Agile 3383 MSCI China/real Estate 10% Company · PDF filehigher prices YTD. ... Key details: remaining GFA at 0.9mn sqm (total GFA: 2mn sqm), vacation homes Financials: RMB2.7bn or

Wednesday, May 25, 2016

Company Report China Merchants Securities (HK) Co., Ltd.

Hong Kong Equity Research

Please see penultimate page for additional important disclosures. China Merchants Securities (CMS) is a foreign broker-dealer unregistered in the USA. CMS research is prepared by research analysts who are not registered in the USA. CMS research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer. 1

Agile Property (3383 HK) Key takeaways from our site visits

■ We visited Agile’s three projects in Huizhou and Heyuan on

Tuesday (May 24th

). Key findings are: 1) home prices have risen

about 20-30% and 10% in Huizhou/Heyuan vs. late 2015; 2) strong

investment demand in Huizhou with lots of buyers from Shenzhen

■ Though we are sceptical about the sustainability of investment

demand, the buoyant market has helped Agile to sell faster at a

higher prices YTD. We expect 12% FY16E earnings recovery and its

distressed valuation looks attractive. Maintain BUY. TP at HK$4.6

Contracted sales on good progress In 5M16E, we estimate Agile’s contracted sales will be over RMB20bn, +32% YoY (4M16: RMB16.7bn +56% YoY). The buoyant Shenzhen market resulted in the spillover effect to Tier-3 cities nearby, including Zhongshan, Huizhou and Heyuan. This helped Agile’s contracted sales in these cities. We are concerned about the long-term sustainability of such investment demand in Tier-3 cities and the local sales management expected price correction towards the end of this year. However, they were positive on the long-term prospect of Huizhou as Shenzhen’s urbanization will continue. We revised up Agile’s full-year contracted sales estimate to RMB41bn (previous RMB39bn), -7% YoY.

Expect 12% earnings recovery in 2016E The recent home price hikes should benefit Agile and we believe that its GPM would mildly rise to 27.0%/28.2% in FY16/17E (from 25.1% in FY15). Agile could achieve 12%/14% YoY growth in core profits in FY16/17E after fine-tuning our earnings forecasts by +3%, which are 4%/6% lower than Bloomberg consensus.

Bargain valuation at deep 67% discount to its NAV We are positive on Agile’s earnings and margin recovery thanks to gradual increase in its ASP. It is looking for new land sites through a JV strategy, which we regard as a good sign of improving cashflows. The current deep NAV discount of 67% is close to 1SD below its 7-year mean, and also below its peers’ average at 53% NAV discount. We maintain BUY and target price of HK$4.6, based on 57% discount to 1-year forward NAV of HK$11.4/share (previous HK$10.6), equivalent to about 0.5SD below its 7-year mean.

Financials

RMB mn 2014 2015 2016E 2017E 2018E

Revenue 38,318 43,004 38,403 38,894 38,101

Revenue growth (%) 8% 12% -11% 1% -2%

Core net profit 3,929 2,429 2,725 3,114 3,369

Core profit growth (%) 2% -38% 12% 14% 8%

Core EPS (HK$) 1.40 0.75 0.81 0.92 1.00

Net gearing (%) 96.6% 83.7% 84.6% 76.2% 61.6%

P/E (x) 2.7x 5.0x 4.6x 4.0x 3.7x

P/B (x) 0.3x 0.4x 0.4x 0.3x 0.3x

Dividend yield (%) 10.6% 10.6% 4.6% 5.3% 5.7%

Sources: Company data, CMS (HK) estimates

John So

+852 3189 6357

Hayden Zhang

+852 3189 6354

[email protected] [email protected]

WHAT’S NEW

Earnings revised

BUY

Previous

BUY

Price HK$3.73

12-month Target Price (Potential upside)

HK$4.6 (+23%)

Previous HK$4.6 (ex. dividend)

Price Performance

Source: Capital IQ

% 1m 6m 12m

3383 HK (16.2) (12.5) (41.3) MSCI China Real Estate Index

(9.5) (13.0) (32.1)

Industry: Property

Hang Seng Index 19,830

HSCEI 8,308

Key Data

52-week range (HK$) 3.33-6.63

Market cap (HK$ mn) 14,611

Avg. daily volume (mn) 7.35

BVPS (HK$) at 2016E y.e. 10.5

Shareholdings Structure

Chen’s Family 63.8%

Free float 36.2%

Related Research

China Property – Mild earnings recovery in FY16E, valuation attractive, Mar 24, 2016

