Consolidating Leading Position in B2B Logistics, Maintain "Buy" 巩固中的 B2B 物流龙头, 维持 买入

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1 Sinotrans (598 HK) Shipping & Logistics Sector Equity Research 股票研究 Company Report: Sinotrans (598 HK) 公司报告 : 中国外运 (598 HK) Spencer Fan 范明 (86755) fanming@gtjas.com [Table_Summary] Consolidating Leading Position in B2B Logistics, Maintain "Buy" 巩固中的 B2B 物流龙头, 维持 买入 公 司 报 告 证 券 研 究 报 告 航运物流行业 Equity Research Report Company Report Sinotrans plans to issue A shares and merge with subsidiary Sinoair (627 SH). The Company is expected to issue 1,371.2 mn A shares at RMB5.32 per share in exchange for mn Sinoair A shares. As a result, the subsidiary will be delisted. Sinotrans is expected to strengthen corporate governance and synergies after the merger. Subsequently, Sinotrans will be able to use its entire cash amount for further overseas M&As. We expect more synergies to be realized amid Sinotrans A-share listing. Sino-U.S trade dispute less likely to drag down Sinotrans organic growth. U.S-bound operations amounted to around 7% of Sinotrans' 217 total transportation volume, while current Sino-U.S maritime trade (Sinotrans' major American service line, export-bound products) is dominated by low value-added goods, which are not prime targets in the U.S government's 31 report. Incremental profit contribution to come from 3 aspects: pallet leasing, cold chain logistics, and CML resource sharing. Pallet leasing might sustain growth given Southeast Asia's booming e-commerce prospects. The cold chain segment might endure restructuring and enhance efficiency. By 1Q18, Sinotrans' network will have covered over 5, vehicles shared by CML. We expect the docking of CML's vehicles/warehouses to be fully completed by 3Q18. Overall, we revise up Sinotrans' 218/219 net profit forecasts by 6.79%/.2%. Sinotrans' valuation is attractive. As the leading domestic B2B logistics firm, Sinotrans will benefit from stable consumption upgrade to achieve high profit growth. Maintain "Buy" and revise TP to HK$5.2, corresponding to 1.x/8.2x/7.4x PER. 中国外运计划发行 A 股并和附属公司外运发展 (627 SH) 合并 公司计划以每股人民币 5.32 发行 亿股 A 股以交换 3,536 万股外运发展 外运发展将会退市 中国外运预 计将强化企业治理和协同效应 中国外运将可整体使用在手现金以备将来海外收购 我们 期待公司完成 A 股上市后产生更多协同效应 中美贸易纷争不大可能拖累中国外运的有机增长 美线业务占据公司 217 年运输量 7%, 而目前中国往美国方向的海运贸易主要由低附加值货品主导 ( 也是中国外运主要服务的出 口线路 ), 而这类货品并不被美国政府的 31 报告所主要针对 增量利润空间来自 3 个维度 : 托盘租赁 冷链物流 资源共享 考虑东南亚地区电商崛起 背景, 托盘租赁业务将维持增长 冷链分部预计将历经重组并提高效率 截至 218 年一 季度, 在招商物流共享之下中国外运的网络覆盖超过 5 万辆运输车辆 我们预计公司与招 商物流车辆及仓库的全面对接将在 218 年第三季度完成 综合来看, 我们分别上调公司 218/219 年股东净利预测 6.79%/.2% Rating: Buy Maintained 评级 : 买入 ( 维持 ) 6-18m TP 目标价 : HK$5.2 Revised from 原目标价 : HK$5. Share price 股价 : Stock performance 股价表现 % of return (5.) [Table_PriceChange] Change in Share Price 股价变动 Abs. % 绝对变动 % Rel. % to HS Index 相对恒指变动 % Avg. Share price(hk$) 平均股价 ( 港元 ) 1 M 1 个月 Source: Bloomberg, Guotai Junan International. 3 M 3 个月 HK$4.4 (1.) Jun/17 Aug/17 Nov/17 Feb/18 May/18 Hang Seng Index SINOTRANS LIMITED-H 1 Y 1 年 (2.2) (6.2) 15.5 (6.7) (8.6) (4.8) 中国外外运运输 公司的估值吸引 作为国内领先的 B2B 端物流服务商, 中国外运将受国内消费升级带动而 维持较高的利润增速 我们维持 买入 评级并上调目标价至 5.2 港元, 该目标价对应 1. 倍 /8.2 倍 /7.4 倍的 年市盈率 [Table_ Year End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结收入股东净利每股净利每股净利变动市盈率每股净资产市净率每股股息股息率净资产收益率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) 216A 59,766 2, A 72,567 2, F 8,554 2, F 87,146 3, F 93,344 3, [Table_BaseData] Shares in issue (m) 总股数 (m) 6,49.2 Major shareholder 大股东 Sinotrans & CSC 66.3% Market cap. (HK$ m) 市值 (HK$ m) 26,616.5 Free float (%) 自由流通比率 (%) month average vol. 3 个月平均成交股数 ( ) 14,342.8 FY18 Net gearing (%) FY18 净负债 / 股东资金 (%) Weeks high/low (HK$) 52 周高 / 低 (HK$) 4.67 / 3.18 FY18 Est. NAV (HK$) FY18 每股估值 ( 港元 ) 6.9 See the last page for disclaimer Page 1 of 9

