China New Town Development · 2016-02-15 · Hong Kong Equity | China Property Company in-depth Orient Securities (Hong Kong) Limited Please read the analyst certification, company

Hong Kong Equity | China Property Company in-depth

Orient Securities (Hong Kong) Limited Please read the analyst certification, company disclosure and disclaimer in the last page 1

China New Town Development中国新城镇 (1278 HK)

New town for a new dream

China New Town Development (CNTD) has finally shrugged off its financial burden and troubled legacies to become an investment-oriented urbanization play. Now being a primary listed new-town development platform for China Development Bank Capital (CBDC), it enjoys low-cost funding endorsement and nation-wide project sourcing from CBDC and we believe its earning will first recover and then resume long-term growth as its balance sheet expands to support new investments. We see re-rating catalyst for this developing transformation. Initiate BUY with target price of HK$0.33 for 32% upside down the road.

Identity changed from a Non-SOE to a SOE company. Upon share placing completion in 2013, CDBC, which is the wholly-owned new-town investment arm of China Development Bank (CDB), became largest shareholder of CNTD with controlling stake of 54.32%. Thus, CNTD has transformed from a non-SOE to a SOE. The network of CDBC and influencing power of CDB let CNTD negotiate better terms with local governments.

Business model transforming from a primary developer to a project investor. CNTD is transforming from a primary land developer to an urban development project investor. Major source of income changed from land sales which is highly volatile, to project investment income, of which return is fixed and guaranteed by local governments. Under the new business model, we expect CNTD to turnaround from loss-making in FY13-14 to profit-making in FY15E.

Key driver: Leveraging on low cost funding to grow investment assets size. Thanks to background of CDB group, CNTD is able to gear up its investment return via issuing mid-term loan note and establishing umbrella trust at favorable interest rate. Return on investment can be geared up to >50% p.a.

New project flow subject to macro-economic risks. Major risk of CNTD’s new business model is high dependency on a stable project flow for supporting momentum of investment income growth. The lukewarm economy may slow down urban development pace in short term.

Initiate with Buy. CNTD is trading at 0.6x FY15E P/B in the counter. After deducting illiquid land assets, we estimated its adjusted book value to be RMB1,965mn, or HK$0.236 per share, which is equal to 94% of current trading price. Our target price for CNTD is HK$0.33, which is equal to 20% discount to our estimated fair value based on DCF model. Initiate BUY to CNTD.

Investment Summary FY-end Dec 2013 2014 2015E 2016E 2017E

Revenue (RMBmn) 608 57 - 261 269

Growth (%) (90.7) - - 3.0 Net profit (RMBmn) (213) (61) 35 140 208

Growth (%) 71.2 - 302.2 48.2 EPS (RMBcent) (4.7) (0.6) 0.4 1.4 2.1

Growth (%) 86.8 - 302.2 48.2 P/E (x) - - 59.4 14.8 10.0 P/B (x) 0.4 0.6 0.6 0.6 0.5 EV/EBITDA (x) 10.6 169.9 18.9 7.1 5.3 DPS (RMBcent) - - - - 2.1 Yield (%) - - - - 10.0

Source: Company data, Orient Securities (Hong Kong)

BUY

Share Price Target Price

HK$0.25 HK$0.33

China / Real Estate / Property

15 February 2016

Steve Wong

(852) 3519 1292

[email protected]

Latest Key Data Total shares outstanding (mn) 9,846

Market capitalization (HK$mn) 2,462

Enterprise value (HK$mn) 2,500

12M daily turnover (HK$mn) 0.6

12M volatility (%) 66.0

RoE avg FY14-16E (%) 0.9

P/B FY16E (x) 0.6

Net debt/equity FY16E (%) Net cash

Performance (%) 1M YTD 12M

Absolute (3.85) (13.79) (36.71)

Relative to HSI 3.22 2.61 (11.72)

Major Shareholders (%)

China Development Bank Corporation 54.3

SRE Group Ltd (1207 HK) 14.9

Auditor

Ernst & Young

Price Chart

Turnover (HK$mn) Price (HK$)

Source: Bloomberg, Orient Securities (Hong Kong)

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See last page for disclaimer. 2

Urbanization, the key driver for primary development …

CNTD established as a new town developer in China, which used to focus on primary land

development. Primary land development (or primary development) is a process of

turning land sites from bare land into valuable residential and commercial sites. It is

essential step before the series of construction process for new town development or old

town re-development. The faster the urban population growth, the larger the demand

for new town development and old town re-development, and the faster the investment

placing on primary land development is. CNTD is one of the few primary development

company listed in Hong Kong.

Benefit from China’s urbanization in long term

China aims to grow population in urban area, and targets to have urbanization rate at

60% by 2020. We believe it to be one of major tasks of the 13th Five-Year Plan (FYP).

Influx of rural population to urban areas triggered from urbanization lead to high

congestion and living problem. It creates need for new town development for absorbing

the growing urban population. Furthermore, economic growth will transform an old city

to be commercial center. Therefore re-development project is urged to be carried out for

upgrading the obsolete infrastructure facilities, residential and commercial properties. All

these will boost the demand for primary development.

Mega-city clusters development speeds up China’s urbanization

China government promotes integration for the seven major city clusters (namely

Beijing-Tianjin-Hebei; Zhong-yuan; Yangtze River Delta Economic Zone; Pearl River Delta

Economic Zone; Middle Yangtze River Region; Chengdu-Chongqing and Northeast China)

for creating synergy from optimization of city spatial structure and management layout.

We believe it will speed up urbanization, and hence the investment for corresponding

development projects. Besides, with recovery on China’s property market, we believe

property sales situation will be stabilized, especially in higher tier cities. All these are

expected to support demand for urbanization and primary land development in the

middle to long term.

Figure 2: Urbanization plans of the seven major city clusters A

B

Source: Media, Orient Securities (Hong Kong)

Figure 3: Total sales revenue from primary land development in FY10-14 for major players listed in HK

A

Company Primary land development

revenue

As % of total sales

revenue (RMBmn) (%) CNTD (1278 HK) 3,284 88.26 China Vast (6166 HK) 2,857 54.19 Jinmao (817 HK)^ 15,132 18.82 CCCC (1800 HK) 54,890 3.52

Note^: Denominated in HK$mn

Source: Companies data, Orient Securities (Hong Kong)

Figure 1: Urbanization rate and urban population in China

A

B

Source: NBSC, Orient Securities (Hong Kong)

Northeast China

12th FYP 13th FYP

Harbin urbanization 63% 70% Changchun urbanization 61% 68%

Yangtze River Delta Economic Zone

12th FYP 13th FYP

Shanghai population 24.8mn 26.5mn Nanjing urbanization 80% 83% Jiangsu urbanization 60% 72%

Pearl River Delta Economic Zone

12th FYP 13th FYP

Guangdong urbanization 67.76% 73%

Beijing-Tianjin-Hebei

12th FYP 13th FYP

Beijing population 21.7mn 23mn Tianjin population 14.7mn 18mn Shijiazhuang urbanization 49.3% 60%

Zhongyuan

12th FYP 13th FYP

Henan urbanization 43.8% 56%

Chengdu-Chongqing

12th FYP 13th FYP

Chengdu urbanization 70.3% 77% Chongqing urbanization 58.34% 65%

Middle Yangtze River Region

12th FYP 13th FYP

Wuhan urbanization 67.6% 84% Changsha urbanization 70% 81%



… But new-town development is subject to long-cycle risk

Long development cycle increases risk exposure from change of economic cycle

A primary land development project could last for 8-10 years or even longer, which is

likely to cross two generations of senior government officers. Pace of urban development

and land sales schedule are highly dependent on governments’ development strategy

which is subject to change from time to time. Change of urban development strategy

driven by change of government cabinet may affect the project return when investment

time horizon gets longer. Besides, land sales situation is also dependent on property

market sentiment. The lukewarm property market will discourage secondary property

developer from land acquisition. In short, demand for land will become weak during

tepid property market, while supply of land will be curbed by government’s cooling

policy during hot property market. Under these circumstances, both too hot and too cool

of the property market will cause negative effect on earnings performance to primary

land developer. It is the major drawback of primary land development business.

Five-Year

Plan (FYP)

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

Real GDP

Growth8.4% 8.3% 9.1% 10.0% 10.1% 11.3% 12.7% 14.2% 9.6% 9.2% 10.6% 9.5% 7.7% 7.7% 7.3% 6.9% 6.5% 6.3% 6.1% 6.0% 6.0%

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(RMBbn)

357 463 572 767 1,038 1,758 2,083 2,989 2,507 4,436 5,272 5,859 6,446 8,143 7,629 8,819 9,701 10,671 11,739 12,912 14,204

Growth

(% YoY)30.10 29.40 23.70 34.10 30.00 26.90 18.50 42.10 (19.50) 75.50 18.30 12.10 10.00 26.30 (6.30) 15.60 10.00 10.00 10.00 10.00 10.00

National

Home Price

(RMBpsm)

2,103 2,226 2,291 2,379 2,714 3,168 3,367 3,864 3,800 4,681 5,032 5,357 5,791 6,237 6,324 6,821 7,162 7,520 7,896 8,291 8,706

Growth

(% YoY)4.92 5.85 2.93 3.82 14.09 16.72 6.29 14.77 (1.66) 23.19 7.51 6.45 8.10 7.71 1.38 7.87 5.00 5.00 5.00 5.00 5.00

Land sales

revenue

(RMBbn)

95 146 205 257 290 332 487 600 602 1,000 1,153 1,210 1,350 1,746 1,781 1,870 1,963 2,061 2,165 2,273

Growth

(% YoY)53.70 40.22 25.85 12.82 14.24 46.87 23.03 0.47 66.01 15.27 4.97 11.58 29.31 2.00 5.00 5.00 5.00 5.00 5.00

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10th FYP 11th FYP

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Hu Jintao

Premier

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Xi Jinping

Premier

Li Keqiang

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and land sales revenue for

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12th FYP 13th FYP

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FYP

Urbanization rate 56.1% 60.0%

Urban population 771mn 855mn

With release of “National New-type Urbanization Plan” by State Council in 2014, urbanization became a main driver of China’s economic growth in coming FYP



Intensive capital a high hurdle for primary land developer

As primary land developer, after conducting feasibility studies, CNTD would set up joint

venture project company with local governments. After that, CNTD involved in every

aspect of the corresponding development process ranging from drawing up detailed

development plans and land clearing to setting up infrastructure and public facilities and

commercial properties.

