China Property - Reality Check (SCB 100713)

渐飞研究报告 - http://bg.panlv.
net
| Credit Research |
China property – Reality check

04:30 GMT 13 July 2010
China’s property market is trending down but not collapsing

Missing sales target by 30% will undermine developers’ expansion plans but not liquidity
Our top picks are COGARD ’17s, HPDLF ’12s and EVERRE ’15s
Analyst Property sales in China slowed dramatically in May and June, particularly in Tier 1
cities including Beijing, Shanghai and Shenzhen, which saw average sales fall by
Feng Zhi Wei +65 6725 7894 52% month-on-month in May. While sales started to pick up in June, they were still
Standard Chartered Bank, Singapore
Senior Credit Analyst
substantially lower than a year earlier. These cities experienced the greatest
Zhi-Wei.Feng@sc.com speculative gains in 2009 and were the focus of the government’s recent strict
measures to cool the market. Our study also reveals divergent sales performance
between Tier 1 and Tier 2 cities.
While price falls are evident, we do not expect the market to collapse. Our cash-flow
sensitivity study suggests that the key developers under our coverage (land bank
size larger than 30 mn sqm) will be able to withstand a fall in contracted sales by
30% from their original full-year targets set earlier this year. Developers’ asset
coverage ratio and sales turnover rates confirm our view that the book value of their
property assets on balance sheet would be fair or under-valued even if property
prices correct by 20-30%. Additionally, we see visible pent-up demand on the
sidelines following the strict government measures announced in April.
In anticipation of the government’s tightening measures, the stronger developers

started tapping the equity and debt markets last September. Between September
2009 and May 2010, Chinese developers raised a combined USD 4.295bn via
offshore high-yield (HY) bonds. During the previous cycle two to three years ago,
new issuance from this sector totalled only USD 3.94bn. Moreover, there were fewer
issuers this time around and given the larger total volume, issue sizes have been
bigger. This has helped some developers to build a substantial liquidity cushion to
protect against a market downturn and, at the same time, be prepared for new
acquisitions if opportunities arise.
The stronger developers with large and diversified land banks and sound liquidity,
such as Agile, Country Garden, Evergrande, Shimao and to a certain extent Hopson,
have cash surpluses that comfortably exceed their short-term debt even if they miss
their full-year sales targets by 30%. While some developers recorded weaker sales in
May and June with m/m falls or slower sales growth, their total sales in the first six
months of the year remained decent at 32-58% of the full-year goal, in our view.
Important disclosures can be found in the Disclosures Appendix

All rights reserved. Standard Chartered Bank 2010 http://research.standardchartered.com
Ref: GR10JU
渐飞研究报告 - http://bg.panlv.net
Credit Research | 13 July 2010
Looking ahead, we believe that the Chinese property market will continue to be
policy-driven and from the developers’ viewpoint, managing liquidity will be key. We
believe that larger developers with many available-for-sale projects will do well if they
are willing to offer meaningful price discounts in H2. Thus, investors should consider
purchasing the stronger names. Of the bond universe, we recommend benchmark
investors consider adding risk on the COGARD 11.25% of 2017s (indicative bid YTM
11.96%). For investors with higher risk appetite, we recommend an outright buy on
the HPDLF 8.125% of 2012s (indicative bid YTM 12.17%), and the EVERRE 13.00%
of 2015s (indicative bid YTM 13.83%). At the same time, we have market weight
recommendation on the AGILE 10.00% of 2016s (indicative bid YTM 9.41%), the
AGILE 8.875% of 2017s (indicative bid YTM 9.74%), the COGARD 11.75% of 2014s
(indicative bid YTM 10.17%) and the SHIMAO 8.00% of 2016s (indicative bid YTM
9.60%) for the carry.
We also summarise below price performance of the bonds in the past two months
during which time the HY market experienced a major correction due to 1) concerns
about the property market following frequent policy measures; 2) build-up of supply
pipeline with issuers paying higher coupons to get the bonds printed; and 3) weak
market sentiment in view of the European debt crisis. We note that the new issuers
experienced sharper correction and slower recovery over the period (Table 1).
Chart 1: Bond comparison (as at 12 July 2010)
18
KAISA15
15 EVERER15
Indicative bid YTM (%)
CHANDRA15
12 HPDLF12 COGARD17
PTBMMU14 BERAUC15 BUMIIJ16
STAREN15 YLLG17
AGILE16
COGARD14 LIPPO15 AGILE17
9 ROADKG14 SHIMAO16
CIKLIS15 INDIKA16
6
2 3 4 5 6 7 8
Duration (yrs)
Source: Standard Chartered Research
2
Ref: GR10JU
Table 1: Bond performance (indicative bid price and YTM)
4-May 7-Jun 30-Jun 12-Jul 7-Jun 12-Jul