China Property – Property Quantitative Easing – the key driver in 2016, Jan 29, 2016

Agile Property (3383 HK) – Weak 1H15 priced-in. Balance sheet improving, 27 Aug 2015

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Agile 3383 MSCI China/real Estate


To access our research reports on the Bloomberg terminal, type CMHK <GO> 2

Focus charts Figure 1: Discount to NAV band Figure 2: Contracted sales

Sources: Bloomberg, CMS (HK) Sources: Company data, CMS (HK)

Figure 3: Revenue and profit growth Figure 4: Net gearing

Sources: Company data, CMS (HK) Sources: Company data, CMS (HK)

Figure 5: Interest coverage Figure 6: Landbank (GFA) as of March 2016

Source: CMS (HK)

Note: Operating profit/total interest (including capitalized portion)

Sources: Company data, CMS (HK)

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+1SD = 52% discount

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Tier-2 city23%

Tier-3 city69%

Malaysia1%



Key projects under construction at a glance

Project: Agile Egret Lake Huizhou (惠州雅居乐白鹭湖)

Location: Huiyang District, Huizhou (100%-owned)

Key details: remaining GFA at 0.9mn sqm (total GFA: 2mn sqm), vacation homes

Financials: RMB2.7bn or 4.4% of the gross NAV; prevailing ASP at RMB7,500 psm (high-rise) and RMB20,000 psm (bungalow), blended ASP at RMB8,700 psm

Land cost: about RMB330 psm

Contracted sales: RMB1.1bn in 2015, we estimate RMB900mn in 2016E

Agile has been developing this large-scale vacation-home project since 2007 (first launched in 2010). The project is located alongside Egret Lake and encircled by the woods. It takes about 1.5-hour drive to Shenzhen city center. Egret Lake Huizhou has total GFA 2mn sqm (remaining GFA: 0.9mn sqm) and Agile plans to develop about 12,000 residential units and some shopping facilities. At 2015 year-end, it has sold more than 1mn sqm GFA or over 6,000 units.

In our view, the spillover effect from the buoyant Shenzhen market boosted the property sales in Huizhou. Based on the local sales feedback, 50% of Agile Egret Lake’s buyers are from Shenzhen. Agile has raised the blended ASP to RMB8,700 psm, up 24% vs RMB7,000 psm in 2015.

Most available-for-sale units have been pre-sold and they target to launch new phases in 4Q16E.

Figure 7: Agile Egret Lake Huizhou – project location

Source: Google map



Figure 8: Agile Egret Lake Huizhou Figure 9: Agile Egret Lake Huizhou

Source: Soufun Source: Soufun

Project: Agile Garden Huiyang (惠阳雅居乐花园)

Location: Huiyang District, Huizhou (100%-owned)

Key details: remaining GFA at 2.4mn sqm (total GFA: 2.6mn sqm), large-scale residential

Financials: RMB1.1bn or 1.8% of the gross NAV; prevailing ASP at RMB10,000 psm (1Q16: 5,100 psm)


Contracted sales: RMB1bn in 2015, we estimate RMB1.2bn in 2016E

Located at Huizhou Danshui, Agile Garden Huiyang was newly launched for pre-sales in July 2015. The unit size ranged at 90-113 sqm, targeting first-home buyers and investors from Shenzhen. As Agile noticed that the recent buying interests from Shenzhen was strong, it decided to raise the ASP to RMB10,000 psm (1Q16: 5,100 psm). Local sales staff estimated that 70% of the buyers were from Shenzhen.

Figure 10: Agile Garden Huiyang Figure 11: Agile Garden Huiyang

Source: CMS (HK) Source: CMS (HK)



Project: Agile Garden Heyuan (河源雅居乐花园)

Location: Yuanchang District, Heyuan (100%-owned)

Key details: remaining GFA at 1.2mn sqm (total GFA: 2.7mn sqm), mass residential

Financials: RMB950mn or 1.5% of the gross NAV; prevailing ASP at RMB4,900 psm


Contracted sales: RMB1.3bn in 2015, we estimate RMB1.3bn in 2016E

Agile has been developing this large-scale residential project since 2006. The project has relatively mature infrastructures and facilities nearby including schools and a shopping mall. Though Heyuan is a small Tier-3 city, Agile is able to achieve over RMB1bn contracted sales annually. The local buying demand keeps relatively stable and Agile has built and completed over 1.3mn sqm or 50% of the total project GFA. As the market turns better this year, Agile has raised the ASP to RMB4,900 psm, vs RMB4,400 psm in 2015.