2 We expect Sinotrans (the "Company") to enhance its domestic B2B logistics leading role after transformation in 217. In 217, Sinotrans achieved revenue of RM75,567 mn, up 21.42% YoY, exceeding market consensus and our expectation. Shareholders profit rose 2.24% YoY to RMB2,34 mn, in line with our expectation. In 4Q17, the Company acquired 1% interest in China Merchants Logistics ("CML") from the ultimate parent company, China Merchants Group ("CMG"). Accordingly, CML's 217 results, together with comparative figures in 216, had been combined into Sinotrans' 216/217 results. In late February 218, Sinotrans entered into merger agreement to issue 1,371.2 mn A shares at initial price of RMB5.32/share in exchange for mn Sinoair (627 SH) shares, while Sinoair will be delisted afterwards. Before that, Sinotrans owned a 6.95% stake in Sinoair. After the merger, horizontal competition between Sinotrans and Sinoair will be solved. As Sinotrans' largest subsidiary, Sinoair's expertise in air freight forwarding may further synergize with the "end-to-end distribution network" that Sinotrans is currently building. Considering internal/external demand and industry trend, we estimate Sinotrans' 218 fundamentals to improve steadily. Implications from 217: Freight forwarding ("FF") will remain the biggest revenue/profit contributor. In 217, FF revenue amounted RMB45.72 bn, up 21.8% YoY, while segmental profit rose 31.7% YoY to RMB1.1 bn. During 217, Sinotrans actively extended service chains and initiated its "end-to-end" service offerings for the first time. For 217/1Q18, sea FF volume reached 11.7 mn/2.56 mn TEU, up YoY by 13.9%/13.6%, respectively. While Sinotrans strengthened business cooperation with airlines and made efforts to develop import-related cargo flow, air FF volume rose YoY by 8.3%/9.7% to 533,3/122, tons for 217/1Q18, respectively. According to policy trends amid recent Sino-U.S trade disputes, China will expand imports in 2H18. We expect Sinotrans to seize opportunities and design customized international FF products for domestic wholesalers who franchise foreign brands and sell domestically. Overall, we expect the FF segment 218 revenue to grow 8.2% YoY. Figure-1: Sinotrans' FF Sub-Segment Volume and YoY Figure-2: Sinotrans' Air FF Volume And YoY Growth Growth 3, 2,5 2, 1,5 1, 1,342 1,46 Sea Freight Forwarding: 1, TEU Shipping Agency: 1, TEU Sea Freight Forwarding YoY Shipping Agency Volume YoY 1,62 1, ,26 2,349 2,437 2,512 1,168 1,238 5% 4% 3% 2% Air Freight Forwarding: mn tons YoY % 2% 15% 1% 5% % 5 1% 1-5% F % F -1% The logistics segment is expected to sustain growth. In 217, segmental revenue reached RMB1,867 mn, up 18.9% YoY. Segmental profit totaled RMB65 mn, up 5.4% YoY. Sinotrans continued to develop new customers and increased international market share in Belt and Road regions, which grew rapidly. Logistics volume rose 12.3%/22.3% YoY to 48.5 mn/12.8 mn tons for 217/1Q18. Sinotrans is the largest service provider for domestic automobile giants (including GAC Group (2238 HK), SAIC Motor (614 SH), and Great Wall Motors (2333 HK). Based on our understanding, Sinotrans plans to expand shipment capacity of TFT screen panels in 218 as BOE's (725 SZ, " 京东方 ") sole contract shipper. Also, Sinotrans plans to expand in domestic semi-conductor, OLED screen panel, cold chain medicine, and aerospace equipment transportation markets. In our view, Sinotrans' strategic direction is forward looking. For 218, semiconductor/lcd screen transportation could bring additional growth as the Sino-U.S trade war will stimulate domestic semiconductor giants to boost research investment and production capacity. According to national policy guidelines, production growth of domestic semiconductor components will speed up due to ongoing localization of chip manufacturing. According to IC Insight, a semiconductor market research institute, China's semiconducter device shipments will maintain CAGR of over 11% for Except from electronic device shipping, we expect Sinotrans to maintain good relationships with CML's previous Fast Moving Consumer Goods ("FMCG", including P&G and Unilever) customers, to diversify contract logistics business lines. Overall, we estimate contract logistics' segmental revenue to grow by 15.