vs. 4- vs 7-
Price YTM Price YTM Price YTM Price YTM May (pt) Jun (pt)
(pt) (%) (pt) (%) (pt) (%) (pt) (%)
AGILE16 104.75 9.02 98.50 10.43 101.00 9.79 102.75 9.41 -6.25 4.25
AGILE17 96.75 9.52 90.50 10.98 92.13 10.52 95.75 9.74 -6.25 5.25
COGARD14 104.25 10.51 100.00 11.75 102.00 11.14 105.25 10.17 -4.25 5.25
COGARD17 97.25 11.84 90.50 13.53 93.50 12.70 96.75 11.96 -6.75 6.25
HPDLF12 92.00 11.90 87.00 14.69 89.50 13.46 92.00 12.17 -5.00 5.00
ROADKG14 93.75 9.51 90.00 10.77 93.00 9.82 94.00 9.50 -3.75 4.00
SHIMAO16 93.50 9.37 88.00 10.61 90.75 9.99 92.50 9.60 -5.50 4.50
EVERER15 99.25 13.22 92.00 15.73 95.25 14.45 97.25 13.83 -7.25 5.25
YLLG17 97.50 10.11 90.00 11.75 94.50 10.76 96.63 10.31 -7.50 6.63
KAISA15 97.25 14.36 84.00 19.13 89.00 17.08 92.00 16.10 -13.25 8.00
Source: Standard Chartered Research
China’s property market: trending down but not collapsing

China’s property market experienced one of its most buoyant years in 2009 with a high increase in sales volume and rapid
price appreciation. Average selling price (ASP) of private residential properties peaked in April 2010, albeit on thin
transaction volumes. The market turned south following frequent and increasingly severe policy measures in January-April,
and experienced two consecutive months of major corrections in terms of sales volume in May and June. We summarise
below our findings on market performance in Tier 1 and Tier 2 cities, and project future market direction based on these
findings.
Clear divergence in sales performance between Tier 1 and Tier 2 cities

The primary property sales market in Tier 1 performed differently from lower-tier cities in the past one-and-a-half years, in
both sales volume and price movements (Charts 1 and 2). In summary, the property markets in Tier 1 cities are more
volatile both in terms of transaction volume and price movements, and are more likely to be the subject of policy controls
than the lower-tier cities.
1) Property markets in Tier 1 cities recovered ahead of those in lower-tier cities in early 2009. Transaction volumes
in Tier 1 cities recovered strongly in H1-2009 at about 1.65mn sqm per month in March-June. On the other hand, the
transaction volume in Tier 2 cities was lower at 0.8mn sqm over the same four-month period. On a full-year basis in
2009, the monthly averages were, however, closer - 1.25mn sqm in Tier 1 cities versus 1.08mn sqm in Tier 2 cities.
2) Much higher price appreciation in Tier 1 cities than in Tier 2 in 2009. While prices trended upwards across all cities
under study, the three Tier 1 cities included in our study (Shanghai, Beijing and Shenzhen) recorded a more than 80%
increase in average selling price (ASP) in 2009, much higher than the 25% hike in the 10 Tier 2 cities featured in the
analysis. ASP in the Tier 1 cities reached CNY 19,316 psm in December 2009, 185% higher than the average of CNY
6,785 psm in the 10 lower-tier cities. This was despite their similar average monthly transaction volumes over the year.
3) Tier 1 cities experienced a bigger fall in sales volume than the lower-tier cities in H1-2010. The average monthly
transaction volume in the Tier 1 cities was about 561,000 sqm in H1, 23% lower than the 724,000 sqm recorded in the
Tier 2 cities. While we attribute the lower sales volume in the first four months of 2010 to the much higher ASPs in the
Tier 1 cities, the sharper falls of gross floor area (GFA) sold in May and June in the Tier 1 cities were a direct result of
the strict government measures announced in April, which targeted speculative purchases in these cities.
4) ASPs in the lower-tier cities remained relatively stable in May and June despite falling sales volumes. ASP in
the 10 Tier 2 cities was CNY 7,280 psm, 7.4% lower than the April peak of CNY 7,860 psm. On the other hand, ASP in
Tier 1 cities was 16.9% lower than in April. However, we find it hard to conclude whether the larger price decline in the
Tier 1 cities is due to price discounts or just a lack of high-end projects for sale, given the policy impact.
3
Ref: GR10JU
Chart 2: Sales volume and ASP of Tier 1 cities