Looking ahead, Agile Garden Heyuan would continue to be a cash cow which should generate about RMB1bn contracted sales a year. We estimate the current phase’s GPM will reach 30%.

Figure 12: Agile Garden Heyuan Figure 13: Agile Garden Heyuan

Source: Company Source: Company



Huizhou property market at a glance

A strong inflow of property demand from Shenzhen buyers In 2015, Huizhou property sales grew 89% YoY to RMB43 bn thanks to the strong investment demand from Shenzhen buyers. However, the growth rate was just slightly behind Shenzhen at 123% and was much better than the 20% growth in Tier-3 cities.

Though we are skeptical about the sustainability of investment demand, the recent cooling measures in Shenzhen should encourage the investment demand in Tier-3 cities nearby, including Huizhou, in the near term. From our recent visit, the buying demand remained strong and developers had room to raise the selling prices. In 4M16, Huizhou property sales volume was up 47% YoY. We believe such a strong market momentum could be maintained for at least a few months.

Figure 14: Huizhou property sales

Sources: CRIC, CMS (HK)

Inventory turnover: undersupply in the near term It was in serious undersupply of new residential units at 5 months of inventory turnover as at April-end 2016. The inventory turnover was better than the 35-major-city average at 11 months and Tier-3 cities at about 16-18 months. We expect the future supply to increase as developers have adequate landbanks on hand and have been speeding up the new construction. Figure 15: Huizhou inventory movement


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Property price: price hike in 1H16 The home price index was relatively stable in the past. However, the recent strong buying demand has encouraged developers to raise ASP. In the short-term, the YTD home price appreciation had been over 20% compared with one year ago due to the growing investment demand and short-term undersupply.

Figure 16: Huizhou property price index


Land supply: significant decline in recent two years During 2009-2013, Huizhou sold lots of land sites (15-25mn sqm landbank GFA a year) for property developments like other Tier-3 cities. It resulted in oversupply and developers sold their projects slowly. The situation started to improve from 2014 onwards and the new supply dropped to 8.1mn and 3.1mn sqm in 2014 and 2015.

We believe the improvement in new land supply would help developers clear existing inventories and improve their projects’ profitability in Huizhou in the future.

Figure 17: Huizhou land sales


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Figure 18: Earnings revision

FY16E FY17E

(RMB mn) Original New Chg (%) Original New Chg (%)

Revenue 37,540 38,403 2% 39,682 38,894 -2%

Cost of goods sold (27,470) (28,022) 2% (28,693) (27,923) -3%

Gross profit 10,070 10,381 3% 10,989 10,971 0%

General & admin expense (1,539) (1,536) 0% (1,627) (1,672) 3%

Selling expense (1,833) (1,927) 5% (1,833) (1,771) -3%

Interest expense

Interest income (732) (767) 5% (754) (778) 3%

JCE & associate items 133 134 1% 149 158 6%

Others 96 149 55% 77 155 102%

150 0 n.a. 0 0 n.a.

Pre-tax profit

Income tax & LAT 6,345 6,434 1% 7,000 7,062 1%

Minority interests (3,183) (3,259) 2% (3,486) (3,556) 2%

Reported net profit (517) (450) -13% (503) (392) -22%

2,645 2,725 3% 3,012 3,114 3%

Core net profit

2,645 2,725 3% 3,012 3,114 3%

Gross profit margin (%)

Reported net margin (%) 26.8% 27.0% 0.2ppts 27.7% 28.2% 0.5ppts

Core net margin (%) 8.4% 8.3% -0.2ppts 8.9% 9.0% 0.2ppts

Source: CMS (HK)

Figure 19: Key financials

(RMB mn) FY14 FY15 FY16E FY17E FY18E

Total GFA delivered (k sqm) (1) 3,992 4,793 4,050 3,950 3,990

Average selling price booked (RMB psm) (2) 9,278 8,642 9,013 9,318 8,973

Property sales (1) x (2) 37,037 41,421 36,504 36,805 35,803

Others 1,281 1,583 1,900 2,090 2,299

Total Revenue 38,318 43,004 38,403 38,894 38,101

Gross profit 12,431 10,813 10,381 10,971 11,226

Core net profit 3,929 2,429 2,725 3,114 3,369

Total contracted sales 44,160 44,250 41,000 36,900 40,000

Property development cost (RMB psm) (6,181) (6,422) (6,523) (6,622) (6,249)