% YoY in 218. See the last page for disclaimer Page 2 of 9

3 Logistics equipment leasing, new operating lines injected from China Merchants Logistics (CML), is expected to contribute additional growth. Segmental revenue rose 13.% YoY to RMB1.46 bn in 217, while segmental profit reached RMB.36 bn, up 11.7% YoY. Regarding 217/1Q18 volume, pallet leasing volume increased YoY by 13.5%/15.2% to mn/25.21 mn packs per day. Daily container leasing volume also rose YoY by 22.4%/6.5% to 82,/85, TEU for 217/1Q18, mainly due to the increase in number of related assets as well as incremental intra-segmental services provided to Sinotrans' other segments. During 217, 7% of pallet leasing work-flow was concentrated in Southeast Asia, while Sinotrans market share was the highest in the region. Considering that Southeast Asia s e-commerce logistics network is entering a rapid growth era, we project Sinotrans logistics leasing revenue to grow at 8.% YoY for Other services (shipping, trucking, and express delivery) revenue increased 35.8% YoY to RMB4.45 bn. The segment's driving factor was high market growth in the e-commerce logistics sector. During 217/1Q18, the number of parcels handled by express services soared YoY by 693.7%/22.7% to mn/2.59 mn units. We expect Sinotrans to continue tight cooperation with e-commerce giant Alibaba (BABA US). Number of shipping containers handled rose YoY by.6%/27.4% to mn/.621 mn TEU for 217/1Q18. Volume of container trucking changed YoY by 1.4%/-8.9% to 888,/19, TEU for 217/1Q18, respectively. Volume of less-truck-load trucking (" 零担运输 ") changed YoY by 2.6%/-8.9% to 471,/96, tonnes for 217/1Q18. Overall, we expect 218 other service segments development trend for the domestic logistics industry. revenue to grow 27.2% YoY amid sustained upward Figure-3: Sinotrans' Trucking Transportation Volume and YoY Growth Other Services: Truck Transportation: Million TEU 12 YoY 16.5% 2% % 9.6% 9.2% 1.4% 8.% 1% % % F -1% -2% -3% Figure-4: Domestic E-Commerce Market Size and YoY Growth Domestic e-commerce Market Size: RMB Trillion Market Size YoY /% 3 35% % % % % % % Figure-5: Sinotrans' Express Service Volume and YoY Growth Express Service: Million Packages YoY % 7% 18 6% 15 5% 4% 12 3% % 225% 2% 6 1% -2.7% -.6% 14.1% 37.6% 3 % % F -1% Source: National Bureau of Statistics, Guotai Junan International. DHL-Sinotrans joint venture ("JV") performance lagged expectation, but may improve in 218. Shared profit for JVs was RMB.97 bn, up 1.3% YoY. In 217, total number of domestic express deliveries completed was 4.6 bn packages, up 28.% YoY. Domestic express delivery industry revenue totaled RMB bn, up 24.7% YoY. Intracity-bound, off city-bound, and international-bound delivery volumes accounted for 23.1%, 74.8%, and 2.1% of the total, respectively. In terms of revenue, the above 3 categories accounted for 14.8%/5.7%/1.7% of the total, respectively. According to AliResearch, cross-border See the last page for disclaimer Page 3 of 9