Primary development, a more capital intensive business vs. secondary development

Land clearing, relocating and resettling incumbent residents and businesses are the most

time consuming and capital intensive. These processes required high input of capital

expenditure. In the meanwhile, unlike secondary development, primary development

project is unable to make pre-sales. It implies that no significant amount of cash will flow

in primary land developer before completion of the project.

Furthermore, due to complexity of land clearing process, development cycle of primary

land development project is longer than that of secondary property development. Entry

barrier of primary development industry is higher. Against these backdrops, usually,

primary land development will be carried out by operation arms of local government

because of their: 1) fundraising capability, and 2) strong bonding with land clearing

authority.

Figure 4: Primary and secondary development project Primary land development project

Secondary property development project

B

Source: Orient Securities (Hong Kong)

Figure 5: New town development cycle Source: Company data, Orient Securities (Hong Kong)

Stage 2 (1 months) Co-development agreement with local governmental authority

Stage 3 (1-2 months) Formation of joint venture company

Stage 4 (3-6 months) Project design and plan approval

Stage 1 (4 months) Site selection and master planning and feasibility report

Stage 6 (1.5-3 years) Relocation and resettlement for incumbent residents and businesses

Stage 7 (4-8 years) Site clearance, infrastructure establishment and construction of facilities

Stage 8 (Subject to gov’t plan) Sale of land use rights

Stage 5 (Continuous throughout the project) Seeking financing



A complete look at primary versus secondary development

Cycle 1 Cycle 2 Cycle 3

High initial CAPEX for primary development Primary land development:

High initial CAPEX at early stage, including expenditures for clearing & leveling land and building of necessary infrastructure

No presale for primary land development

No significant cash inflow at beginning stage Secondary property development:

Relatively low CAPEX at early stage, which mainly coming from land acquisition

Pre-sales can be carried out before project completion

Better liquidity for secondary property development project

Primary land development:







Figure 6: Primary land development vs. secondary property development


Long development cycle for primary development Primary land development:

Transformation from bare land into valuable residential and commercial sites is time consuming.

Demolition of existing structures and construction could be complicated if incumbent residents and businesses refuses to relocate voluntarily

The whole development cycle can be lasted for 5-8 years, or even longer

Secondary property development:

Construction period of residential and commercial building from well-established site is relatively short

The whole secondary development cycle is 2-3 years


Transformation from bare land into valuable residential and commercial sites is time consuming.

Demolition of existing structures and construction could be complicated if incumbent residents and businesses refuses to relocate voluntarily

The whole development cycle can be lasted for 5-8 years, or even longer


Construction period of residential and commercial building from well-established site is relatively short

The whole secondary development cycle is 2-3 years

Relatively low controllability for primary development Primary land development:

Primary land development project is initiated by local government

Land sales schedule and amount are subject to approval from government authorities

Profit sharing scheme from land sales to primary developer is decided by local government, which is subject to change from time to time


Project selection is more flexible for secondary developer

Property sales schedule is controllable for developer

Profit sharing scheme from property sales is fixed at beginning


Primary land development project is initiated by local government

Land sales schedule and amount are subject to approval from government authorities

Profit sharing scheme from land sales to primary developer is decided by local government, which is subject to change from time to time


Project selection is more flexible for secondary developer

Property sales schedule is controllable for developer

Profit sharing scheme from property sales is fixed at beginning

High initial CAPEX for primary development Primary land development:








High initial CAPEX at early stage, including capital expenditures for clearing & leveling land and building of necessary infrastructure






Low cash flow visibility for primary development


Potential increment on CAPEX for land clearing during negotiation with incumbent residents and businesses

owner

High fluctuation on land sales which could be zero for years

Land buyers are mainly secondary developers, and it is subject to more factors such as land bank abundance


Payment of land premium is fixed at beginning, and construction cost for residential/commercial building is

highly visible

Fluctuation of property sales is relatively lower

Directly sell to end-users


Potential increment on CAPEX for land clearing during negotiation with incumbent residents and businesses owner

High fluctuation on land sales which could be zero for years

Land buyers are mainly secondary developers, and it is subject to more factors such as land bank abundance


Payment of land premium is fixed at beginning, and construction cost for residential/commercial building is highly visible

Fluctuation of property sales is relatively lower

Directly sell to end-users

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

Cash flow for primary land development Cash flow for secondary property development

One cycle lasting for 8-10 years, or

even longer

3-4 cycles in 10 years

V.S.



Figure 7: Land sales history of CNTD Year Land

area sold Land

premium ASP

(sqm) (RMBmn) (RMBpsm) FY07 169,215 427 2,523 FY08 607,536 1,173 1,930 FY09 334,162 2,025 6,060 FY10 398,468 2,526 6,339 FY11 35,642 538 15,095 FY12 187,750 1,121 5,971 FY13 110,022 1,350 12,270 FY14 14,046 125 8,864 9M15 - - N/A


Weak earnings performance triggering assets disposal

Although primary development is benefited from urbanization policy in China and

incentive from economic gain of re-development, the associated risks will hold back

attractiveness of land development project. We consider the major risk is low visibility on

land auction in future.

High dependency on local governments’ development plans

Return on primary land development is derived from sale of land use rights in the new

towns being developed. However, the amount of available land for sale is subject to

approval from the relevant governmental authority. As urban development plans is

subject to change from time to time, there is no assurance about the exact timing of land

sale or the final price at which land use rights are sold. The instability of primary land

development business caused poor assets return and weak cash flow to CNTD in past few

years. The Company made net loss in five years and has cumulative net loss of RMB

1.18bn during FY07-14.

Weak and high fluctuation on cash flow led high gearing

Revenue was highly fluctuated during FY07-14 due to uncontrollable land sale schedule

of local governments, so as to selling price of the corresponding land parcels. Land area

sold during the year to third parity property developers was fluctuated from 14,046 sqm

to 607,536 sqm. Furthermore, due to weak cash inflow and heavy capital intensive at

beginning stage of primary development project, gearing of CNTD was hiking in FY07-13.

The corresponding financial cost eroded all of profit from land sales.

Disposal of low profit margin businesses

Due to immaturity of its new town development projects and ancillary facilities

operation businesses, such as hotels, hospitals and convention centers, CNTD has

decided to dispose the unprofitable assets since 2013. It lowered the net gearing to 2.6%

at end-2014. Upon completion of the series of assets disposal activities, only two major

assets left: Shanghai Luodian project and Shenyang Lixiang project.

Figure 8: Weak cash flow and high gearing Figure 9: Instability of earnings from sales of land A

B

A

B

Source: Company data, Orient Securities (Hong Kong) Source: Company data, Orient Securities (Hong Kong)

Net gearing dropped in FY10 due to IPO in HK

Net gearing dropped significantly after assets disposal



Shanghai Luodian project, a model town for CNTD

Shanghai Luodian is a typical new town development project. In order to alleviate

congestion in downtown of Shanghai, the city government launched a development plan,

named “One City, Nine Towns”. The plan was established to encourage each of the local

governments in the nine districts to develop one experimental new town for encouraging

residents to move out of downtown Shanghai. Luodian Project is one of the “Nine Towns”,

which located in Baoshan. Total saleable land area is 2.3m sqm, and remaining land area

available to sell is 0.6m sqm. It is connected with downtown by Shanghai Metro Line No.

7. It takes 30min to reach city center of Shanghai. The Project became the economic

center of Northern Baoshan.

The project is started in 2002 when CNTD entered into JV agreement with local

government. After ten years development, a series of ancillary facilities such as hotels,

hospitals, schools, and shopping area, have been established. In 2010, Shanghai Metro

Line 7 was extended to Luodian New Town. All these lead the project to successfully

attract top-tier property developers, such as Sino-Ocean, Cinda, Vanke and Jingrui.

As most of initial CAPEX mainly for land clearing and infrastructure development has

been invested, no significant CAEPX is expected for the project in future. The project has

entered harvesting stage. We believe it is the major reason on which CNTD want to retain

it from the Assets Disposal scheme.

Figure 10: Map and facts of Luodian A

Summary Luodian project: Key facts CNTD’s interest 72.6% Profit sharing ratio 48.0% Completion rate 96.0%

Total salable land 2.27mn sqm Remaining land available 0.6mn sqm Latest selling price RMB 8,850psm

Total area in Luodian 44.2 sq.km Site area of Luodian project 6.8 sq.km

Population in Luodian 52,860 citizens Economic value (in 2014) RMB 6,064mn Financial income to gov’t RMB 612mn

B


Figure 11: New town development of Luodian Source: Company data, Orient Securities (Hong Kong)

New town development

Secondary developers

Golf course

Hospital

Hotel

Shopping mall

Ancillary facilities



Figure 12: Historical land sales of Luodian A

Year Month Site Area Price ASP (sqm) (RMBmn) (RMBpsm)

FY14 Jun 14,046 125 8,864 FY13 Mar 110,022 1,350 12,270 FY12 Oct 37,209 234 6,289 Nov 34,558 279 8,073 Nov 53,838 533 9,900 FY11 Jan 35,642 538 15,095 FY10 Aug 43,326 523 12,071 Aug 107,825 1,377 12,771 FY09 Apr 96,842 422 4,362 Sep 102,246 1,400 13,692 FY08 Jan 82,529 368 4,459 Aug 62,859 321 5,107 Aug 29,966 167 5,562 FY07 Nov 120,595 350 2,902

B


Luodian project good for retained

According to National Bureau of Statistics of the PRC of China (NBSC), total residential

property sales in China was up 14.4% YoY in 2015 to RMB 8.7trn, while that in Shanghai

was up 45.6% YoY. Total land purchase cost in China was RMB1.8trn, up 1.2% YoY in 2015,

while that in Shanghai was up 15.0% to RMB 100bn. We see recovery on both land

purchase and residential sales in Shanghai are outpacing.

Going forward, we believe China’s government to roll out more measures to reduce

inventory in property sector in 2016. De-stocking of property market may hold back new

starts of property development in Shanghai in short term. Nevertheless, strong demand

for residential in Shanghai is expected to be growth driver in middle term. Furthermore,

in our view, well establishment of western area and commencement in operation of

Meilan Lake subway station will be good support for land sales volume and selling price

in western area of Luodian. It will benefit sales situation in medium term.

