Range-trade in Q1, better Q2E performance
􀂄 Property forecasts for 2009: 10% fall in prices and 10% rise in volume
We reiterate our China physical market forecasts for 2009, and expect a 10% YoY
fall in prices and a 10% YoY rise in volume; if looser bank lending conditions
continue, our volume forecast could rise to 20% growth nationally.
􀂄 2009E earnings cut 37%; risks now more to the upside than the downside
In the run up to the results season, developers may face further cuts in their 2009
consensus profit forecasts. We lower our 2009 earnings estimates by an average of
37% to reflect our physical market forecasts, and being prudent, we are now 27%
below consensus with the risk to our estimates on the upside.
􀂄 Expect stocks to sideline in Q1E, but rebound from Q2E onwards
With the property market a key driver of the economy, the government is trying to
revive growth, as evidenced by many property-focused policy announcements
since November 2008. We think policy may continue to deepen and spread to more
cities. As home price adjustments approach our forecast Q3 trough, investors may
start expecting a recovery (however mild), resulting in modest rebounds in share
prices in Q2-Q3; we continue to expect shares to trade sideways in Q109.
􀂄 Valuation attractive despite lower earnings estimates
We continue to derive our price targets from a DCF-based methodology, but now
explicitly forecast long-term valuation drivers using UBS’s VCAM model. We
adjust our price targets by +3% to -83%. With most of the negative news factored
in, we expect share prices to perform from Q2. We like Agile, Country Garden,
SOHO and KWG Property as value rebound plays, and China Overseas Land &
Investment as a big-cap play. We downgrade Shenzhen Investment from Buy to
Sell and upgrade Shimao and Shui On from Sell to Neutral.

Contents page
Summary and Investment Case 3
Industry analysis 8
— The weakening economy prompts policy action.....................................................8
Revisions to our earnings estimates 11
— We lower our price and volume assumptions.......................................................11
— We cut our 2009 revenue forecasts by an average 37% .....................................12
— We lower our 2009 earnings forecasts by an average 38%.................................13
— Our earnings estimates are below consensus .....................................................16
Valuations and stocks 17
— Migrating to the UBS VCAM model ......................................................................17
— VCAM assumptions..............................................................................................17
Policy analysis 23
Market analysis 25
— Risks to our view ..................................................................................................30
Appendix 31
— NAV, EPS and margin sensitivity to price cuts.....................................................31
Company pages 37
— Agile Property Holdings........................................................................................ 38
— Country Garden....................................................................................................46
— China Overseas Land & Investment.....................................................................55
— Greentown China Holdings...................................................................................65
— Hopson Development Holdings............................................................................73
— KWG Property Holding .........................................................................................81
— Guangzhou R&F Properties .................................................................................89
— Shimao Property Holdings....................................................................................97
— SOHO China.......................................................................................................105
— Shui On Land......................................................................................................113
— Shenzhen Investment Ltd...................................................................................121