Core profit per GFA delivered (RMB psm) 834 507 673 788 844

Growth Ratios (%) GFA delivered 24.2% 20.1% -15.5% -2.5% 1.0%

Average selling price -13.5% -6.9% 4.3% 3.4% -3.7%

Revenue 8.1% 12.2% -10.7% 1.3% -2.0%

Gross profit -1.5% -13.0% -4.0% 5.7% 2.3%

Core net profit 2.2% -38.2% 12.2% 14.3% 8.2%

Contracted sales 9.5% 0.2% -7.3% -10.0% 8.4%

Operating Ratios (%) Gross margin 32.4% 25.1% 27.0% 28.2% 29.5%

Reported net profit margin (before MI) 12.4% 4.5% 8.3% 9.0% 9.8%

Core net profit margin (before MI) 11.4% 6.9% 8.3% 9.0% 9.8%

Source: CMS (HK)



Figure 20: Our forecast on Agile’s contracted sales in 2016 (by projects)

Source: CMS (HK)

Total Total ASP

Project City Stake RMB mn % RMB psm

Hainan Clearwater Bay Project A Hainan 70% 7,500 18.3% 15,000

The Territory Nanjing Nanjing 100% 3,220 7.9% 23,000

Agile Cambridgeshire Zhongshan Zhongshan 100% 2,700 6.6% 9,000

Metro Agile Zhongshan Zhongshan 100% 2,250 5.5% 7,500

Agile Mountain Guangzhou Guangzhou 100% 1,980 4.8% 22,000

Agile Cambridgeshire Guangzhou Guangzhou 100% 1,505 3.7% 21,500

New Legend Zhongshan Zhongshan 100% 1,200 2.9% 10,000

Agile Garden Heyuan Heyuan 100% 1,188 2.9% 6,600

Zhongshan Nanlang Binhai project Zhongshan 100% 1,176 2.9% 9,800

Agile Garden Huiyang Huizhou 100% 1,170 2.9% 9,000

Agile Royal Mount Zhongshan Zhongshan 100% 1,170 2.9% 6,500

Agile International Center Nanning Nanning 50% 1,000 2.4% 10,000

Agile City Center Villa Wuxi Wuxi 100% 1,000 2.4% 10,000

Keep Orange Huadu Guangzhou 50% 950 2.3% 9,500

Agile Egret Lake Huizhou Huizhou 100% 896 2.2% 8,700

Subtotal 28,905 71%

Others 12,060 29%

Total 40,965 100%



Valuation

Figure 21: Agile’s contracted sales in 2016E

Source: CMS (HK)

Figure 22: Peers comparison - valuation (based on closing prices as of 24 May 2016)

Company Ticker Price Mkt Cap (US$ mn)

3-mth avg t/o

(US$ mn)

NAV (HK$)

Discount to NAV

(%)

FY15 P/E (x)

FY16E P/E (x)

FY15 yield (%)

FY16E yield (%)

FY15 P/B (x)

FY16E P/B (x)

Net gearing

FY15 (%)

Net gearing FY16E

(%)

Large peer average 32.7 9.8 7.1 5.1 5.1 1.0 0.9 78.9 76.8

China Overseas 688 HK 22.50 28,561 73.5 31.3 28.1 7.9 7.1 4.1 2.8 1.2 1.0 6.6 6.9

CR Land 1109 HK 17.72 15,811 31.2 30.6 42.1 8.6 7.5 3.2 2.7 1.1 1.0 24.1 26.3

Country Garden 2007 HK 3.01 8,673 6.9 5.1 41.0 5.6 5.4 5.2 5.7 0.9 0.8 87.9 108.0

*Evergrande 3333 HK 5.08 8,944 21.3 5.3 4.2 20.5 9.4 8.9 7.7 1.2 0.9 314.2 297.8

*Longfor 960 HK 9.76 7,332 5.5 14.6 33.2 6.9 5.9 4.4 4.6 0.9 0.8 56.1 42.2

Shimao Property 813 HK 9.46 4,229 9.8 28.6 66.9 4.4 3.8 7.4 9.5 0.5 0.5 58.1 55.6

*Wanda 3699 HK 51.25 29,870 14.0 70.0 26.8 15.4 9.7 2.4 2.8 1.1 1.0 64.6 65.0

*China Vanke 2202 HK 17.74 25,210 15.9 22.0 19.4 9.1 8.2 4.8 5.1 1.6 1.4 19.3 12.7