4 e-commerce market (international-bound deliveries) is expected to grow at a CAGR of over 2% from 216 to 22, while the National Post Bureau projected YoY volume growth of 22% for 218. Apart from rising operating costs, such as labor salary (overall +1.5% in 217 for express delivery industry) and network expense, revenue growth of the overall domestic express delivery industry may be lower than the CAGR of 36% over the past 5 years. As we mentioned in our previous company reports, Sinotrans had comparative advantages in custom clearance and information systems, which will become the JV's building blocks, along with cross-border consumer trade expansion. We expect profit share from the JV to grow at a CAGR of 15% for the next 3 years. Figure-6: Sinotrans' Storage and Terminal Throughput and YoY Growth Storage and Terminal Services: Berths Throughputs: TEU YoY % 4.9% 15.8%.4% 4.% 6.3% 6.% F 2% 15% 1% 5% % -5% Catalysts for 218: Additional synergy effects to be realized amid prospective A share swap. In 218, CMG will form its sole and unified listing platform as "Sinotrans only" (injecting China Merchants Logistics "CML" in 4Q17 and merger with Sinoair). There are two implications from the business s perspective, as well as the capital structuring perspective. From the business s point of view, Sinotrans and Sinoair will fully integrate their resources in ocean shipping, land transportation, and air transportation, which may further improve the Company's overall comprehensive logistics service capability. From the capital structuring perspective, Sinoair's cash and cash equivalents plus term deposits amounted to RMB49.8 bn by 217 year end (cash and cash equivalents amounted to 41.13% of Sinotrans' total in 217), which could be largely supportive for Sinotrans' next step of global expansion. The goal set by CMG for the Company is to build a world's top 5 integrated logistics company within 3-5 years. Given this objective, we expect Sinotrans to conduct overseas acquisitions to increase its revenue capacity and build up a global distribution network to achieve the goal. Before the M&A, Sinotrans and Sinoair served as two independent corporate entities. On the other hand, total liability/asset ratio of Sinotrans (58.8% by the end of 217) was higher than that of Sinoair (18.7% at the end of 217). Listing on the Shanghai Stock Exchange could partially offset risk of Sinotrans' financial leverage. Lastly, the RMB5.32/share initial price for Sinotrans' A share was 45.% higher than Sinotrans-H's closing price of the last trading day. Figure 7: Pre-transaction Structure of Sinotrans China Merchants Group ("CMG") 1.% Other H Shareholders 33.69% 42.69% Issue A share Other Sinoair A Sinotrans (598 HK) shareholders Sinoair A share 39.5% 6.95% Sinotrans & CSC 23.85% Sinoair (627 SH) See the last page for disclaimer Page 4 of 9

5 Figure 8: Post-transaction Structure of Sinotrans 33.69% Other Sinoair A Shareholders 1.% Sinotrans & CSC 19.44% China Merchants Group ("CMG") 19.44% Other H Shareholders 27.46% Sinotrans (A+H dual listed) Consolidate 1% Assets and Liabilities of Sinoair Table-1: Top 5 Global Logistics Peers Listed in Fortune Magazine Comparables: 217 Revenue US$ mn Rank# in World's top 5 Equivalent times to Sinotrans' 217 revenue Deutche Post 65, x UPS 6, x FeDEX 5, x Maersk Shipping 35, x Source: Fortune Magazine, Bloomberg, Guotai Junan International. Externally, the Sino-U.S trade war might not drag down Sinotrans organic growth. According to our calculation, U.S-bound operations account for around 7.