Asia China
Property
8 January 2009
China Property
Policies to lift demand in 2009;
buy selected developers
Danny Bao, CFA
Research Analyst
(86) 21 3896 2839
danny.bao@db.com
Ling Xu
Research Analyst
(86) 21 3896 2834
ling.xu@db.com
Take advantage of market volatility; we prefer those exposed to Tier-II cities'
Short-term sector volatilities should persist, as investors await confirmation of
volume recovery, while developers will likely report their 08 earnings in three
months. We believe the government's continuous supportive measures will
gradually lift demand in China, and hence recommend investors to buy selected
developers. We prefer developers with significant exposure to Tier-II cities due to
better affordability and faster recovery tracks.
Deutsche Bank AG/Hong Kong
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. 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. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Strategy Update
Top picks
China Vanke (200002.SZ),HKD6.69 Buy
COLI (0688.HK),HKD11.46 Hold
Greentown China (3900.HK),HKD3.10 Buy
China Resources Land (1109.HK),HKD9.94 Sell
Companies featured
COLI (0688.HK),HKD11.46 Hold
2007A 2008E 2009E
P/E (x) 23.1 16.8 14.7
EV/EBITDA (x) 14.3 9.0 7.3
Price/book (x) 4.8 2.7 2.4
Greentown China (3900.HK),HKD3.10 Buy
2007A 2008E 2009E
P/E(x) 25.2 4.4 4.7
EV/EBITDA(x) 17.8 7.1 7.4
Price/book(x) 2.2 0.5 0.4
China Vanke (000002.SZ),CNY6.86 Hold
2007A 2008E 2009E
P/E(x) 49.4 14.3 13.9
EV/EBITDA(x) 29.7 6.6 6.8
Price/book(x) 10.5 2.3 2.1
China Vanke (200002.SZ),HKD6.69 Buy
2007A 2008E 2009E
P/E(x) 36.0 12.3 11.9
EV/EBITDA(x) 21.8 5.8 6.0
Price/book(x) 7.2 2.0 1.8
China Resources Land (1109.HK),HKD9.94 Sell
2007A 2008E 2009E
P/E (x) 54.7 22.0 23.0
EV/EBITDA (x) 33.3 16.9 15.8
Price/book (x) 3.1 1.9 1.8
Country Garden Holdings (2007.HK),HKD1.90 Hold
2007A 2008E 2009E
P/E(x) 36.8 8.6 14.1
EV/EBITDA(x) 21.0 5.3 9.8
Price/book(x) 7.5 1.2 1.1
Guangzhou R&F (2777.HK),HKD8.99 Hold
2007A 2008E 2009E
P/E(x) 26.2 8.0 8.7
EV/EBITDA(x) 19.0 8.4 10.7
Price/book(x) 6.9 1.6 1.5
Target price summary
Company Last TP Upside
Vanke - A 6.86 6.70 -2.3%
Vanke - B 6.69 7.60 13.6%
COLI 11.46 12.00 4.7%
CR Land 9.94 7.90 -20.5%
Country Garden 1.90 2.00 5.3%
R&F 8.99 9.10 1.2%
Greentown 3.10 3.95 27.4%
Global Markets Research Company
Major policy shift since October; improvement in recent transactions
The government’s housing policy switched from restrictive to supportive in
October of last year in order to protect domestic GDP growth. Tax cuts and
preferential mortgage treatments were introduced to lure buyers to purchase new
homes. In addition, PBOC also cut prime lending rates five times over the past
four months, with cumulative rate cuts of 216 basis points. As a result of these
supportive measures and physical price contractions, we saw modest
improvement in recent transaction volumes in selected cities.
Prices will likely to contract; more measures to accelerate demand recovery
We anticipate prices will likely continue their downtrend in the short term, as
developers strive to accelerate cash conversion through promotion. As such, we
expect prices to fall about 10-15% in 2009 before recovering in 2010. We expect
another 108 basis points of rate cuts and more supportive measures in 2009. Rate
cuts and favorable policies will likely accelerate a demand recovery. We believe
volume may recover in the next 3-9 months. Our anticipated 2009 residential sales
level may reach or exceed the 2005-2007 three-year average of 540msqm.
NAV and PE valuation; slower-than-expected demand recovery is a key risk
Due to soft property demand in 2H08, we expect many developers will likely
report weak 2008 earnings and give cautious guidance for 2009. Investors may
react pessimistically to negative earnings surprises. We use NAV and PE as the
key valuation metrics to evaluate property companies. Key risks are slower-thanexpected
demand recovery and negative earnings surprises.

Table of Contents
Policy Shift ......................................................................................... 3
Major supportive measures since 2H08 ...................................................................................3
Recent transaction volume .......................................................................................................4
Supplies look reasonable ..........................................................................................................5
More supportive policies in 2009..............................................................................................6
Demand recovery in 2009 ................................................................. 7
Prices will likely fall another 10-15% this year ..........................................................................7
Improvement in affordability .....................................................................................................7
Investment strategy .......................................................................... 9
We expect market volatilities during the reporting season.......................................................9
Underweight Guangdong exposure ..........................................................................................9
Tier-II cities are likely to recovery first.......................................................................................9
Companies ....................................................................................... 11
COLI .................................................................................................. 12
Greentown China............................................................................. 16
China Vanke ..................................................................................... 20
China Vanke ..................................................................................... 24
China Resources Land..................................................................... 28
Guangzhou R&F............................................................................... 32
Country Garden Holdings ............................................................... 36