Findings of Chart 2:
2.0 25,000 - Chart 2 shows the average monthly sales volume and ASP
of new homes in Shanghai, Beijing and Shenzhen
(Guangzhou is excluded because of data inconsistency).
1.6 20,000
- While ASPs in the Tier 1 cities were on average 60-85%
higher y/y in early 2010, sales volumes fell substantially y/y
1.2 15,000 over the first four-month period.
CNY psm
mn sqm
- The impact of government measures was felt in May and

0.8 10,000 resulted in a sharp fall in sales volume of 52% m/m and
79% y/y in the month.
- Interestingly, sales volume picked up in June although it
0.4 5,000
was still 44% of the total GFA sold in Jun-2009.
- ASPs in the Tier 1 cities trended downwards by about 17%
0.0 0 in June compared to the peak level in April. While
Mar
Apr
Jul
Oct
Jan
Feb
Jun
May
Aug
Sep
Nov
Dec
developers may have reduced their selling prices

Sales volume - 2009 Sales volume - 2010 marginally to move sales, we attribute this mainly to the
type of projects available for sale in the two months rather
ASP - 2009 (RHS) ASP - 2010 (RHS)
than a clear indication of price discounts.
Sources: CRIC, Standard Chartered Research
Chart 3: Sales volume and ASP of Tier 2 cities

Findings of Chart 3:
2.0 9,000 - Chart 3 shows the average monthly sales volume and ASP
of new homes in 10 Tier 2 cities (selected based on data
availability and regional distribution). They are Tianjin and
1.6 7,200
Dalian in the Bohai Rim; Chongqing and Chengdu in the
western region; Wuhan and Changsha in the central
1.2 5,400 region; Hefei, Nanjing and Suzhou in the Yangtze River
CNY psm
mn sqm
area and Changchun in north-eastern China.

0.8 3,600 - With ASPs at 25-45% higher y/y, sales movement also
slowed in the first four months of 2010.
- Sales slowed notably in May and June following the strict
0.4 1,800
government measures in April, falling by about 31% m/m
and 43% y/y – a smaller fall compared to the Tier 1 cities.
0.0 0 - ASPs in these cities also peaked in April. However, the
Mar
Apr
Jul
Oct
Jan
Feb
Jun
May
Aug
Sep
Nov
Dec
correction in sales volume in May and June did not

Sales volume - 2009 Sales volume - 2010 translate into any sharp price fall. ASP was about 7% lower
ASP - 2009 (RHS) ASP - 2010 (RHS) in June from its peak level in April 2010 but was still 27%
higher y/y.
Sources: CRIC, Standard Chartered Research
Meaningful price correction is evident

While there is probably some data discrepancy in our calculations, it is quite clear that residential property prices across
the country increased too much in too short a period, especially between end-2009 and early 2010. The increase was
much higher than the country’s GDP growth (Chart 3). This inevitably resulted in a rapid deterioration of housing
affordability despite the low-interest rate environment. At the same time, we see the build-up of supply pipeline.
Construction progress continued to pick up in H2-2009 with enough residential floor space under construction to meet
two-and-a-half years of demand, based on the average annual residential space sold between 2007-2009 (Chart 4).
Coupled with the recent policy-tightening to rein in rapid price appreciation, this will result in a meaningful price correction
in the coming months, although the magnitude of the price decline will vary by city and market segment.
While it is hard to predict the actual percentage fall nationwide, we can get some indication by comparing the prices at
their peak levels early this year with prices in Q3-2009 when price increases started to gather steam. For housing prices
4
Ref: GR10JU
to reach their average Q3-2009 level, ASPs in Tier 1 cities will have to fall by about 25-40%. For the Tier 2 cities, the fall
is lower, ranging between 15-25% for most of the cities under study.
Chart 4: Prices appreciated ahead of GDP growth Chart 5: Ample supply
100 3,000 3.0
80 2,400 2.5
2.0
60 1,800
1.5
%
40 1,200
1.0
20 600 0.5
0 0 0.0
Shanghai
Beijing
Tianjin
Chengdu
Suzhou
Shenzhen
Dalian
Wuhan
Chongqing
Changchun
Changsha
2009 GDP
Nanjing
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
GFA sold (mn sqm) GFA under constr (mn sqm)
Years of demand (RHS)
Sources: CRIC, Standard Chartered Research Sources: CEIC, Standard Chartered Research
The market is not collapsing