Mid-and-small peer average 63.2 11.4 5.3 5.9 4.9 0.5 0.5 75.2 66.3

*Sino Ocean 3377 HK 3.01 2,912 5.6 8.0 62.4 6.2 5.4 4.2 6.1 0.4 0.4 58.5 57.9

*China Jinmao 817 HK 2.01 2,761 2.1 4.5 55.3 7.0 5.9 4.0 5.1 0.6 0.5 60.6 50.0

*Shenzhen Inv. 604 HK 3.09 2,937 6.0 6.0 48.5 7.6 7.3 5.2 5.8 0.7 0.7 45.8 11.3

*SOHO China 410 HK 3.32 2,222 3.8 8.6 61.4 34.6 26.2 25.2 5.0 0.4 0.4 25.1 28.5

*Sunac 1918 HK 4.51 1,974 7.1 12.4 63.6 n.a. 3.8 5.1 5.0 0.7 0.6 75.9 51.6

*BJ North Star 588 HK 2.21 1,841 0.4 n.a. n.a. 8.3 7.3 3.2 3.5 0.4 0.4 127.7 90.8

Agile Property 3383 HK 3.73 1,881 3.2 11.4 67.3 5.0 4.6 10.6 4.6 0.4 0.4 83.7 84.6

Yuexiu Property 123 HK 0.97 1,549 2.9 4.5 78.4 8.8 8.4 4.9 3.7 0.3 0.3 73.1 75.5

Greentown China 3900 HK 5.26 1,464 3.0 16.7 68.5 7.5 4.2 0.0 4.7 0.4 0.4 88.5 88.3

CIFI Holdings 884 HK 1.76 1,511 2.2 4.5 60.9 4.3 4.0 8.0 8.8 0.8 0.7 59.2 48.7

*Poly Property 119 HK 1.96 924 2.7 6.0 67.3 N/A N/A 0.0 1.4 0.3 0.3 114.9 97.7

Yuzhou Properties 1628 HK 2.16 1,061 1.8 6.6 67.3 4.5 4.2 8.3 8.9 0.7 0.7 79.4 74.9

*Gemdale 535 HK 0.40 803 1.0 n.a. n.a. 4.3 4.4 6.0 7.2 0.6 N/A 10.4 N/A

COGO 81 HK 2.38 699 0.5 8.0 70.3 6.3 4.1 0.0 2.4 0.5 0.4 48.0 33.2

CM Land 978 HK 1.12 707 0.4 2.4 53.3 13.7 5.9 0.4 1.4 0.9 0.8 69.3 68.3

Average 53.0 10.9 5.9 5.6 4.9 0.7 0.6 76.3 69.7

Sources: CMS (HK), * data from Bloomberg

Note: We have excluded outliers (SOHO China & Poly Property) when measuring average P/Es

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-2SD = 76% discount

+2SD = 44% discount

Mean = 60% discount

-1SD = 68% discount

+1SD = 52% discount



Financial Summary Balance Sheet

RMB mn 2014 2015 2016E 2017E 2018E

Current assets 94,183 90,119 96,176 96,444 101,098

Cash 6,068 7,407 9,663 10,825 15,148

Restricted cash 5,362 5,730 5,730 5,730 5,730

Current receivables 11,675 8,383 8,383 8,383 8,383

Properties held for sale 16,138 16,889 13,441 11,668 11,430

PUD & land prepaid 54,219 50,065 57,314 58,193 58,762

Other current assets 721 1,645 1,645 1,645 1,645

Non-current assets 29,465 27,194 27,207 27,234 27,214

Fixed assets 13,542 13,021 12,885 12,756 12,633

PUD & land prepaid 11,951 8,740 8,740 8,740 8,740

Other non-current assets 3,972 5,433 5,582 5,738 5,841

Total assets 123,648 117,313 123,384 123,678 128,313

Current liabilities 55,386 50,531 50,934 48,462 50,176

Bank and other loans 16,471 16,487 16,487 16,487 16,487

Presales receipts in advance 9,216 7,111 7,507 3,913 4,110

Accounts payable & other payables 17,333 15,621 17,621 19,621 21,621

Other current liabilities 12,366 11,312 9,318 8,442 7,958

Non-current liabilities 31,650 29,276 33,276 33,276 33,276

Bank and other loans 30,334 28,032 32,032 32,032 32,032

Others 1,316 1,244 1,244 1,244 1,244

Total liabilities 87,036 79,807 84,210 81,738 83,452

Shareholders' equity 33,651 34,308 35,751 38,320 41,067

Minority interests 2,961 3,198 3,423 3,619 3,794

Total equity & liabilities 123,648 117,313 123,384 123,678 128,313

Note: Total cash includes both cash and restricted cash

Cashflow Statement

RMB mn 2014 2015 2016E 2017E 2018E

Operating cashflow 3,841 7,783 9,829 6,945 10,145

Profit before tax 9,771 5,838 6,434 7,062 7,285

Working capital changes 1,038 9,251 11,663 7,412 9,979

Tax paid (4,366) (6,021) (5,253) (4,432) (4,050)

