastock.com.hk1 23 May, 2017 With abundant net cash of HK$23bn (27% of market cap), Sino Land is well-positioned to replenish its land bank for future