Management expectation: Six year to sell the stock

After discussing with management, we expect the sale schedule for land parcels of

Luodian is relatively promising. Completion ratio for Luodian project is 96%. We assume

remaining land parcels in Luodian to be sold in coming eight to ten years due to well

establishment of Luodian.

Figure 13: Land transaction in Shanghai Figure 14: Property transaction in Shanghai A

B

A

B

Source: NBSC, Orient Securities (Hong Kong) Source: Centraline, Orient Securities (Hong Kong)

Figure 15: Land purchases growth in Shanghai vs. China, 2013-15 Figure 16: Residential sales growth in Shanghai vs. China, 2013-15

A

B

A

B

Source: NBSC, Orient Securities (Hong Kong) Source: NBSC, Orient Securities (Hong Kong)



Figure 17: Map and facts of Lixiang A

B


But Shenyang project was another story: too poor to sell

Shenyang is one of the key cities within the Pan Bohai Rim Economic Region and an

economic and trade center of Northeastern China. Lixiang Project is located within Da

Hun Nan area, which is 25km from Shenyang’s city center and adjacent to Shenyang

Taoxian International Airport. Under the strategic plan of Dahunnan area, a new

administrative, cultural and transportation centers of Shenyang will be situated in the

Dahunnan area. The project is positioned as new town of recreational city for developing

tourism including modern agriculture, entertainment and F&B.

Leveraging with China Development Bank’s connection, we expect CNTD to have better

support from local government. Nevertheless, poor property market environment in

Liaoning creates headwind for land sales of the project in future. According to

management, CNTD will not put much emphasis on land sales of the project.

Situation of Lixiang, not as good as Shanghai

Unlike Shanghai, land sales situation in Shenyang is far more negative. According to NBS

of Shenyang, total residential sales in Shenyang was RMB 56bn, plunged by 28.8% YoY in

2015. Land sales in Shenyang dropped 51.9% YoY to RMB 8bn in 2015 according to

Ministry of Land and Resources of Shenyang, which is far below from peak in 2011-13.

The demand for real estate in Northeast China has been weakening due to sluggish local

economic growth. Going forward, we believe coal and commodity price to remain tepid

in 2016, and local economy is less likely to have a significant rebound in short future.

Large uncertainty on the project, assume no sales in coming years

The Shenyang Project was originally planned to be completed by 2015. Nevertheless, no

progress had been made since 2009, and completion rate of the project is remained at

45% as of end-2015. We believe recovery will not be significant under slow growth in

manufacturing activities, and it will bring a larger uncertainty on turnaround of local

property sales situation. In our model, we assume no sales to be made in coming three

years from Lixiang project.

Figure 18: Land transaction in Shenyang Figure 19: Property transaction in Shenyang A

B

A

B

Source: Ministry of Land and Resources of Shenyang, Orient Securities (Hong Kong) Source: NBS of Shenyang, Orient Securities (Hong Kong)



Figure 20: Outstanding loan of CDB A

B

Source: CDB, Orient Securities (Hong Kong)

Big change #1: CDBC taking control, new era of CNTD

The Company announced share subscription of Chin Development Bank Capital (CDBC)

via a wholly-owned subsidiary, named China Development Bank International Holding

Limited, on Mar 18, 2013. Upon completion of share placing in Mar 2014, CDBC became

the largest shareholder of CNTD with controlling stake of 54.32%.

China Development Bank (CDB) is a policy bank, which provides medium to long term

financing facilities to government projects of national priority for supporting economic

development in China. It is under the direct jurisdiction of the State Council. The balance

of loans to urbanization projects by CDB reached RMB 4.1trn, accounted for 75% of total

CDB’s RMB loans.

CDBC is a wholly-owned by CDB. It is the direct investment arm of CDB. CDBC is

committed to provide integrated solutions for urbanization and development project in

China. It partners with local governments’ investment platforms for developing

businesses along urban development value chains.

Transformation to project investment-oriented company

CNTD became listing platform of CDBC for investing on urban development project in

China. The Company will combine its expertise in primary land development and urban

operations with CBDC’s investment and financial strength to provide integrated new

town development solution to local governments.

Upon being taken control by CDBC, CNTD transformed from Non State-owned primary

land development executor to State-owned urbanization project investor. Thanks to

support of CDB and CDBC, CNTD has stronger bargaining power to negotiate with local

governments such that it can get favorable terms for investing on the projects. Nanjing

Yuhaitai re- development project is the first project intake of CNTD after its

transformation. The Company is able to earn guaranteed fixed return rate with clear

profit distribution schedule and exit arrangement from the project. For more details,

please refer to later part of this report. Besides, by leveraging on background of CDB,

CNTD is able to source low cost funding. The Company successfully issued RMB 1.3bn

Senior Guaranteed Notes at 5.5% interest rate in 2015. We believe that liquidity is no

longer a restriction for CNTD.

Figure 22: Comparison on CNTD before and after CDBC taking control

A

Before After Ownership Non-SOE SOE Business model Primary

project executor

Project investor

Major source of income

Profit sharing from land sales

Guaranteed return from project investment

Earnings visibility

Low High

Cost of funding High (6-8%) Low (<6%) Return risk High Low Investment horizon

Long (8-10 yrs)

Short (<5 yrs)

B


CAGR: 18.3%

Figure 21: Relationship of CDB, CDBC and CNTD with local governments


Local government

Investment platforms

Urban development projects

New town development/Old town re-development and Infrastructure construction, such as Power projects, Roadway construction, Railway, construction, water conservancy projects

Owning

JV Company

Investing

Capital Contribution

Capital Contribution

Capital Contribution & seek further cooperation

CDBC

Investment arm of CDB for partnering with local gov’t on investing in urban development projects

CNTD

Listing platform of CDBC for investing in urban development project & seeking further cooperation

Controlling Stake

CDB

Policy bank providing financing facilities to local government for urban development

Loans

Project executor

Outsource development works, such as land clearing & leveling and infrastructure construction

Tender



Big change #2: asset disposal turning trash to cash

Disposal Master Agreement in Oct 2013 for RMB 2.07bn

CNTD and SREI entered into a Disposal Master Agreement in Oct 2013 together with

announcement on share Subscription of CDBC. According to the agreement, CNTD would

sell a series of assets to SREI for consideration of RMB 2.07bn. Such consideration is

payable in cash in five installments within 24 months from March 2014 (completion date

of CDBC Subscription). Most of the assets being disposed are low profitability, which was

used to be burden of CNTD. Upon completion of disposal, on one hand, CNTD can lower

burden from saving the corresponding operating expenses estimated at ~RMB 100mn

per year. On the other hand, proceeds from liquidation of the assets can be redeployed.

Disposal of Wuxi project group in Dec 2014 for RMB 1.1bn

CNTD announced in Dec 2014 to sell Wuxi Project Group, which consists of both SREI

Disposal Assets and Non-SREI Disposal Asset, to Wuxi government for RMB 1.1bn. The

transaction is with the consent of SREI. It further downsized primary development assets

of CNTD.

Disposal of 30% of stake on Changchun New Town in Nov 2015 for RMB 66mn

The Company announced in Nov 2015 to sell 30% stake of Changchun New Town to

Administrative Committee of Changchun Automotive Economic-Technology Development

Zone for RMB 66mn. Upon completion of the disposal, stake holding of CNTD on

Changchun New Town will drop to 50%.

Two major assets remained: Luodian, Shanghai & Lixiang, Shenyang

Two major assets are retained in the Company after series of assets disposal activities:

primary land development for Luodian in Shanghai and Lixiang in Shenyang. Based on

assumption on ASP for Luodian and Lixiang of RMB 8,850psm and RMB 740psm,

respectively, we estimate fair value for these two assets to be RMB 8.2bn. Nevertheless,

because of weak liquidity of SREI, no more installment payment was made after receipt

of the first payment.

Figure 23: Cash value unlocked A

Item Proceeds (RMBbn) Disposal Master Agreement in Oct 2013

2.07

Disposal of Wuxi project group

1.10

30% of Changchun New Town 0.07 Less: overlapping 0.60

Cash value unlock 2.64 B


Figure 24: Major assets disposed


SREI

Dispose to RMB 2.07bn Of which: - RMB 0.4bn (20%) has been paid - RMB 0.6bn has been deducted

from asset disposal agreement on Wuxi project group

Outstanding balance: ~RMB 1bn

Disposal Master Agreement

Net assets value: RMB 2.1bn Disposal value: RMB 2.07bn, Of which:

Consideration was RMB 1bn Loans repayable was RMB 1.07bn

Shanghai Luodian ancillary facilities operation business, such as hotel, hospital, golf course

Chengdu project

Wuxi project (Changed to dispose to Wuxi government)

Disposal of Wuxi projects group

Net assets value: RMB 0.46bn Disposal value: RMB 1.1bn, Net gain from disposal is RMB 0.6bn

Wuxi Gov’t

Dispose to

RMB 1.1bn Outstanding balance: ~RMB 0.5bn

Wuxi Hongshan Development

CNTD

30% of Changchun New Town

Automotive Development Zone Committee

Disposal of 30% stake on Changchun New Town

Net assets value: RMB 6.45mn Disposal value: RMB 66.28mn Net gain from disposal is RMB 53.84mn Outstanding balance: ~RMB 66mn

Dispose to

+



CMI taking control on SREG, installment expected to resume

Shi Jian, former Chairman of CNTD and SREG, has been requested by Changzhou

government to stay under custody at designated residence in June 2015. After that, Poly

Real Estate (600048 CH) expressed an interest to take control on SREG by share

subscription in the same month, but the deal was called off in Aug 2015. Nevertheless,

China Minsheng Jiaye (CMJI), which is the real estate arm of China Minsheng Investment

(CMI) signed a MOU with SREI for subscription of share in SREG such that CMJI will

become the largest shareholder with controlling position in Sept 2015. The transaction

was completed in Dec 2015.