Although we think a major price correction is evident in the coming months, we do not expect the market to collapse. This
is in view of 1) the government’s stable policy stance to prevent rapid rises or falls in property prices (we do not expect
the government to stay away from a falling market as it would hit market sentiment badly and affect domestic
consumption); 2) the developers’ sound liquidity position from sales and fund raisings (while there will be failures,
especially among smaller developers with stretched financials, we believe the liquidity position of the more established
developers are generally sound, and thus they are unlikely to dramatically undercut each other in a market downturn); 3)
strong holding power of the home-buyers with low loan-to-value ratio (given the minimum cash downpayment for home
buyers and the notable proportion of buyers with high or full cash purchases, we do not expect a high delinquency ratio
even if property prices fall by 20-30% from peak levels); and 4) banks are still willing to provide loans for developers with
good track records and quality land parcels as collaterals.
Major developers: missing sales target by 30% is not an issue

Based on the H1-2010 sales results of the major developers under our coverage (Agile, Country Garden, Evergrande,
Hopson and Shimao) and the current market condition, we think it is likely that some of them will miss their full-year sales
targets, which were set in April when market sentiment was bullish and property prices were heading towards their peak
levels. It is worth noting that Evergrande outperformed its peers in terms of contracted sales in H1-2010, reaching 58% of
its full-year target of CNY 36bn. The company subsequently raised its full-year sales target to CNY 40bn.
5
Ref: GR10JU
Chart 6: H1-2010 sales versus original full-year target
40
35
30
25
58%
CNY bn
20
15 44%
38%
32%
10 33%
5
0
Agile Cogard Evergrande Hopson Shimao
H1-2010 sales & % of total Full-year target
Sources: Company data, Standard Chartered Research
We also did a sensitivity study on the developers’ cash flows and compared the projected cash surplus at end-2010 with
the companies’ short-term (ST) debt payable within one year. Our calculation of the ratios suggests that the developers
will not encounter any liquidity crunch if they miss their sales targets by 30% or less, assuming that they do not add new
land purchases in the year and slow down construction progress accordingly. However, some may experience tight
liquidity if sales fall 50% short of target. That said, we do not consider this a likely scenario based on their achieved sales
in H1, which account for about 32-58% of their full-year targets. We also expect them to be able to partially roll over their
ST loans depending on the project completion schedules.
Table 2 below shows the developers’ ranking in different scenarios (for detailed calculations, see the summarised tables
in the Appendix). In the worst-case scenario, with a sales shortfall of 50% of the projected goal, Agile has the best
liquidity position among its peers, followed by Country Garden.
Table 2: Ratio of ending cash balance over ST debt

Original full-year 15% lower from full- 30% lower from full- 50% lower from full-
sales target year target year target year target
(base case) (scenario 1) (scenario 2) (scenario 3)
Agile 4.99 3.51 2.71 1.75
Country Garden 3.73 2.60 2.23 1.00
Shimao 3.20 2.15 1.82 0.91
Evergrande 2.07 1.65 1.57 0.94
Hopson 1.66 1.38 1.09 0.74
Developers likely to lower prices to push sales instead of delaying new launches
We expect developers to release more projects for sale at competitive prices in H2 to generate at least enough sales to
meet their development and debt obligations for the year. This is in view of their high capital commitment for both project
development and land acquisitions, although we believe that these committed expenditures are for a longer period of at
least two years. Accumulating cash from pre-sales will also leave developers better-prepared if more acquisition
opportunities arise in a market downturn.
6
Ref: GR10JU
We note that the developers’ capital commitment for project development and land acquisitions increased substantially at
end-2009 compared to a year earlier when the market was experiencing a downturn. We attribute this to the high amount
of contracted sales achieved in the year, resulting in high construction commitments for the coming years and
resumption of land purchases in H2-2009.
Some developers recorded positive free cash flow in 2009 thanks to their sales efforts. This partially suggests that the
companies were more focused on project sales in the year than on land expansion, especially in H1-2009 compared to
the previous bull market in 2006-07 when they raised large amount of funds from IPOs and USD bond issuance. That
said, some of the land acquisition instalments are due in 2010 and 2011, given that most of the acquisitions were made
in H2-2009.
By comparing the developers’ 2010 sales targets with their contracted-but-not-provided-for capital commitments for
development and land acquisitions as at end-2009, we note that Agile, Country Garden and Hopson may be under less
pressure than Evergrande and Shimao to meet their sales targets (Chart 6). However, taking into account the cash
position at end-2009 and the funding activities of Evergrande and Shimao in H1-2010, the urgency is less acute (Chart 7).
This further supports our view that the developers will be able to withstand a shortfall of 30% in their 2010 sales target.
Chart 7: Development and land acquisition commitments as at end-2009
40
35
30
25
20
15
10
5
0
Agile (CNY bn) Cogard (CNY bn) Everre (CNY bn) Hopson (HKD bn) Shimao (CNY bn)
2006 2007 2008 2009 2010 sales target
Chart 8: Cashflow
50 50
40 40
30 30
20 20
10 10
0 0
-10 -10
-20 -20
-30 -30
Agile (CNY bn) Cogard (CNY bn) Evergrande (CNY bn) Hopson (HKD bn) Shimao (CNY bn)
Free cash flow (2009) Net bank loans (2009) Funds raised - equity & bonds (2009)
Net offshore funds raised (H1-10) 2010 sales target (Scenario 2) Capital commitments (RHS)
7
Ref: GR10JU
Sound asset coverage