% of the Company's entire business volume. Sinotrans expects the trade dispute to have little negative effect on its overall profitability, while we believe that there will still be slight negative impact. Indeed, part of Sinotrans' entities (sea FF, contract logistics, pallet leasing) are constrained by overseas economic conditions. By our calculation, export-bound transportation accounted 8% of Sinotrans' international volume in 217. In fact, current China-to-U.S maritime trade is still dominated by low value-added goods, not included in the U.S Special 31 report". Looking at trade patterns between China and the U.S, China s container exports to the U.S were heavily concentrated in low-end manufacturing, with cumulative value share at 78% in 1Q18. Looking into 218, although the Sino-U.S trade dispute is expected to yield limited impact on the container shipping market, the U.S may extend the list of tariff-targeted products against low value-added Chinese goods if the dispute status escalates. In this case, China-North America bound air/sea freight rates will decrease, imposing a possible threat on Sinotrans' FF revenue/profitability. Revise up revenue estimates amid deeper synergy prospects with CML. Due to less possibility of trade conflict escalation and FF cargo variety of Sinotrans, the impact of external fluctuations on the Company's revenue should be small. However, the Company s 218 momentum will more likely rely on synergies after full-scale CML integration in 4Q17. In which, we expect CML's incremental contribution to come from 3 aspects: pallet leasing, cold chain logistics, and warehouse/vehicle-resource sharing. Firstly, pallet leasing, as a new business, will fully benefit from explosive growth of e-commerce in Southeast Asia. The Company currently has the largest market share in Asia's pallet leasing market, and we expect revenue to remain high in 218. Secondly, Sinotrans will begin to integrate its three cold chain logistics subsidiaries. The Company is likely to use China Merchants Americold ("CMAC") as a major restructuring entity. By April 218, CMAC operated 14 large-scale cold storage facilities nationwide, covering an area of approximately 1.54 mn sq.m., being Sinotrans' largest cold chain subsidiary. Thirdly, CML's warehouse/heavy-vehicle resources were complementary for Sinotrans. By the end of 217, CML owned more than 2 mn sq.m. in land assets, with mn sq.m. built for warehouses. In addition, CML contributed 815 logistics outlets in 153 cities with over 3, controlled vehicles and transportation turnover of more than 8.37 bn ton-kilometers. We expect Sinotrans' professional logistics and transportation fleet to completely dock with CML's storage warehouses by 3Q18. By April 218, Sinotrans' delivery network covered more than 5, controllable vehicles, and the coverage contract logistics segment will further expand and incrementally gain market share in 218. Overall, we revise up our 218/219 revenue estimates by 16.2%/19.2% to demonstrate CML's growth potential after injection with synergies. On the other hand, recent rising costs of fuel (mostly truck fuels) and labor fees will increase Sinotrans' operating costs proportionally. As a result, we adjust our 218/219 net profit estimates by 6.79%/.2% (impact of Sinoair's potential full-consolidation not considered here), corresponding EPS are RMB.424, RMB518, and RMB.577, representing YoY growth of 11.2%, 22.3% and 11.5%, respectively. See the last page for disclaimer Page 5 of 9

6 Table-2: Change in Sinotrans' Earnings Estimates RMB mn FY18F FY19F FY2F New estimates Revenue 8,554 87,146 93,344 Operating profit 3,52 4,163 4,51 EBT 4,214 5,16 5,583 Net profit 2,562 3,133 3,492 EPS (RMB) Original estimates Revenue 69,324 73,12 n.a. Operating profit 2,263 3,474 n.a. EBT 3,764 5,22 n.a. Net profit 2,399 3,132 n.a. EPS (RMB) n.a. % change Revenue 16.2% 19.21% n.a. Operating profit 55.54% 19.84% n.a. EBT 11.96% -.1% n.a. Net profit 6.79%.2% n.a. EPS (RMB) 6.79%.2% n.a. Source: Guotai Junan International. Maintain "Buy" and revise up TP to HK$5.2 to reflect Sinotrans upward valuation potential. As stated above, the overcast of