CMI taking control on SREG, postponed assets disposal expected to resume

According to management, SREG is the guarantor on payment of the disposal

consideration of SREI. SREG Subscription successfully issued and placed 14.9bn of share

in Dec 2015, and CMJI became major shareholder of SREG with controlling stake of

60.78%. The strong background of CMI is expected to provide financial aid to SREI for

completing the assets disposal. According to Cheng Donghui, CEO of CMJI, CMI will

consider injecting assets into SRE Group for strengthening assets and capital structure of

SREG. It is positive for enhancing stability and sustainability of SREG’s business, and

hence capability on paying the outstanding installment to CNTD. We believe the

postponed asset disposal payment to resume in Mid-2016.

Figure 25: Time line for major events

Source: Companies data, Orient Securities (Hong Kong)

Apr 2014

SREI timely paid the first installment of disposal consideration in Q2 2014

Jun 2015

Shi Jian, former Chairman of CNTD and SREG, has been requested to stay under custody at designated residence MOU signed for share subscription by Poly Real Estate (600048 CH) on SREG

Sept 2015

MOU signed for share subscription by CMI on SREG

Aug 2015

Call off of share subscription by Poly Real Estate (600048 CH) on SREG

Mar 2013

MOU signed for share subscription by CDBC on CNTD

Oct 2013

Detail of Share Subscription plan and Disposal Master Agreement announced

Mar 2014

Completion of share subscription by CDBC. CDBC becomes largest shareholder with controlling stake of 54.32%.

Jun 2014

Cooperation framework agreement on Yuhaitai re-development project signed. This is the first project intake after CDBC taking control

Sept 2014

Delay on payment of second installment of disposal consideration, which scheduled to be paid by Sept 2014

Dec 2014

Disposal of Wuxi project group

Sept 2015

Suspension of Mr. Shi's duties on CNTD

Dec 2015

Completion of share subscription by CMI. CMI becomes largest shareholder of SREG with controlling stake of 60.78%

CNTD related event

SREG related event



Yuhaitai re-development project, a new business model

Yuhuatai project is the first project intake after CDB took control on CNTD. The project is

located in the Two Bridge (Tiexin Bridge and Xishan Bridge) region of Nanjing. The urban

re-development project (Two Bridge Project) was introduced for accommodating

urbanization of Nanjing.

New business model: Fixed and guaranteed return

For re-developing Two Bridge area of Yuhuatai District, CDB Yuhua has been established

for primary land development including demolition of existing houses and building.

Before introduction of CNTD, CDB Yuhua has registered capital of RMB 510mn owned by

Software Valley Tourism and Software Valley Asset, which are subsidiary of Yuhuatai

District State-Owned Asset Operations (SOAO) and Yuhuatai District Government,

respectively. CNTD has contributed additional capital of RMB 490mn to CDB Yuhua in

2014, such that registered capital of CDB Yuhua increased to RMB 1,000mn and CNTD

has 49% stake of interest on the project company.

CDB Yuhua is the sole authorized primary land developer of Two Bridges Project, and has

priority to participate in development of other primary land projects within the planning

area of the Yuhuatai District. Yuhuatai District Government has agreed that Yuhuatai

SOAO shall guarantee 17.1% pre-tax fixed investment income on capital contribution to

CDB Yuhua. After-tax fixed return is estimated of 12.8%. CDB Yuhua shall pay dividends to

its shareholders, including CNTD, each year as practicable. If such dividends do not satisfy

the fixed return requirement, Yuhuatai District Government and Yuhuatai SOAO shall

ensure to pay to CNTD for satisfying such requirement. Upon termination, Yuhuatai

District Government and Yuhuatai SOAO will buy back share of CDB Yuhua from CNTD an

amount equal to capital contribution plus accrued fixed income.

Figure 26: Key summary of Yuhuatai project A

Project company: CDB Yuhua

Total investment size (RMBmn) 1,000 Investment amount by CNTD (RMBmn)

490

Shareholding structure (%)

CNTD 49.00 Software Valley Tourism 41.00 Software Valley Asset 10.00

Return guarantor:

Yuhuatai District Government Yuhuatai District State-Owned Asset

Operations

Pre-tax return on the project (%) 17.10 After-tax return (%) 12.80 Site area (sq.km) 21.40 Investment horizon (year) 5

B


Figure 27: New business model of CNTD (taking Yuhautai project as example)


Share buyback from CDC Yuhua upon expiry of the term of agreement

CNTD

Governments/authorities

CDB Yuhua

49%

RMB 490mn

51%

RMB 510mn

Primary land development services, including land clearing

Services charges payment

Subsidy, covering in financial budgeting

Two Bridges Project

(600)

(400)

(200)

-

200

400

600

800

FY14 FY15 FY16 FY17 FY18 FY19

(RMBmn)Cash flow for CNTD

Service providing stage

Initial investment stage

Project exiting stage

Initial investment stage: CNTD contributes capital of RMB 490mn for taking minority position in CDB Yuhua

Service providing stage: JV-company will provide primary land development services to re-development project for fixed service charges. The re-development project will receive subsidy from local government, which is covered by financial budget such that profit distribution can be guaranteed. CNTD will receive RMB 84mn of distribution from CDB Yuhua per annual for 5 years

Project exiting stage: CDB Yuhua will repurchase the equity interest of CNTD upon expiry of agreement



Yuhaitai, big project taking time to negotiate

Yuhuatai project is a mega-sized project for CNTD, of which capital contribution from the

Company is RMB 490mn. It is the largest investment project in terms of capital

contribution amount since CDBC has taken control on CNTD. Going forwards, we

anticipate a longer approval process for mega re-development project under weakening

economy. It may slow the project flow for CNTD in short term.

Figure 28: Site visit photos on Yuhaitai A

B


Figure 30: Location of Yuhuatai project A

B


Figure 29: Key milestone of Yuhautai project A

B


Jun 2014 – Framework Agreement formed CNTD entered into the Cooperation Framework Agreement on with Nanjing Yuhuatai District government and CDBC. The key terms of investment project, such as capital contribution amount from CNTD, return on investment, investment horizon, are preliminarily mentioned.

Aug 2014 – Further discussion on commercial terms CNTD voluntarily made announcement on progress of Yuhaitai project. CNTD has further discussed with Yuhaitai District government on detailed commercial terms of the project. The Company has achieved solid progress.

Nov 2014 – Entered into agreement and contributed capital CNTD announced that it has entered into Cooperative Investment Agreement with Yuhuatai District Government and other related parties. The detailed terms of the project are confirmed, and capital has been contributed by CNTD to the project. Major key terms: Capital contribution from CNTD: RMB 490mn Stake owned by CNTD: 49% After-tax fixed return: 12.8% Exit arrangement: The project company repurchases CNTD’s equity interest in CDB Yuhua.

1H15 – Investment income received from Yuhuatai Project Investment income started contributing profit for CNTD in 1H15. Of which RMB 7.77mn has been received. The shorts from cash received and investment income were booked as investment return receivables.

Jan 2014 – Start discussion CDBC Start negotiating with local government



Potential upside: option for secondary development in Yuhaitai

Yuhuatai District Government promised to coordinate land sales process in Two Bridge

area in order to help CNTD to acquire land for secondary development. We believe it is

able to create upside potential on the project on top of the fixed and guaranteed return

from primary land development investment.

Stepping into secondary property development

Yuhuatai District Government promised to arrange 400,000sqm (or 600mu) of land for

CNTD to acquire in 2016-21. We believe CNTD to co-develop secondary development

with other property developers. Under the arrangement, CNTD not only can get the land

for secondary development at a relatively low price, but also has a better strategic

investment planning leveraging on its understanding on the overall development plan of

Two Bridges area from involvement of primary land development.

The first secondary property development project induced from Yuhuatai project

CNTD has entered a strategic cooperation framework agreement with Shenzhen Venture

Capital Group (SVCG) in Sept 2015. The Company will acquire 13.9% of share capital of

Jiangsu Hong-tu Software Venture Capital Investment (Hong-Ruan Investment) from

SVCG with a consideration of RMB 37.5mn. Through Hong-Ruan Investment, CNTD can

indirectly participate into development of A5 land parcel in Nanjing Yuhuatai Software

Valley. The A5 land parcel has a site area of 34,296 sqm with planned GFA of 179,626

sqm. The land is situated in prime location of Nanjing Yuhuatai Software Valley, adjacent

to Nanjing high speed railway station. It will be primarily developed for office building

use.

Property market recovery in Yuhautai District

We see property sales situation of Yuhuatai District is recovering during 2H15, and we

are positive on long term growth of the district. The Two Bridges Project is located in

Yuhuatai District of Nanjing. It is at center of Nanjing Software Valley, which is China’s

largest communication software industrial park which achieved annual software and

information technology services revenue increased from RMB 52bn in 2011 to RMB

200bn in 2015. There are 110,000 software personnel working and living in the district of

Software Valley. According to urban development plan, it is targeted to grow the

software valley such that number of personnel enlarges to over 800,000 by 2020. We

believe it will support demand for residential property in the district in future.

Figure 31: Unit sales of residential in Yuhaitai Figure 32: Property transaction in Nanjing A

B

A

B

Source: Nanjing Housing Authority, Orient Securities (Hong Kong) Source: NBS of Nanjing, Orient Securities (Hong Kong)



Further plans: industry value chain and township management

Urbanization includes not only property development, but also introduction of 1)

industry value chain for improvement of economic growth and employment; and 2)

township management for improvement of living environment.

Industry value chain, an added value of CNTD for local government

The Company has entered a strategic cooperation framework agreement with National

Integrated Circuit Industry Investment Fund (National IC Fund), which is initiated by CBDC,

in May 2015. According to the agreement, National IC Fund will introduce local

government partners and major players in IC industry to CNTD, as well as preferentially

procure construction and re-development services from CNTD for IC industrial park

development. Furthermore, in Dec 2015, CNTD established CDB Agriculture for investing

in Chengdu Agriculture which is a JV company of CDBC and Chengdu government. CNTD

is able to learn from experiences on farmland relocation and agricultural development of

Chengdu Agriculture. We believe it is benefit for CNTD from improving chance of winning

re-development projects with explicit conditions on concurrent restoration of farmland.

Thanks to background of CDBC, CNTD can seek cooperation with operation arms, such as

National IC Fund and Chengdu Agriculture, on industry development project of CDBC. It

can increase chance of success on the urban development projects, and hence bring

added value to local governments.