Our study of the major developers’ balance sheets confirms our view that the companies’ book value of property assets
and their cash balance (including restricted cash) are sufficient to cover their liabilities (including total debt, pre-sale
proceeds collected for projects under construction, trade and other payables as well as their tax liabilities). If we take into
account the off-balance-sheet liability – mainly the bank guarantees that the developers provided for their buyers before
projection completion – the coverage ratio remains sound at 1.35x and 1.39x for Shimao and Hopson respectively, but is
low for Agile (1.06x), Country Garden (1.00x) and Evergrande (0.92x). We attribute this mainly to the companies’
portfolio concentration and segment exposure. While Hopson and Shimao are mid- to high-end focused developers in
Tier 1 and upper Tier 2 cities, Agile, Country Garden and Evergrande have higher exposure in mass- to mid-end of the
market in Tier 2 cities on lower land costs. We also understand that buyers in the mass- to mid-end segment are mostly
owner-occupiers and the mortgage proportion of total purchase price for these buyers is higher compared to the upper
end of the market.
Table 3: Asset/liability coverage (2009)

(CNY mn) (CNY mn) (CNY mn) (HKD mn) (CNY mn)
Total book value of property assets 36,455 43,539 42,291 59,135 51,948
Total cash (incl. restricted cash) 6,128 8,424 14,378 6,715 7,479
Total cash and property value 42,583 51,783 56,669 65,849 59,428
ST debt 2,229 3,251 6,360 6,232 3,932
LT debt 9,851 14,519 7,816 10,117 16,595
Prepayment from customers 5,771 14,040 24,306 7,261 6,503
Trade & other payables 6,766 6,280 9,800 4,670 7,039
Net tax liabilities 4,320 309 1,110 8,669 6,459
Bank guarantees for buyers 11,234 13,540 12,532 10,549 3,588
Total liabilities 40,171 51,939 61,923 47,497 44,116

Asset/liability coverage
1.47x 1.35x 1.15x 1.78x 1.47x
(before bank guarantees)
Asset/liability coverage
1.06x 1.00x 0.92x 1.39x 1.35x
(incl. bank guarantees)
Sales turnover suggests fair to under-valued balance sheet assets

We calculated the developers’ sales turnover rate in 2009 (total contracted sales over the sum of two-year average book
value of trading assets and off-balance-sheet capital commitment for development and land acquisition). The rate ranged
from a low of 29.3% for Hopson to a high of 55.2% for Agile and Evergrande. We then compared the ratios with the GFA
sold in the contracted sales as % of total land bank. The result shows the developers’ book value of trading assets is fair
or under-valued. While one may argue that there will be a major price correction in the coming months, we think the ASP
of 2009 contracted sales is a fair number given that property prices were still low in H1-2009. In comparison, the GFA
sold represented about 10% of developers’ total land banks.
8
Ref: GR10JU
Table 4: Sales turnover (2009)

Total contracted sales 22,600 23,200 30,299 15,088 22,505
Book value of trading assets 32,546 39,339 38,765 47,582 39,684
Development and land commitments 17,250 16,270 27,668 4,904 22,579
Sales turnover 55.2% 47.6% 55.2% 29.3% 42.5%
GFA sold as % of total land bank 8.7% 11.4% 10.2% 3.8% 7.7%
Developers with sales in Tier 2 cities achieved better results in H1

The monthly sales results of the key developers do not mirror the national average in Charts 2 and 3. However, we noted
that those with more projects available for sale in lower-tier cities and/or focusing in the low- to mid-end of the market
segment achieved better sales results in H1-2010 than their peers.
Evergrande outperformed its peers in H1 sales performance. A closer look at the company’s monthly sales data
suggests that ASPs of projects for sale held stable at below CNY 6,500 psm in the first six months, while GFA sold
continued to grow strongly in March-June. Compared to the peak level of CNY 7,273 psm recorded in February, the ASP
of Evergrande projects was 14% lower in June. Similarly, Vanke, one of China’s largest property developers, recorded a
surge in sales in June with ASP in the month about 18% lower than the high of CNY 12,446 psm in March (Charts 8 and
9). The company publically attributed the sales increase in June to its pricing strategy.
On the other hand, Country Garden and Shimao recorded two months of low sales in May and June with higher ASPs.
We do not think the companies raised their ASPs in the two months but attribute the lower sales volume and higher
selling prices mainly to the companies’ available-for-sale projects (Charts 10 and 11).
We believe that these major developers with diversified property portfolios will be able to improve sales in the second
half of the year if they are willing to offer competitive prices and launch more projects for sale in the lower-tier cities.
Chart 9: Evergrande monthly sales and ASP Chart 10: Vanke monthly sales and ASP
0.8 8,000 1.0 15,000
0.7 7,000
0.8 12,000
0.6 6,000
0.5 5,000 0.6 9,000

