China Property Update 23 December 2008
Confidence Over Fear Sector Rating:
(maintained)
 Sector catalysts help normalize valuation, benefiting R&F,
Greentown and Shimao. We maintain our view that China’s
property market is still under consolidation but stock valuation
would continue to recover on multiple sector catalysts: easing
solvency risk, continued rate cuts, credit relaxation and ongoing
government supports. Key beneficiaries include R&F (2777 HK,
Neutral), Greentown, (3900 HK, Outperform), and Shimao (813
HK, Outperform). We have also initiated coverage on 4 more
stocks including R&F, Greentown, Country Garden (CG, 2007
HK, Neutral) and Sino-Ocean (SOL, 3377 HK, Outperform),
which shall be impacted by ongoing government policies.
 More upside potential. Trading at an average of 61% discount
to NAV and 30% discount to end-2009 BV, the sector remains
attractive and we continue to see substantial upside from now,
particularly for developers still trading around their estimated
break-up value. Within the sector, CRL (1109 HK, Outperform)
remains our top-pick and we have also upgraded COLI (688
HK, Outperform) and Agile (3383 HK, Outperform) from Neutral
to Outperform supported by sector catalysts. We also maintain
our positive view on KWG (1813 HK, Outperform), Shimao and
CC Land (1224 HK, Outperform) given their robust financial
position.
 Volume stabilizes on declining prices. We hold a
non-consensus view on transaction volume, which we believe
would pick up on declining property prices. Our non-consensus
view seems materialized, and transaction volume has
substantially picked up in urban residential markets in major
cities since we initiated Overweight rating on China property
sector in Oct. We believe that the pickup in volume would ease
developers’ cash flow further and hence render support to stock
prices. Meanwhile, we maintain our forecast of a 10% fall in
housing prices until the end of 2009 with bigger price correction
in the Southern China region.
 Policy continues to surprise on the upside. During our
recent visits to some major cities, we have talked to different
parties including developers, property authorities and major
lenders to developers. Key takeaways from these trips have
confirmed our view that policy supports from the government at
all levels will continue given the vital role played by the property
sector in China’s economy. Meanwhile, we do not foresee a
significant impact from increasing economic housing supply by
the government on the private sector given the market
segmentation, except for CG which has relatively high exposure
in suburban areas in major cities where majority of economic
houses are to be constructed.

Table of Contents
CHINA PROPERTY UPDATE.....................................................................................................................................1
CONFIDENCE OVER FEAR ...........................................................................................................................................1
KEY BENEFICIARIES OF VALUATION RECOVERY.............................................................................................................3
VALUATION STILL UNDEMANDING, MORE UPSIDE POTENTIAL ...........................................................................................5
WINDOW OF CORPORATE BOND MARKET RE-OPENED.....................................................................................................8
POST-POLICY VOLUME PICKING UP.............................................................................................................................10
SINO-OCEAN LAND (3377 HK) ...............................................................................................................................12
GUANGZHOU R&F (2777 HK) .................................................................................................................................18
COUNTRY GARDEN (2007 HK)...............................................................................................................................24
GREENTOWN CHINA (3900 HK) ..............................................................................................................................30