Township management, a recurring income for CNTD

CNTD plans to help district governments to develop township management system for

ancillary facilities (such as school, hospital, distributed power, solid wastage management)

via establishing JV companies with facilities operators and local government. With strong

understanding on district urban development from participating in primary (as well as

secondary) development and accessibility of land resources, we believe CNTD can work

as a good coordinator between facilities operators and governments. Although township

management services businesses will not bring significant income in short-to-medium

term, we believe it will help CNTD to develop a source of stable and recurring income in

long term.

Helping governments to develop industry

Figure 34: Examples of ancillary facilities operation for township management

Source: Companies data, Orient Securities (HK)

Education provision Maple Leaf (1317 HK) - International school operator in China. It forms PPP partnership with local governments. Governments are responsible for school construction, while the company is responsible for offering education services.

Solid waste treatment China Everbright Int’l (257 HK)/Canvest Env’t (1381 HK) – Waste-to-energy (WTE) providers operating WTE plants under BOT/BOO model. Local governments provide solid waste to the companies, and the companies will charge waste processing fee and receive on-grid power tariff from WTE process.

Smart grid Boer Power (1685 HK)/Wasion Group (3393 HK) – Waison mainly provides smart meter for real time measurement, and Boer provides integrated electrical distribution system and solution. It can improve communication between the utility and its customers, which lead better integration of customer-owner power generation systems

Healthcare Phoenix Healthcare (1515 HK) – Operator of private hospital under IOT model. It provides a full spectrum of general healthcare services. The company participates in PPP project with government-owned hospital, via which hospital management services are outsourced to Phoenix Healthcare.

Figure 33: Corporate structure of CDBC

Source: CDBC, Orient Securities (Hong Kong)

National Integrated Circuit Fund

China-Africa Development Fund

Equipment Manufacturing Investment Fund

CDB Kai Yuan Private Equity FOF

CDB Urbanization Development Fund

CDB Urban Transportation Investment Development Fund

CDB International Holding Co. Ltd (CDBIH)

CDB Innovation Capital Co. Ltd

CDB Assets Management Co. Ltd

CDB New Energy Technology Co. Ltd

CDB Development Fund

CDBC CNTD

(1278 HK)

CDB Int'l Investment (1062 HK)

Cooperation framework



Magnifying return using secondary leverage

CNTD establishes an Umbrella Trust for secondary leverage to invest in projects. It can

help the Company to enhance project return. Technically speaking, an Umbrella Trust is a

trust plan designed to provide high leverage for trust investor. Thanks to strong

connection with China Development Bank, CNTD can partner with financial institutes to

establish Umbrella Trust. The Company announced to set up an Umbrella Trust with Bank

of Communication (BOCOM) in June 2015. We believe more Umbrella Trusts will be

established in future.

CDB (Beijing) – BOCOM New-Type Urbanization Development Fund

The Company has entered into an agreement with Bank of Communications (BOCOM)

Schroder Fund, CDB Development Fund, CDB Capital and CDB Investment-Development

Fund Management (Beijing), for setting up of an investment partnership, named CDB

(Beijing) – BOCOM New-Type Urbanization Development Fund (CDB-BOCOM Fund) (国开

（北京）– 交行新型城镇化发展基金). Total investment amount of CDB-BOCOM Fund is

RMB 10bn, of which capital contribution of CNTD is RMB 150mn. The fund primarily

focuses on old town reformation, shanty town reformation, primary land development

and integrated land and property development project.

General partner of CDB-BOCOM Fund is CDB Investment-Development Fund

Management (Beijing) Co. Ltd, a wholly-owned subsidiary of CBDC, while limited partners

of the fund are categorized in three types: senior-tranche, mid-tranche and Junior-

tranche. CNTD is one of limited partner in Junior-tranche. In accordance with agreement,

senior- and mid-tranche limited partners are entitled a guaranteed but ceilinged return

rate. For junior-tranche limited partners and general partner, they are not entitled to

preferential investment gains but enjoy profit sharing of the Fund.

CNTD seeks debt financing for leveraging up return on shareholder equity. This is primary

leverage which is on listing company level. When CNTD invests project via the Fund, it is

equivalent to use investment capital from senior- and mid-tranche partners as secondary

leverage. Investment return after secondary leverage can be over 50% p.a.

Figure 35: Partnership of CDB-BOCOM Fund A

Partnership Return Arrangement

Capital Paid

(RMBbn) Senior Tranche: - BOCOM

Schroder Fund

PBOC rate (5yr loan) + 1.6ppt

8.00

Mid Tranche: - CDB

Development Fund

Fixed rate at 12% 0.80

Junior Tranche: - CNTD - CDBC

Profit sharing after Senior and Mid tranche investor

1.20

Total 10.00

B Source: Company data, Orient Securities (Hong Kong)

Figure 36: Structure of CDB (Beijing) – BOCOMM New - Type Urbanization Development Fund


Capital contribution:

Total fund size: RMB 1.2bn

CNTD: RMB 150mn

CBDC: RMB 1,050mn

Junior-Tranche (12% of stake)

Total fund size: RMB 2bn

Leverage: 1.67x

Mid-tranche (8% of stake)

CDB Development Fund: RMB 800mn

Total fund size: RMB 10bn

Leverage: 8.33x

Senior-tranche (80% of stake)

BOCOM Schroder Fund: RMB 8,000mn

Investment: RMB 500mn

Return: RMB 60mn

Attributable to Senior-tranche RMB 400mn X 7.25% = RMB 29m

To Senior-tranche: RMB 29mn

To Mid-tranche: RMB 4.8mn

Attributable to Mid-tranche RMB 40mn X 12% = RMB 4.8m

The rest for junior-tranche Total return: RMB 60mn Less: Attr Senior: RMB 29mn Less: Attr Mid: RMB 4.8mn

Net profit: RMB 26.2mn

Shanty-town Reformation Project Assume: The Fund invests RMB 500mn capital on the project with fixed return of 12% for one year

Capital contribution for Junior RMB 500mn X 12% = RMB 60mn Net return for Junior RMB 26.2mn Rate on return: RMB 26.2mn/RMB 60mn = 43.7%

Case study:



Strong new project flow: new management with good execution

Upon completion of share placing to CDB, the Company had been undergoing internal

restructuring lasting for one year. In late 2014, Yuhuatai development project, the first

project introduced by CDB entered to CNTD. After that, we see new project flow to the

Company is strong and sustainable. It reflects good execution and project sourcing

capability of new management.

High project return thanks to secondary leverage

As of Dec 31, 2015, there are 18 new projects newly signed by CNTD since introduction

of CDB as controlling shareholder of the Company. Of which 13 are invested via

CDB-BOCOM Fund, and five are directly invested by CNTD. Total investment size

amounted to RMB 1.4bn, and RMB 65.2mn of capital are invested via CDB-BOCOM Fund.

Average return for the 18 projects is 32.6% p.a., thanks to the 13 projects invested under

CDB-BOCOM Fund which return have been geared-up.

Figure 37: Key project flow of CNTD after CDBC taking control A

Investment Project Investment Horizon Pre-tax Guaranteed investment income Date Size Return FY15E FY16E FY17E FY18E FY19E FY20E (RMBmn) (Year) (%) (RMBmn)

2014-Jun Nanjing CDB Yuhua Slum Area Transformation and Re-development

490.0 5.0 17.10

83.8 83.8 83.8 83.8 69.8

2015-Jul Danyang Tiansheng PPP Project 200.0 2.0 13.00

13.0 26.0 13.0

2015-Jul CDB-BOCOM Fund - Luzhou Shanty-town Reformation Project

4.5 4.0 52.00

1.2 2.3 2.3 2.3 1.2

2015-Aug CDB-BOCOM Fund - Hunan Shaoyang City Affordable Housing Development

3.0 5.0 32.00

0.4 1.0 1.0 1.0 1.0 0.6

2015-Aug CDB-BOCOM Fund - Hunan Yueyang Shanty-town Reformation Investment

3.7 5.0 32.00

0.5 1.2 1.2 1.2 1.2 0.7

2015-Nov CDB-BOCOM Fund - Dachang Project 7.5 2.0 48.70

0.6 3.7 3.0

2015-Nov CDB-BOCOM Fund - Sanya Shanty-Town Reformation Project (Phase 1)

4.5 3.0 32.00

0.2 1.4 1.4 1.2

2015-Nov CDB-BOCOM Fund - Beijing Enterprises’ Project

2.3 1.5 61.20

0.2 1.4 0.5

2015-Nov Yangzhou Airport New Town Project 300.0 3.0 13.00

- 13.0 13.0 13.0

2015-Dec CDB-BOCOM Fund - Luzhou Shanty-town Reformation Project (2nd round)

4.5 2.0 52.00

- 2.3 2.3

2015-Dec CDB-BOCOM Fund - Jinjiang Shanty-Town Reformation Project

7.5 2.8 40.00

- 3.0 3.0 2.5

2015-Dec CDB-BOCOM Fund - Shaoyang Shanty-Town Reformation Project

2.3 5.0 32.00

- 1.0 1.0 1.0 1.0 1.0

2015-Dec Danyang Xinmeng River Project 200.0 1.0 12.00

- 24.0

2015-Dec Zhengzhou Heizhuzhuang Urban Village Reconstruction Project

180.0 1.0 12.00

- 21.6

2015-Dec CDB-BOCOM Fund - Jin County New Town Project

7.5 5.0 40.30

- 3.0 3.0 3.0 3.0 3.0

2015-Dec CDB-BOCOM Fund - Sanya Shanty-Town Reformation Project (Phase 2)

6.0 3.0 32.00

- 1.9 1.9 1.9

2015-Dec CDB-BOCOM Fund - Taizhou Huaxin Infrastructure Project

7.5 3.0 32.80

- 2.5 2.5 2.5

2015-Dec CDB-BOCOM Fund - Huasheng Affordable Housing Project (Phase 1)

4.5 1.0 32.00

- 2.4

Total investment size (RMBmn) 1,435.2 Guaranteed investment income (RMBmn) 99.9 195.4 132.9 113.3 77.1 5.2

B




Liability-driven balance sheet expansion to drive investment

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

Non-SOE primary land developer New Era: SOE urbanization project investor

Share

price

Earnings

Assets

Debt/

Equity

(1,000)