CNY psm
CNY psm
mn sqm
mn sqm
0.4 4,000
0.3 3,000 0.4 6,000
0.2 2,000
0.2 3,000
0.1 1,000
0.0 0 0.0 0
Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun
GFA sold - 09 GFA sold - 10 GFA sold - 09 GFA sold - 10
ASP - 09 ASP -10 ASP - 09 ASP -10
Sources: Company data, Standard Chartered Research Sources: Company data, Standard Chartered Research
9
Ref: GR10JU
Chart 11: Cogard monthly sales and ASP Chart 12: Shimao monthly sales and ASP
0.7 7,000 0.5 18,000
0.6 6,000
0.4 14,400
0.5 5,000
0.3 10,800
CNY psm
CNY psm
0.4 4,000
mn sqm
mn sqm
0.3 3,000 0.2 7,200
0.2 2,000
0.1 3,600
0.1 1,000
0.0 0 0.0 0
Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun
GFA sold - 09 GFA sold - 10 GFA sold - 09 GFA sold - 10
ASP - 09 ASP -10 ASP - 09 ASP -10
Sources: Company data, Standard Chartered Research Sources: Company data, Standard Chartered Research
10
Ref: GR10JU
Appendix
2010 Cash-flow projection – base case scenario

Agile* Cogard** Evergrande Hopson Shimao
Beginning balance 4,372 4,609 7,333 6,546 6,919
Restricted cash 1,756 3,815 7,045 168 560
Contracted sales 27,000 30,160 36,000*** 20,548 31,100
Term loans 850 - - - 3,128
USD bond proceeds 4,420 - 9,180 - -
Land premium (10,000) (7,000) (10,100) (5,700) (9,600)

Construction expenses (9,000) (13,000) (28,000) (8,000) (13,000)
SA&G and others (4,950) (4,806) (4,300) (3,082) (4,500)
Interest expense (1,569) (1,659) (2,118) (1,226) (1,808)
Bond/CB redemption (2,720) - - (2,170) -
Pre-IPO debt repayment - - (1,900) - -
Cash balance 10,159 12,119 13,140 7,034 12,800
ST debt as at end-09 (2,229) (3,251) (6,360) (4,232)# (3,932)

Notes: * USD 550mn new issuance of 2017s is not included, as we expect the proceeds to be kept for CB redemption in early 2011;
*** sales target was raised to CNY 40bn on 12 July; # Excluding the CB redeemed in Feb-2010;
2010 Cash-flow projection – scenario 2
Agile Cogard* Evergrande Hopson Shimao
Beginning balance 4,372 4,609 7,333 6,546 6,919
Restricted cash 1,756 3,815 7,045 168 560
Contracted sales 18,900 21,112 25,200 14,384 21,770
Term loans 850 - - - 3,128
USD bond proceeds 4,420 - 9,180 - -
Land premium (8,000) (6,000) (8,000) (4,000) (9,000)

Construction expenses (9,000) (11,050) (23,800) (7,000) (11,050)
SA&G and others (3,086) (3,736) (3,024) (2,158) (3,266)
Interest expense (1,458) (1,502) (2,022) (1,138) (1,908)
Bond/CB redemption (2,720) - - (2,170) -
Pre-IPO debt repayment - - (1,900) - -
Cash balance 6,034 7,248 10,012 4,632 7,154
ST debt as at end-09 (2,229) (3,251) (6,360) (4,232)# (3,932)
Notes: * USD 550mn new issuance of 2017s is not included, as we expect the proceeds to be kept for CB redemption in early 2011;
# Excluding the CB redeemed in Feb-2010; Sources: Company data, Standard Chartered Research
11
Ref: GR10JU
Summary of key market indicators and ratios (as at end-2009)

