Deutsche Bank Markets Research Asia China Property Property Industry China Property Date 26 February 2018 Industry Update Overall strong results with bullish sales guidance ahead Overall strong FY17F results with 35% earnings growth _ Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, 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. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017. THE CONTENT MAY NOT BE DISTRIBUTED IN THE PEOPLES REPUBLIC OF CHINA (“THE PRC”) (EXCEPT IN COMPLIANCE WITH THE APPLICABLE LAWS AND REGULATIONS OF PRC), EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAU. Jeffrey Gao, CFA Research Analyst (+852 ) 2203 6256 jeffrey.gao Jason Ching, CFA Research Analyst (+852 ) 2203 6205 jason.ching Stephen Cheung, CFA Research Analyst (+852 ) 2203 6182 stephen-a.cheung Foo Leung Research Associate (+852 ) 2203 6239 foo.leung Companies Featured Country Garden Holdings (2007.HK),HKD15.04 Buy China Vanke (2202.HK),HKD36.60 Buy Future Land Development Hol (1030.HK),HKD6.31 Buy Aoyuan (3883.HK),HKD6.36 Buy Logan (3380.HK),HKD11.38 Buy KWG (1813.HK),HKD12.42 Buy Source: Deutsche Bank Overall, we expect strong FY17 results for the developers we cover (Fig 1): 1) 35% earnings growth on avg due to strong sales over the past two years and low base for some names; 2) gross margin to expand to 30% (vs. 27.6% in FY16) due to ASP rally in 2016; 3) low avg borrowing cost (vs. 5.8%/7.1% in FY16/FY15) and less completed inventory though with higher net gearing due to fast expansion; and 4) stable dividend payout ratio (4% yield). Our FY17-19 earnings forecasts are 2-7% higher than Bloomberg consensus. Also, we believe developers will continue to give bullish sales guidance for 2018 despite overall weaker physical market (we forecast 35% sales growth for listcos). Who may beat and who may miss? Within our coverage, we expect more than half to report strong results, and one-third to report decent results (Figure 1). In particular, Country Garden, Vanke, Logan, CIFI, Future Land and Aoyuan should deliver 30% earnings growth due to their strong sales and margin expansion, while Agile, China Jinmao, Evergrande, Sino-Ocean and Sunac should record significant earnings growth due to low base. On the other hand, COLI, Greentown and SH Shimao will likely report relatively weak results with single-digit to low-teen earnings growth due to slow sales in 2016. What are the potential surprises? We believe there may be positive surprises on dividends with Future Land and Longfor possibly raising their payout ratios, while Aoyuan, Logan and China Jinmao may declare special dividends. Also, the quantity/aging of the completed inventory may be even better than expected due to strong sales in 2017. In terms of downside surprises, the net gearing ratios of GZ R we expect 35% sales growth in 2018 Although the overall physical market may turn weaker this year, we believe listed developers will continue to give bullish sales growth guidance, given their abundant saleable resources (landbanking volume increased 132% y-y on average in 2017 for our coverage) or strong execution. We expect 35% sales growth on average for the developers we cover. In particular, we expect several names to deliver/target 40% sales growth, including Country Garden, Future Land, Aoyuan, GZ R as such, investors should take expert legal and financial advice before entering into any transaction similar to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be incurred that are greater than the amount of funds initially deposited up to theoretically unlimited losses. Trading in options involves risk and is not suitable for all investors. Prior to buying or selling an option, investors must review the “Characteristics and Risks of Standardized Options”, at If you are unable to access the website, please contact your Deutsche Bank representative for a copy of this important document. Participants in foreign exchange transactions may incur risks arising from several factors, including: (i) exchange rates can be volatile and are subject to large fluctuations; (ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government-imposed exchange controls, which could affe