(800)

(600)

(400)

(200)

-

200

400

600

-

200

400

600

800

1,000

1,200

1,400

1,600

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

(RMBmn)(RMBmn)Revenue (LHS) Net income (RHS)

-

3,000

6,000

9,000

12,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E

(RMBmn) Investment Inventory and others Disposal Assets

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

(HK$)

-

3,000

6,000

9,000

12,000

2014 2015E 2016E 2017E 2018E 2019E 2020E

(RMBmn) Total Equity Loan

Umbrella trust loan Disposal Liab

Positive event

Negative event

2013-Mar: MOU s igned for share subscription

by CDBC on CNTD

2010-Oct: CNTD s tarted

l i sting in HK. Share price melted by weak P&L

performance

2013-Oct: CDBC

Subscription Agreement and Disposal Master

Agreement signed

2014-Mar: Share placing to CDBC

completed

2015-Sep: Suspension of Mr Shi duties

2014-Dec: Disposal agreement for Wuxi

project group signed

2015-Jun: CNTD announced Shi Jian, former Chairman, has been requested to stay under custody at

des ignated residence

2014-Jun: Cooperation

framework agreement of Yuhuatai project

group s igned

Earnings were volatile before CDBC taking control. It is because of instability of land sales. Land sales amount could be small or even nil

Thanks to background of China Development Bank, CNTD is able to seek low cost debt and umbrella trust loan to finance project investment

Proceeds from assets disposal will become capital for project investment

In our view: After CDBC taking control, CNTD is transforming from primary land project execution player to urbanization project investor. Earnings driver changes from land sales with low visibility to investment income with fixed and guaranteed return. We believe it will be a re-rating catalyst for CNTD with earnings size increment from investment income.

Using debt to support growth on investment assets size

The larger the investment size, the higher the income

Improvement on earnings visibility will be re-rating catalyst for CNTD



Existing projects: taking time to digest land inventory

No sales is expected for FY15E

As most of ancillary facilities operation businesses were disposed form the master

disposal agreements and disposal agreement with Wuxi government, the corresponding

operation revenue had no longer contributed P&L of CNTD since 2013. According to

management, no land parcel was sold in 2015. Therefore we expect revenue and gross

profit from land development to be zero in FY15E.

More sales from Shanghai

Going forward, by considering with supportive policies, such as lowering of down

payment requirement for property mortgage and monetary loosening measures in China,

we expect recovery of China property sector, especially in higher tier cities, to continue in

2016. After discussing with management, we believe CNTD will put more focus on

Luodian project due to better property market sentiment in Shanghai comparing with

that in Shenyang.

Expect to take eight to ten years to digest inventory

We expect CNTD to take eight to ten years to digest the inventory of Luodian project. We

assume ~60,000sqm of land parcels will be sold per year in FY16-25. The latest selling

price of land parcel in Luodian was RMB 8,850psm. We assume selling price of the land

parcel to grow by 3% p.a. By considering with profit share ratio of 48% for CNTD, we

estimate revenue from Luodian project to be ~RMB 260mn p.a. in FY16-17E. For Lixiang

project, we expect no land sales will be made in short term future because of lukewarm

property market in Shenyang and low completion rate of Lixiang project at ~45% as of

end 2015 (vs. ~96% for Luodian project).

Figure 38: Revenue projection on CNTD A

B

Note*: Gross profit in FY14 is adjusted by adding back Impairment loss Source: Company data, Orient Securities (Hong Kong)

Most of ancillary facilities operation businesses and Wuxi project have been disposed.

The gross profit dropped mainly due to downward adjustment on proceeds sharing ratio with Shanghai Gov’t. The sharing ratio for CNTD dropped from 64% before FY10 to 57% in FY11, and further down to 48% in FY13 and thereafter.



New investment: fast growth on investment project

Investment income from urban development project: bread and butter

CNTD changed its business model from primary land developer to urban development

project investor. Looking forward, we believe investment income from the urban

development projects will become major source of income to CNTD.

As of end 2015, the Company has invested in 18 projects with capital investment size of

RMB 1.4bn. Investment horizons on the 18 projects are ranging from one to five years,

and the investment-size weighted average is 3 years. Based on guaranteed return

specifying on project agreements signed between CNTD and project owners (which are

mainly local governments), we estimate that overall secured investment income will be

doubled from RMB 100mn in FY15E to RMB 195mn in FY16E.

According to management, CNTD targets to sign two to three projects with total

investment size of RMB 300-400mn each p.a. in coming three years. Considering with its

close connection with China Development Bank which has a large urban development

project pool, we believe it is achievable.

Hiking financial cost with gearing but manageable

Because of disposal of primary land development and ancillary facilities operation

businesses, debt will also be disposed from the Company. Total debt size was trimmed

and net gearing dropped to 2.6% by end 2014. However, for the sake of supporting

project investment, CNTD has issued RMB 1.3bn of three year Senior Guaranteed Notes

at 5.5% in April 2015. We estimate net gearing of CNTD to resurge in 2H15. For gearing

up investable capital, CNTD established an umbrella trust with CDB and BOCOM. Return

on equity for CNTD will be leveraged up by the trust loan structure. After discussing with

management, we believe the Company will seek more trust loans going forward to

enhance project return. The corresponding liabilities from trust loan structure will be

off-balance sheet. By adding back the trust loan size, we estimate CNTD’s adjusted net

gearing will hike to 122% by FY20. Nevertheless, the interest cost induced by trust loan

has to pay only if CNTD consumes it on project investment. Therefore such financial

leverage will not be subject to overfunding risk.

Figure 39: Invested capital and return Figure 40: Total debt and adjusted net gearing A

B

A

B

Source: Company data, Orient Securities (Hong Kong) Source: Company data, Orient Securities (Hong Kong)

Earnings grow with investment assets size, which will be supported by low cost debt financing



Sustainable growth expected after 2015 turnaround finally

Net loss expected to turnaround in FY15, and regain momentum

The net income of CNTD was volatile before FY15E due to low visibility of primary land

development business. After assets disposals on unprofitable primary land development

and ancillary facilities operation businesses, we expect CNTD will turnaround in FY15E

from loss making in FY13-14. Going forward, project investment income will be key

growth driver for CNTD. We expect earnings to grow fast in FY16-20E with investment

assets size. We estimate net income to rocket at 50.4% of CAGR during the period. After

the blooming stage, we expect the Company to maintain stable new project intake

momentum with additional investment size of RMB 350mn per year during stable growth

stage in FY21-25E. Furthermore, we believe that CNTD is able to re-invest proceeds from

exited projects under comparable rate on return during this stage. We estimate net

income to grow at 5.8% of CAGR during stable growth stage. After the stable growth

stage, we expect total investment assets size to be saturated and maintain low single

digit growth p.a. during the maturity stage.

More upside on earnings growth

Urban development project investment provides guaranteed and fixed return for CNTD,

while CNTD is seeking opportunity for pushing its boundary to secondary property

development and township services management induced from the urban development

project. However, due to high uncertainty on further development, the income growth

has yet to include in our earnings projection. It will be an extra upside potential for CNTD

in our view.

Dividend policy

No dividend has been paid out since 2011 due to high CAPEX requirement for primary

land development. Going forward, we expect CNTD to re-consider dividend payout due

to a higher cash flow predictability under new business model. In our view, thanks to

availability of low cost funding, profit distribution will not be a heavy pressure on

liquidity for CNTD. We expect CNTD to start distribute dividend to common shareholder

in FY17E with payout ratio of 100%. We also believe that dividend payout policy can

improve investment sentiment on CNTD in the counter. It will be a re-rating catalyst for

CNTD.

Figure 41: Net income and investment income A

B


Earnings performance is volatile before FY15E. We expect net loss will be turnaround in FY15E.



Initiate with BUY: stable and foreseeable future cash flow

We have applied Discount Cash Flow (DCF) model on CNTD’s free cash flow of equity. We

estimate total investment assets size to fast in FY16-20E. After that, we expect growth on

investment assets size to slow gradually and maintain moderate growth at 1% beyond

2030. Due to change of business model, we consider assets management companies

(AMC) are the closet peers for CNTD, rather than urban development player and primary

land developer. The average beta for AMC listing in HK is 0.9x. By considering with

smaller in market capital size of CNTD, we apply 1.2x for CNTD’s beta estimation. Under

these circumstances, we estimate cost of equity for CNTD is 10.54%. Our estimated fair

value on equity, based on DCF model, for CNTD is HK$ 4,083mn, or HK$ 0.415 per share.

Trading below book with good assets quality plus upside potential, Initiate with BUY

CNTD is trading at 0.6x FY15E P/B in the counter. Book value of CNTD amounted to RMB

3,521mn (as of Q3 2015). By deducting inventory value (which is mainly referring to

primary land development project of the Company) from equity, we estimate the

adjusted book value for CNTD is RMB 1,965mn. The adjusted book value is reflecting

assets value of receivable from assets disposal, investment assets and cash on hand. We

believe the discount value for these three major assets is small because: 1) upon the

completion of share placing of SREG to CMI, settlement of assets disposal will be more

promising; 2) investment assets has a fixed and guaranteed return supported by CDB and

local governments. The adjusted book value translates into HK$ 0.236/share, which is

equal to 94% of current trading price. Therefore we believe current is not demanding.

Our target price for CNTD is HK$ 0.33, which is equal to 20% discount to our estimated

fair value based on DCF. We believe the discount rate is justified after considering with

project intake risk in future. Going forward, opportunity on stepping into secondary

development and township management sector provide upside potential to the

Company. We initiate BUY for CNTD.