a trade war between China and the United States will not have significant negative impact on the Company's fundamentals. In fact, we are more concerned about Sinotrans' potential overseas M&A after Sinotrans completes its A-share listing, yet for now, relevant progress is uncertain. Nevertheless, we expect more overseas M&As to happen in the upcoming future. On the domestic front, as a leading enterprise on the B2B logistics side, Sinotrans will still fully benefit from the high growth rate ( CAGR over 25%) in the domestic logistics industry, led by the current consumption upgrade environment. Overall, our TP reflects 1.x/8.2x/7.4x PER, respectively. Major risks: 1) a slowdown in Chinese trade recovery in 2Q18 and beyond, and 2) escalation of Sino-U.S trade war confrontation. See the last page for disclaimer Page 6 of 9

7 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Dec-16 Jun-17 Dec-17 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Dec-16 Jun-17 Dec-17 Table-3: Peers Comparison PE PB ROE(%) D/Y(%) ROA(%) Company Stock Code Currency Last price 17A 18F 19F 2F 17A 18F 19F 2F 18F 18F 18F HK - Listed Logistics Companies Sinotrans Limited-H 598 HK HKD Kerry Logistics Network Ltd 636 HK HKD Shenzhen Intl Holdings 152 HK HKD Guangdong Yueyun Transport-H 3399 HK HKD n.a. n.a. n.a. 1.4 n.a. n.a. n.a. n.a. n.a. n.a. Changan Minsheng Apll Logi-H 1292 HK HKD n.a. n.a. n.a..3 n.a. n.a. n.a. n.a. n.a. n.a. Beijing Sports And Entertain 183 HK HKD 2.94 n.a. n.a. n.a. n.a. 8.5 n.a. n.a. n.a. n.a. n.a. n.a. Simple Average Weighted Average China - Listed Logistics Companies Sinotrans Air Transport-A 627 CH CNY Jiangsu Aucksun Co Ltd -A 2245 CH CNY Europol Intelligent Networ-A 2711 CH CNY n.a. n.a. 5.9 n.a. n.a. n.a. n.a. n.a. n.a. Jiangsu Xinning Modern Log-A 313 CH CNY n.a. n.a. 2.5 n.a. n.a. n.a. n.a. n.a. n.a. Jiangsu Feiliks Internatio-A 324 CH CNY n.a. n.a. n.a. 2.5 n.a. n.a. n.a. n.a. n.a. n.a. Hpf Co Ltd-A 335 CH CNY n.a n.a. n.a. Xiamen Xiangyu Co Ltd-A 657 CH CNY n.a. n.a. n.a. 1.2 n.a. 1.6 Yto Express Group Co Ltd-A 6233 CH CNY S F Holding Co Ltd-A 2352 CH CNY Yunda Holding Co Ltd-A 212 CH CNY Sto Express Co Ltd-A 2468 CH CNY Simple Average Weighted Average Other Area - Listed Logistics Companies United Parcel Service-Cl B UPS US USD Fedex Corp FDX US USD Zto Express Cayman Inc-Adr ZTO US USD Cj Logistics 12 KS KRW 152, Deutsche Post Ag-Reg DPW GR EUR Seino Holdings Co Ltd 976 JP JPY 2, Kamigumi Co Ltd 9364 JP JPY 2, Mitsubishi Logistics Corp 931 JP JPY 2, Sumitomo Warehouse Co Ltd 933 JP JPY Simple Average Weighted Average Source: Bloomberg. Figure-9: PER Curve (Next year) of Sinotrans Figure-1: PBR Curve (Next year) of Sinotrans (x) (x) Sinotrans PER (historical mean) PER (High) PER Curve PER (current) PER (Low). PBR (historical mean) PBR (High) PBR Curve Sinotrans PBR (current) PBR (Low) Source: Bloomberg. Source: Bloomberg. See the last page for disclaimer Page 7 of 9

8 Financial Statements and Ratios Income Statement [Table_BalanceSheet] Balance Sheet Year end 31 Dec (RMB m) 216A 217A 218F 219F 22F Total Revenue 59,766 72,567 8,554 87,146 93,344 -Freight Forwarding 37,549 45,719 49,47 53,57 57,42 -Logistics 15,76 18,669 21,47 22,543 23,558 -Storage and terminal services 1,949 2,276 2,385 2,437 2,513 - Logistics Leasing 1,289 1,456 1,573 1,698 1,851 -Others 3,274 4,447 5,657 6,961 8,2 Other income Transportation and related charges (5,725) (62,521) (68,485) (73,692) (78,629) Other expenses (6,82) (7,372) (9,96) (9,892) (1,854) Operating Profit 2,657 3,18 3,52 4,163 4,51 Share of profit of associates Share of profit of JV ,63 1,229 1,382 Finance (expenses)/income, net (138) (434) (421) (445) (398) Profit Before Tax 3,448 3,767 4,214 5,16 5,583 Income Tax (648) (786) (887) (1,) (1,16) Profit After Tax 2,8 2,981 3,328 4,16 4,477 Non-controlling Interest (546) (677) (765) (884) (985) Shareholders' Profit / Loss 2,254 2,34 2,562 3,133 3,492 Basic EPS Cash Flow Statement Year end 31 Dec (RMB m) 216A 217A 218F 219F 22F Profit before tax 3,448 3,767 4,214 5,16 5,583 Depreciation and amortization 1,259 1,279 1,472 1,639 1,83 Share of Profit from JVs and associates (929) (1,22) (1,116) (1,298) (1,47) Other gain/loss, net (493) (671) Changes in working capital (328) 385 (2,952) 312 (1,945) Tax paid (584) (732) (887) (1,) (1,16) Cash from Operating Activities 2,373 3,6 1,135 5,74 3,225 CapEx (3,299) (4,112) (2,944) (2,871) (2,255) Interest received Dividends received from JVs Others Cash from Investing Activities (1,57) (2,442) (1,886) (1,781) (1,26) Net cash (outflow)/inflow from acquisition of subsidiaries under common control 1,73 (34) Change in loans 1, ,257 (711) (94) Dividends paid (484) (53) (592) (715) (613) Dividends paid to minority shareholders of subsidiaries (299) (3) (244) (295) (328) Others 17 (265) (629) (676) (642) Cash from Financing Activities 2,259 (153) 1,792 (2,396) (2,487) Cash at Beg of Year 6,133 9,324 9,79 1,719 11,582 Net Changes in Cash 3, , (288) Cash at End of Year 9,324 9,79 1,719 11,582 11,256 Year end 31 Dec (RMB m) 216A 217A 218F 219F 22F Property, plant and equipment 17,663 18,22 2,51 21,646 22,28 Investment in JVs and associates 4,124 4,584 4,983 5,499 6,67 Land use rights 4,53 5,27 4,654 4,563 4,583 Other non-current assets 4,597 4,217 4,1 4,71 4,21 Total Non-current Assets 3,438 32,3 33,788 35,778 36,878 Cash & Cash Equivalents 9,324 9,79 1,719 11,582 11,256 Trade and other receivables 12,137 12,87 15,3 16,177 17,297 Inventories Other current assets 5,539 7,241 7,155 7,153 7,163 Total Current Assets 27,177 3,72 33,218 35,238 36,27 Total Assets 57,614 62,12 67,6 71,16 72,95 Short-term borrowings 1,338 1,499 5,326 5,26 5,343 Trade and other payables 9,453 11,332 1,621 11,626 12,72 Other current liabilities 13,545 12,19 11,745 12,354 1,566 Total Current Liabilities 24,336 24,941 27,692 29,186 28,611 Long-term borrowings 8,263 1,15 9,76 9,124 8,83 Provisions Other non-current liabilities 1,788 1,479 1,543 1,591 1,646 Total Non-current Liabilities 1,5 11,584 11,33 1,715 9,729 Total Liabilities 34,386 36,525 38,995 39,91 38,34 Share capital 4,66 6,49 6,49 6,49 6,49 Profit/(loss) for the year 2,254 2,34 2,562 3,133 3,492 Reserves 12,94 12,469 13,817 15,345 17,369 Proposed final dividend Total Shareholders' Equity 19,277 21,168 22,836 25,57 27,522 Minority Interest 3,951 4,49 5,174 6,58 7,43 Total Equity 23,228 25,577 28,11 31,115 34,565 [Table_FinancialRatio] Financial Ratios 216A 217A 218F 219F 22F Operating margin (%) SG&A of revenue (%) Net income margin (%) ROA (%) ROE (%) Fixed asset turnover (x) A/R turnover (x) Current ratio (x) Quick ratio (x) A/P turnover days Total debt / EBITDA (x) Net gearing ratio (%) net cash net cash net cash Interest coverage ratio (x) See the last page for disclaimer Page 8 of 9

9 [Table_CompanyRatingDefinition] Company Rating Definition The Benchmark: Time Horizon: 6 to 18 months Rating Hong Kong Hang Seng Index Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. Sector Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%; or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable. [Table_DISCLOSUREOFINTERESTS] DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for KAISA GROUP (1638 HK),GUOTAI JUNAN I (1788 HK),BINHAI INVESTMENT (2886 HK),GFI MSCI A I (3156 HK),CAM SCSMALLCAP (3157 HK),ZHENRO PPT (6158 HK),LINK HOLDINGS (8237 HK),GFI MSCI A I-R (CNY) (83156 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction. 218 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 9 of 9