Land bank (mn sqm) 33.3 41.5 55.0 30.2 32.4
CAGR of land bank size (2006-09) 27.2% 35.2% 36.7% 29.0% 24.9%
Contracted sales (CNY bn) 22.6 23.2 30.3 15.1 22.5
CAGR of contracted sales (2006-09) 51.2% 28.2% 163.7% 9.0% 68.5%
Book value of property assets 36,455 45,539 42,291 59,135 51,948
CAGR of asset value (2006-09) 46.0% 61.7% 123.4% 45.6% 36.4%
Total debt 12,080 17,770 14,176 16,349 20,527
CAGR of total debt (2006-09) 31.1% 63.3% 40.7% 30.1% 36.2%
Cash balance 4,372 4,609 7,333 6,546 6,919
Restricted cash 1,756 3,815 7,045 168 560
Gross margin 37.2% 26.4% 34.0% 41.2% 34.5%
EBITDA margin 30.8% 22.1% 3.5% 30.2% 25.8%
EBITDA/interest 6.4x 3.4x 0.2x 3.0x 3.8x
Total debt/EBITDA 2.9x 4.6x 71.2x 4.8x 4.7x
Total debt/capital 44.5% 45.5% 51.9% 34.9% 44.6%
Cash*/total debt 50.7% 47.4% 101.4% 40.0% 36.4%
Loan-to-value ratio 35.1% 45.0% 33.8% 29.2% 39.5%
Note: * Including restricted cash; Sources: Company data, Standard Chartered Research
12
Ref: GR10JU
Disclosures Appendix
Recommendations structure
SCB Terminology Impact Definition
Positive Improve We expect the fundamental credit

Issuer –
Stable Remain stable profile of the issuer to <Impact> over
Credit outlook
Negative Deteriorate the next 12 months
Outperform Outperform
The bonds are expected to <Impact>
Bond recommendation Market perform Perform in line
its peer group over the next 6 months
Underperform Underperform
Buy protection Widen more
The CDS spreads are expected to
CDS
Hold protection Perform in line <Impact> relative to its peer group
recommendation
over the next 6 months
Sell protection Tighten more
We will no longer give specific bond and CDS recommendations, apart from trade ideas described below. Any
previously-given recommendations on instruments are withdrawn forthwith and should not be relied upon.
Standard Chartered Research also offers trade ideas with outright Buy or Sell recommendations on bonds as well as pair
trade recommendations among bonds and/or CDS. In Trading Recommendations/Ideas/Notes, the time horizon is
dependent on prevailing market conditions and may or may not include price targets.
Distribution of recommendations
Performance parameters and horizon: Given the volatility in the markets and our predisposition not to change
recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context
only reflects capital appreciation and the horizon is six months. Short term recommendations including pair trades based
on Trading Recommendations/Ideas/Notes may not be reflected in below numbers and percentage figures due to the
nature of such recommendations.
Credit trend distribution (as at 30 June 10)
Coverage total (IB%)

Positive 8 (0.0%)
Stable 120 (17.5%)
Negative 24 (4.2%)
Total (IB%) 152 (14.5%)
Recommendations and credit trend history (past 12 months)

Credit trends
Company Date Credit Outlook
Agile Property Holdings Limited 18-May-10 Stable

Agile Property Holdings Limited 26-Apr-10 Stable
Agile Property Holdings Limited 13-Jan-10 Stable
Agile Property Holdings Limited 22-Sep-09 Stable
Shimao Property Holdings Limited 18-May-10 Stable
Shimao Property Holdings Limited 16-Apr-10 Stable
13
Ref: GR10JU
Credit trends
Company Date Credit Outlook
Shimao Property Holdings Limited 13-Jan-10 Stable

Shimao Property Holdings Limited 05-Jan-10 Stable
Shimao Property Holdings Limited 28-Oct-09 Stable
Shimao Property Holdings Limited 08-Oct-09 Stable
Shimao Property Holdings Limited 21-Sep-09 Negative
Evergrande Real Estate Group Limited 18-May-10 Stable
Evergrande Real Estate Group Limited 13-Apr-10 Stable
Country Garden Holdings Co. 18-May-10 Stable
Country Garden Holdings Co. 08-Apr-10 Stable
Country Garden Holdings Co. 05-Apr-10 Stable
Country Garden Holdings Co. 13-Jan-10 Stable
Hopson Development Holdings Limited 18-May-10 Stable
Hopson Development Holdings Limited 23-Mar-10 Stable
Hopson Development Holdings Limited 01-Sep-09 Negative
Hopson Development Holdings Limited 07-Jul-09 Negative
Hopson Development Holdings Limited 24-Jun-09 Negative
Note: On 01 June 2009, the terminology for bond recommendations was changed from Buy/Hold/Sell to Outperform/Market
perform/Underperform.
14
Ref: GR10JU
Regulatory Disclosure:
Subject companies: Agile Property Holdings Limited, Evergrande Real Estate Group Limited, Country Garden
Holdings Co, Hopson Development Holdings Limited, Shimao Property Holdings Limited.
Standard Chartered Bank and/or its affiliate(s) has received compensation from this company for the provision of
investment banking or financial advisory services within the past year: Agile Property Holdings Limited
Analyst Certification Disclosure:

The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and attributed to
the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and
issuers and/or other subject matter as appropriate; and, (2) no part of his or her compensation was, is or will be directly or indirectly
related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations
is a factor in the performance appraisals of analysts.
Global Disclaimer:
Standard Chartered Bank and or its affiliates ("SCB”) makes no representation or warranty of any kind, express, implied or statutory
regarding this document or any information contained or referred to on the document.
The information in this document is provided for information purposes only. It does not constitute any offer, recommendation or
solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any
prediction of likely future movements in rates or prices, or represent that any such future movements will not exceed those shown in any
illustration. Users of this document should seek advice regarding the appropriateness of investing in any securities, financial instruments
or investment strategies referred to on this document and should understand that statements regarding future prospects may not be
realised. Opinions, projections and estimates are subject to change without notice.
The value and income of any of the securities or financial instruments mentioned in this document can fall as well as rise and an
investor may get back less than invested. Foreign-currency denominated securities and financial instruments are subject to fluctuation in
exchange rates that could have a positive or adverse effect on the value, price or income of such securities and financial instruments.
Past performance is not indicative of comparable future results and no representation or warranty is made regarding future performance.
SCB is not a legal or tax adviser, and is not purporting to provide legal or tax advice. Independent legal and/or tax advice should be
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15
Ref: GR10JU
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Data available as of 04:30 GMT 13 July 2010. This document is released at 04:30 GMT 13 July 2010.
Document approved by: Victor Lohle, Senior Credit Analyst
16
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China Property - Reality Check (SCB 100713)

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China property – Reality check

China’s property market is trending down but not collapsing

In anticipation of the government’s tightening measures, the stronger developers

Important disclosures can be found in the Disclosures Appendix

Credit Research | 13 July 2010

Chart 1: Bond comparison (as at 12 July 2010)

Source: Standard Chartered Research

Credit Research | 13 July 2010

Table 1: Bond performance (indicative bid price and YTM)

4-May 7-Jun 30-Jun 12-Jul 7-Jun 12-Jul

China’s property market: trending down but not collapsing

Clear divergence in sales performance between Tier 1 and Tier 2 cities

Credit Research | 13 July 2010

Chart 2: Sales volume and ASP of Tier 1 cities

- The impact of government measures was felt in May and

developers may have reduced their selling prices

Sources: CRIC, Standard Chartered Research

Chart 3: Sales volume and ASP of Tier 2 cities

area and Changchun in north-eastern China.

correction in sales volume in May and June did not

Meaningful price correction is evident

Credit Research | 13 July 2010

Chart 4: Prices appreciated ahead of GDP growth Chart 5: Ample supply

100 3,000 3.0

The market is not collapsing

Major developers: missing sales target by 30% is not an issue

Credit Research | 13 July 2010

Chart 6: H1-2010 sales versus original full-year target

H1-2010 sales & % of total Full-year target

Sources: Company data, Standard Chartered Research

Table 2: Ratio of ending cash balance over ST debt

Credit Research | 13 July 2010

Chart 7: Development and land acquisition commitments as at end-2009

2006 2007 2008 2009 2010 sales target

Sources: Company data, Standard Chartered Research

Sources: Company data, Standard Chartered Research

Credit Research | 13 July 2010

Sound asset coverage

Table 3: Asset/liability coverage (2009)

ST debt 2,229 3,251 6,360 6,232 3,932

LT debt 9,851 14,519 7,816 10,117 16,595

Prepayment from customers 5,771 14,040 24,306 7,261 6,503

Trade & other payables 6,766 6,280 9,800 4,670 7,039

Net tax liabilities 4,320 309 1,110 8,669 6,459

Bank guarantees for buyers 11,234 13,540 12,532 10,549 3,588

Total liabilities 40,171 51,939 61,923 47,497 44,116

Sales turnover suggests fair to under-valued balance sheet assets

Credit Research | 13 July 2010

Table 4: Sales turnover (2009)

Developers with sales in Tier 2 cities achieved better results in H1

0.8 8,000 1.0 15,000

0.5 5,000 0.6 9,000

0.3 3,000 0.4 6,000

Credit Research | 13 July 2010

0.7 7,000 0.5 18,000

Credit Research | 13 July 2010

2010 Cash-flow projection – base case scenario

Land premium (10,000) (7,000) (10,100) (5,700) (9,600)

Interest expense (1,569) (1,659) (2,118) (1,226) (1,808)

Bond/CB redemption (2,720) - - (2,170) -

Pre-IPO debt repayment - - (1,900) - -