Figure 43: Key assumption and summary on DCF model (Base case) A

Key Assumption FY14 FY15E FY16E FY17E FY18E FY19E FY20E FY21E FY22E FY23E FY24E FY25E (RMBmn) Investment size 490 1,239 1,639 2,534 3,407 3,762 4,112 4,472 4,822 5,172 5,522 5,872

Growth (% YoY) 152.84 32.30 54.57 34.47 10.43 9.30 8.76 7.83 7.26 6.77 6.34 Total debt 896 1,924 2,040 2,240 2,340 2,840 3,240 3,440 3,640 3,840 4,040 4,240

Net gearing (%) 2.61 34.33 16.28 2.95 4.68 13.04 20.64 27.47 34.58 41.40 47.92 54.17 Net income (61) 35 129 196 271 297 331 355 377 398 420 442

Growth (% YoY) - 269.21 52.56 38.01 9.74 11.56 7.28 6.00 5.71 5.49 5.29 EBIT (14) 107 287 384 483 546 613 655 694 733 772 812

Less: Tax expenses (45) 0 35 52 71 77 86 92 97 102 108 113 Less: Interest expenses 86 70 112 124 130 160 184 196 208 220 232 244 Add: D&A 26 5 9 14 18 21 24 27 29 32 34 36 Add: Change in working capital 208 62 553 712 397 97 97 99 99 100 100 100 Add: Net debt financing (46) 40 116 200 100 500 400 200 200 200 200 200 Less: CAPEX & Investment (19) 214 21 371 494 408 403 413 403 403 403 403

FCF to Equity (349) (71) 797 762 303 519 461 280 314 338 362 387 FX rate (RMB-> HK$) 1.18 1.12 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 FCF to Equity (HK$mn) (84) 896 816 324 555 493 300 336 362 388 414 Discounted FCFE (HK$mn) (84) 811 668 240 372 299 164 167 162 157 152 Terminal growth (%) 1.0 Cost of equity (%) 10.5 Est fair value to Equity (HK$mn) 4,083 Fair value per share (HK$) 0.415

B


Figure 42: Cost of equity estimation A

Parameter Estimation (%) Market return 9.28 Beta (X) 1.2 Risk free rate 3.00

Cost of equity 10.54 B

Source: Company data, Bloomberg, Orient Securities (Hong Kong)

Figure 44: Sensitivity analysis on fair value based on DCF (HK$/share)

A

Avg return

Growth of investment assets CAGR 2016-20E (%)

(%) 11.12 19.12 27.12 35.12 43.12 9.82 0.197 0.272 0.363 0.470 0.597 12.82 0.216 0.295 0.389 0.500 0.631 15.82 0.236 0.318 0.415 0.530 0.665 18.82 0.256 0.341 0.441 0.559 0.699 21.82 0.276 0.364 0.467 0.589 0.733

B




Valuation: an investment company more than property

A bargain choice for middle to long term investment horizon

Although CNTD is trading at 15x FY16E P/E, which is premium to peers’, considering with

fast growth opportunity, we believe the premium is justified. FY15-17E PEG ratio for

CNTD is 0.4x, which is similar to mean of peers’. The Company is trading at 0.6x FY15E

P/B, which is lower than mean of peers’. By considering with the high quality of its

investment assets and high visibility on investment return, we believe CNTD is a bargain

choice for investor with middle to long term horizon.

Figure 45: P/B Band Figure 46: Historical P/B

A

B

A

B

Source: Company data, Bloomberg, Orient Securities (Hong Kong) Source: Company data, Bloomberg, Orient Securities (Hong Kong)

Figure 47: Peer valuation table A

Ticker Company Trade Share MktCap P/E (x) EPS CAGR PEG (x) EV/EBITDA (x) P/B (x) Div. yield (%) Currency Price (HK$mn) FY14 FY15E FY16E 15-17E 15-17E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E 1278 HK The Company HKD 0.25 2,462 - 59.4 14.8 144.2 0.4 169.9 18.9 7.1 0.6 0.6 0.6 - - -

Assets management company

2799 HK CHINA HUARONG HKD 2.51 98,066 5.5 5.0 4.5 15.1 0.3 8.8 14.2 11.7 1.0 0.8 0.7 - 3.1 5.2

1359 HK CHINA CINDA HKD 2.24 81,215 5.7 4.5 3.9 16.4 0.3 11.4 11.8 9.8 0.7 0.6 0.6 5.2 6.3 7.2

53 HK GUOCO GROUP HKD 76.20 25,074 5.3 5.8 6.4 - - 10.8 - - 0.4 - - 5.3 4.6 5.3

806 HK VALUE PARTNERS HKD 6.02 11,129 13.3 18.6 13.1 32.5 0.6 10.1 15.8 12.3 2.9 2.8 2.5 2.7 2.5 3.4

Average

7.5 8.5 7.0 21.3 0.4 10.3 14.0 11.3 1.2 1.4 1.3 4.4 4.1 5.3

Urbanization player

1668 HK CHINA SOUTH CITY HKD 1.39 11,119 2.9 6.3 5.0 20.3 0.3 3.5 9.6 8.0 0.5 0.4 0.4 10.1 5.8 7.1

6166 HK CHINA VAST HKD 2.65 4,340 4.5 - - - - 5.9 - - 2.4

5.4 - -

1369 HK WUZHOU INTL HKD 0.82 4,092 12.7 13.8 8.6 49.7 0.3 12.6 10.5 7.8 0.8 0.8 0.8 - - -

1396 HK HYDOO INTL HKD 0.81 3,252 5.4 5.2 4.0 27.3 0.2 3.0 - - 0.6 - - 7.1 - -

798 HK OPTICS VALLEY UNION HKD 0.78 3,120 5.9 4.1 3.3 - - 10.3 - - 1.1 - - 3.9 - -

Average

6.3 7.4 5.2 32.5 0.3 7.0 10.0 7.9 1.1 0.6 0.6 6.6 5.8 7.1

Primary land developer

1800 HK CCCC HKD 6.25 177,751 6.1 5.7 5.1 12.5 0.5 10.7 9.3 8.5 0.7 0.6 0.6 3.3 3.8 4.3

817 HK CHINA JINMAO HKD 1.80 19,209 3.1 5.5 4.9 16.3 0.3 8.2 7.9 6.8 0.5 0.4 0.4 6.4 5.6 6.5

2608 HK SUNSHINE 100 HKD 3.54 8,408 7.3 7.4 5.6 32.0 0.2 21.1 17.0 12.7 1.3 1.3 1.1 - - -

260 HK AVIC JOY HLDG HKD 0.204 1,213 - - - - - 65.8 - - 0.8 - - - - -

Average

5.5 6.2 5.2 20.3 0.3 26.5 11.4 9.3 0.8 0.8 0.7 4.8 4.7 5.4

Total average

6.6 7.5 5.9 24.7 0.3 14.6 11.9 9.6 1.1 1.0 0.9 3.6 4.8 5.8

B

Source: Company data, Bloomberg, Orient Securities (Hong Kong)



Risk factor: future project intakes

Growth driver for CNTD in future will be investment income after transformation from

primary land developer to project investors. We consider major risk for CNTD is project

intake momentum. Upon completion of share placing of the Company in 2013, CDBC

took one year for internal restructuring, and started its strong project flow since 2H15.

Nevertheless, project intake in future is subject to approval from local governments and

corresponding urban development authority. It is highly correlated to macro-economic

situation.

Lukewarm economic growth …

The lukewarm economy of China holds back urban development plans and secondary

property development, especially in lower tier cities. Total trade figure fell 8% YoY in

2015. PMI is staying below 50 for six consecutive months since Aug 2015, according to

NBSC. Growth on fixed-assets investment (FAI), a key growth driver of economy, was

slowing to 10% YoY in 2015 from 15.7% YoY in 2014. The weakening production growth

lowers economic value of urban development projects, and hence willingness of project

investment from private sector in short term.

… But supported by CDB project pool

Nevertheless, thanks to strong support from CDB group, the Company still management

to post strong project flow in 2H15. Mr. Fan Haibin (樊海斌) who is CIO of CDB and

president of CDBC and Mr. Zuo Kun (左坤) who is vice president of CDBC were appointed

as Chairman and Vice Chairman of CNTD’s board of directors in Mar 2014. The strong

bonding of CDB group and CNTD is more than parent company and subsidiary. The

support from CDB group on CNTD is undoubted. Within the large project pool of CDB,

there are some matured projects with relatively higher economic value. We believe

addressable market for CNTD is still large enough for sustaining its growth momentum in

mid-to-short term. We consider the project sourcing capability of CNTD is its comparative

advantage toward peers. Poor business environment creates opportunity for the

Company to enlarge its market share. It benefits CNTD to push its boundary forward to

downstream secondary property development and township management markets in

future.

Figure 48: Trade figure of China Figure 49: Fixed-assets investment in China A

B

A

B

Source: GACC, Orient Securities (Hong Kong) Source: NBSC, Orient Securities (Hong Kong)



Financial statements & forecast

Income Statement (Consolidated) Balance Sheet (Consolidated)

FY-end Dec (RMBmn) FY13 FY14 FY15E FY16E FY17E FY-end Dec (RMBmn) FY13 FY14 FY15E FY16E FY17E

Revenue 608 57 - 261 269 Current Assets 8,556 9,228 9,391 8,108 6,149 Cost of sales (354) (651) (15) (185) (190) Inventories 7,348 1,549 1,556 1,494 1,432 Gross profits 255 (594) 15 76 78 Trade/bill receivables 743 64 63 66 69 Selling & Dist. cost (73) (9) - (26) (27) Other receivables 22 1,906 1,580 1,106 474 Administrative Expense (70) (82) (75) (82) (88) Cash and equivalent 332 795 1,365 2,056 2,707 Other Income 33 56 113 319 420 Asset disposal - 4,904 4,802 3,361 1,441 Other Expense (19) (1) - - - Other current assets 111 9 24 25 27 Operating profit 126 (630) 53 287 384 Non-current Assets 3,007 585 1,413 1,894 2,878 Finance Expense (115) (86) (70) (112) (124) LT Investments 902 490 1,239 1,639 2,534 Other non-op profit - 616 54 - - Net fixed Assets 1,632 41 87 128 166 Pre-tax profit 11 (100) 37 175 260 Others 474 53 86 126 179 Income tax (credit) (33) 45 8 (35) (52) Total Assets 11,563 9,812 10,803 10,002 9,028

Profit After Tax (22) (55) 45 140 208 Current Liabilities 6,268 5,944 5,333 4,275 2,891 Discontinued operations (237) (150) (15) - - Accounts Payable 2,558 162 154 162 170 Minority 46 144 5 - - ST Borrowings 1,339 896 350 350 350 Net income (213) (61) 35 140 208 Liab.(assets disposal) - 3,472 3,360 2,352 1,008

EBITDA 199 12 111 297 398 Others 2,371 1,414 1,468 1,411 1,364 EBIT 126 (14) 107 287 384 Long-term Liabilities 2,316 21 1,596 1,712 1,914