Interest paid (4,724) (3,514) (3,834) (3,891) (3,891)

Other operating cashflow 2,122 2,229 819 794 822

Investing cashflow (8,214) (1,699) (10,066) (5,042) (5,024)

Fixed assets additions (965) (329) (200) (200) (200)

Deposits paid for land purchases (6,600) (1,000) (10,000) (5,000) (5,000)

Subsidiary acquisitions / disposals 0 0 0 0 0

Increase/decrease in investments (392) (568) 0 0 0

Other Investing cashflow (257) 198 134 158 176

Financing cashflow 3,686 (4,550) 2,493 (741) (798)

Dividends paid (2,104) (766) (1,282) (545) (623)

Shares repurchased 0 0 0 0 0

Issuances of convertible bond (3,076) 0 0 0 0

Issuances of equity shares 1,299 0 0 0 0

Increase/decrease in loans 7,486 (3,509) 4,000 0 0

Other financing cashflow 81 (275) (225) (196) (175)

Cashflows for the year (687) 1,534 2,256 1,162 4,323

Cash at the beginning 6,784 6,068 7,407 9,663 10,825

Exchange difference (29) (195) 0 0 0

Cash at the end 6,068 7,407 9,663 10,825 15,148

Profit & Loss Statement RMB mn 2014 2015 2016E 2017E 2018E

Revenue 38,318 43,004 38,403 38,894 38,101

Cost of goods sold (25,887) (32,191) (28,022) (27,923) (26,875)

Gross profit 12,431 10,813 10,381 10,971 11,226

Selling expense (1,750) (1,444) (1,536) (1,672) (1,562)

Admin expense (1,784) (1,786) (1,927) (1,771) (1,880)

Finance cost (565) (776) (767) (778) (778)

JCE & associates (73) (114) 149 155 103

Others 1,512 (855) 134 158 176

Pre-tax profit 9,771 5,838 6,434 7,062 7,285

Income tax (5,035) (3,895) (3,259) (3,556) (3,566)

MI (449) (552) (450) (392) (350)

Reported net profit 4,287 1,391 2,725 3,114 3,369

Core net profit 3,929 2,429 2,725 3,114 3,369

Core EPS (RMB) 1.120 0.626 0.702 0.802 0.868

DPS (RMB) 0.316 0.327 0.139 0.159 0.172

Note: We deduct property revaluations and other exceptional items to arrive at recurring net profit

Ratios

% 2014 2015 2016E 2017E 2018E

Growth (%)

Revenue 8% 12% -11% 1% -2%

Gross profit -1% -13% -4% 6% 2%

Core net profit 2% -38% 12% 14% 8%

PUD and inventory growth 9% -8% 5% -1% 0%

Contracted sales growth 9% 0% -7% -10% 8%

Profitability (%)

Gross margin 32% 25% 27% 28% 29%

Effective tax rate 52% 67% 51% 50% 49%

Core net profit margin 11% 7% 8% 9% 10%

ROE 12% 7% 8% 8% 8%

ROA 3% 2% 2% 3% 3%

Liquidity

Free cash flows (RMB mn) (4,373) 6,084 (237) 1,903 5,121

Total debt - total equity ratio 128% 119% 124% 116% 108%

Net debt - total equity ratio 97% 84% 85% 76% 62%

Interest coverage (x) 2.2 2.0 1.8 1.9 2.0

Note: we reclassify land capex from operating cashflows into investing cashflows, which is different from the company’s financial statements.

Sources: Company data, CMS (HK)



Investment Ratings Industry Rating Definition OVERWEIGHT Expect sector to outperform the market over the next 12 months NEUTRAL Expect sector to perform in-line with the market over the next 12 months

UNDERWEIGHT Expect sector to underperform the market over the next 12 months

Company Rating Definition BUY Expect stock to generate 10%+ return over the next 12 months

NEUTRAL Expect stock to generate +10% to -10% over the next 12 months SELL Expect stock to generate loss of 10%+ over the next 12 months

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