China Property Developers
Back on solid footing
Robust demand and slow development points to tighter supply in 2H09:
According to our discussions with developers, most have seen their
inventory levels declining fast in 2009 due to strong demand from both
end-users and, increasingly, investors. However, most developers are yet
to accelerate their development schedules since their scaling-back in
2H08. As such, we believe cities like Hangzhou, Shanghai, Guangzhou
and Shenzhen are likely to experience tight supply in 2H09.
Developers are now cash-rich and in much stronger financial positions:
Underpinned by strong contract sales in 1H09, loosening credit from
domestic banks and the re-opening of the capital market, China property
developers significantly improved their cash and overall financial
positions in 1H09. COLI (688 HK; HOLD), for example, almost doubled its
cash position by the end of 1H09 to HK$17 bn. The company’s net
gearing also improved from 46% to around 20% during the same period.
Government unlikely to reverse its current policy towards the sector: The
recent reiteration enforcing the second-home mortgage policy raised
concerns of a change in government policy towards the sector. However,
we are of the view that the Chinese government is unlikely to change its
current accommodative policies in 2H09, given 1) the domestic economic
recovery is still fragile; and 2) the global economic outlook remains
uncertain, with Chinese exports likely to remain in the doldrums. We
believe any sharp change in policy would risk another correction in the
sector, which would send out repercussions to related industries, putting
the government’s growth target at risk.
Initiate coverage on Agile and Sino-Ocean with BUY recommendations: In
2H09, we expect transaction volume to decline slightly due to tighter
supply but ASPs to grow by 0-5% from their current levels. We remain
positive on the China property sector and initiate Agile Property (BUY; TP:
HK$14.7), Sino-Ocean Land (BUY; TP: HK$10.7) and Country Garden (SELL;
TP: HK$3.1). We maintain BUY on Shimao Property (813 HK, TP: HK$18.4)
and HOLD on China Overseas (688 HK, TP: HK$18.6).

Table of contents
Fundamental turnaround from 2008...................................................................... 3
Government policy is key to industry development ................................................ 7
Positive trends set to continue ............................................................................ 11
Key risks............................................................................................................. 17
Company initiations ............................................................................................ 18
Agile Property (3383 HK)..................................................... 21
Investment Thesis ............................................................................................... 22
Valuation ............................................................................................................ 28
Land bank analysis.............................................................................................. 33
Earnings analysis and financial outlook ............................................................... 35
Cash position and liquidity.................................................................................. 37
Investment Considerations .................................................................................. 39
Company Overview ............................................................................................. 41
Sino-Ocean (3377 HK)......................................................... 45
Investment thesis................................................................................................ 46
Valuation ............................................................................................................ 52
Land bank analysis.............................................................................................. 57
Earnings analysis and financial outlook ............................................................... 59
Cash position and liquidity.................................................................................. 61
Investment considerations................................................................................... 63
Company overview.............................................................................................. 65
Country Garden Holdings (2007 HK).................................... 69
Investment thesis................................................................................................ 70
Valuation ............................................................................................................ 75
Land bank analysis.............................................................................................. 81
Earnings analysis and financial outlook ............................................................... 84
Cash position and liquidity.................................................................................. 87
Investment Considerations .................................................................................. 89
Company Overview ............................................................................................. 92
China Overseas (0688 HK)................................................... 96
Shimao Property (0813 HK) ............................................... 101