EPS (RMBcent) (4.7) (0.6) 0.4 1.4 2.1 Long-term Debts 1,798 - 1,574 1,690 1,890 DPS (RMBcent) - - - - 2.1 Others 518 21 22 23 24

Total Liabilities 8,584 5,965 6,928 5,987 4,805

Cash Flow (Consolidated) Minority 522 322 319 319 319

FY-end Dec (RMBmn) FY13 FY14 FY15E FY16E FY17E Shareholder equity 2,457 3,526 3,556 3,696 3,903

Profit before income tax (265) (239) 22 175 260 Total equity 2,979 3,847 3,875 4,015 4,223

D&A 73 26 5 9 14 Net debt (cash) 2,805 101 559 (16) (468) Fair value gain/loss 12 (43) (137) (276) (361) Net gearing (%) 94 3 14 Net Cash Net Cash Financial cost 197 162 37 70 65 BPS (RMBcent) 54.6 35.8 36.1 37.5 39.6

Chg in working capital 165 208 62 553 712 Income tax paid (10) 4 (3) (19) (35) Semi-Annual Breakdown (Consolidated)

Others (6) (12) 61 (128) (132) FY-end Dec (RMBmn) 1H13 2H13 1H14 2H14 1H15

Operating Cash Flow 164 104 46 384 522 Revenue 899 (290) 54 3 -

Net CAPEX 6 (28) (53) (53) (53) Gross profit 321 (66) 7 (602) 15 Net investment (13) (507) (152) (400) (895) Operating profit 211 (85) (10) (620) 30 Return from investment - - 80 276 361 Pre-tax profit 103 (92) (63) (37) 10 Advances disposal - 554 (10) 433 577 Net income 31 (244) (104) 43 (9)

Interest received 23 19 33 43 60 Total assets 11,447 11,563 11,938 9,812 10,516 Others - 0 - - 0 Total Equity 3,296 2,979 3,975 3,847 3,835 Investment Cash Flow 16 38 (101) 298 50 Shareholder equity 2,701 2,457 3,483 3,526 3,517

Capital injection - 1,139 - - - Net debt (cash) 2,796 2,805 (426) 101 (445)

Net debt financing (42) (546) 540 116 200 Net gearing (%) 84.83 94.13 Net cash 2.61 Net cash Restricted deposits 10 196 - - - Gross Margin (%) 35.69 - 13.48 - - Dividend paid - - - - - Net Margin (%) 3.41 - (194.3) - -

Interest paid (240) (191) (70) (112) (124) Others - - 74 5 4 Key Ratios

Financing Cash Flow (273) 597 544 8 79 FY-end Dec (RMBmn) FY13 FY14 FY15E FY16E FY17E

Net cash change (92) 739 489 690 651 Growth (%) Cash b/n at year-end 332 795 1,365 2,056 2,707 Revenue (90.66) (100.0) - 3.00

EBITDA (93.78) 801.09 166.74 33.91 EBIT - - 169.74 33.55 Key Assumptions Net profit (71.17) (156.7) - 48.25

FY-end Dec (RMBmn) FY13 FY14 FY15E FY16E FY17E Margin (%)

Investment portfolio size - 490 1,239 1,639 2,534 Gross profit 41.87 - - 29.17 29.17 Nanjing Yuhuatai project - 490 490 490 490 EBITDA 32.64 21.74 - 113.84 148.00 Yangzhou Airport Project - - 100 100 100 EBIT 20.69 (24.64) - 110.22 142.91 Danyang Tiansheng PPP - - 200 200 200 Net income (35.02) (108.1) - 53.69 77.28

CBD (BJ) – BOCOM Fund - - 69 87 121 Others (%) Others - - 380 762 1,622 Payout ratio - - - - 100.00

B/S growth (%) Average ROE (2.05) 0.98 3.86 5.46 Investment portfolio - 152.84 32.30 54.57 Average ROA (0.51) 0.43 1.35 2.18 Total Debt (71.44) 114.74 6.00 9.81 Interest coverage (x) 1.73 0.14 1.59 2.64 3.20 Source: Company data, Orient Securities (Hong Kong)



Appendix I: CDBC’s urban development project pipeline

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Appendix II: CNTD structure

1st Round assets disposal

2nd Round assets disposal

3rd Round assets disposal (From 80% to 50%)

Exsiting assets

New businesses

14.9%

100%

China Development BankInternational Holding

China New Town Development

54.3% 30.8%

Meeko Investment Ltd

(BVI)

100% 100%

Shanghai Golden

Luodian Development Co., Ltd.

SRE Investment Holding Public Shareholders

China Development BankCapital

China Development Bank

100%

Shi Jian

63%

Weblink International

Limited (BVI)

100%

New Town (China)

Trading Co., Ltd. (BVI)

Shanghai Jiatong

Enterprises Co., Ltd

China New Town

Development

(Changchun) Co.,

Ltd. (BVI)

China New Town

Development (Wuxi)

Co., Ltd. (BVI)

China New Town

Development

(Shenyang) Co., Ltd.

(BVI)

Safewell

Investment Limited (BVI)

Wuxi Hongshan New

Town Development Co., Ltd.

Shenyang Lixiang New Town Modern

Agriculture Co., Ltd

Shanghai CNTD

Management Consulting Co., Ltd.

Wuxi Hongshan New

Town Virescence

Environmental

Protection

Construction Co., Ltd

Changchun New Town Automobile Industry

Construct Co., Ltd.Shenyang LakeMalaren Country

Club Limtied

- (100%) Shanghai Lake Malaren

Investment Management Co. Ltd.

- (100%) Shanghai Lake Malaren

Hospital Investment Co., Ltd.

- (100%) Chengdu Shanghai Real

Estate Co., Ltd.

27.37%45.26%

100%

New Town

Procurement Co.,

Ltd. (HK)

Shanghai Hengchang

Trading Co., Ltd.

Shanghai Yuanyi Industrial Co.,

Ltd.

100%

Protex Investment

Limited (BVI)

100%

50%

- (100%) Wuxi Ying Shui Ting Hotel Co., Ltd.

- (60%) Wuxi Xinrui Hospital Management Co., Ltd.

- (100%) Wuxi Hongshan New Town Commercial Operation and

Management Co., Ltd.

Luodian Newco

20%

Shanghai Malaren Lake

Artwork Exhibition Co.,

Ltd.

China New Town Holding Co., Ltd. (HK)

CDB New Town

(Beijing) Management Consulting Co., Ltd.

CDB New Town (Beijing) Asset

Management Co., Ltd

100%



Appendix III: Profile of key directors and management

Mr. Fan Haibin Non-executive Director and the Chairman of the board of directors

Mr. Fan currently is the chief investment officer of CDB and the president of CDBC, and both CDB and CDBC are controlling shareholders of the Company. Mr. Fan has an extensive experience in the energy investment and financial industry. From 1982 onwards, Mr. Fan worked for the Ministry of Water and Power, State Resources Investment Corporation and CDB. Mr. Fan has become the chief investment officer of CDB and the president of CDBC since November 2013. From 2010 to 2013, Mr. Fan was the Chief Appraisal Officer of CDB. From 1994 to 2010, Mr. Fan had been working at, in chronological order, the Electricity Credit Bureau, First Project Appraisal Bureau, Shijiazhuang Branch, Hebi Branch, and Appraisal Management Bureau of CDB. Before joining CDB, Mr. Fan worked as director of project management division at State Resources Investment Corporation. Mr. Fan is responsible for formulating, developing and reassessing the CNTD’s strategies and policies.

Mr. Zuo Kun Non-executive Director and the Vice Chairman of the board of directors

Mr. Zuo currently is the vice president of CDBC, a controlling shareholder of the Company. Mr. Zuo has an extensive experience in the investment and financial industry. Mr. Zuo joined CDBC in 2009 and has been the vice president of CDBC since March 2011. From 2001 to September 2009, Mr. Zuo had been working at, in chronological order, the International Finance Bureau, Lanzhou Branch, and Executive Office of CDB. Mr. Zuo will be responsible for the duties in absence of the Chairman of the Board and the execution of the CNTD’s business strategies and plans.

Mr. Liu Heqiang Executive Director and the chief executive officer (CEO)

Mr. Liu currently is the general manager of the Direct Investment Division III of CDBC, a controlling shareholder of the Company. Mr. Liu has an extensive experience in the banking and investment industry. Mr. Liu has been appointed as the general manager of Direct Investment Division III of CDBC since December 2009, where he principally engages in investment in urban development related areas. From 1992 to 2009, Mr. Liu had been working at, in chronological order, in State Raw Materials Investment Corporation, and Northeast Credit Department, Tianjian Branch, and the Market and Investment Business Bureau, of CDB. Mr. Liu is the president of the Company and is responsible for the management of the business of CNTD.

Mr. Zhang Yan Non-executive Director

On 28 November 2014, Mr. Zhang was appointed as a Chief Investment Officer of CDBIH. Mr. Zhang has an extensive experience working for leading international investment banks. Prior to joining CDBC in 2009, Mr. Zhang worked at the global special opportunities group of J.P. Morgan, where he engaged in principal investment business. Mr. Zhang had also worked at a PRC investment banking arm of UniCredit Group where he principally advised on cross-border mergers and acquisitions and private placement.

Ms. Yang Meiyu Executive Director

Ms. Yang was the senior manager of the Direct Investment Division III of CDBC, a controlling shareholder of the Company. Prior to the joining CDBC, Ms. Yang worked as an investment manager at China Reits Investment where she worked on various fund raising and land development projects. Ms. Yang has joined CDBC since December 2009 where she principally engages in urban development related investment and she also acts as directors and supervisors of various subsidiaries of CDBC. Ms. Yang is the vice president of the Company and is responsible for, among other things, corporate financing, investment and investors’ relation management.

Mr. Ren Xiaowei Executive Director

On 22 April 2014, Mr. Ren has been promoted from the senior manager to associate general manager of the direct investment division III of CDBC. Mr. Ren joined CDBC since December 2009. Mr. Ren also worked as assistant general manager and chief operating officer of China Development Caofeidian Investment Company Limited, the vice president and chief investment supervisor of China Development Jilin Investment Company Limited. Mr. Ren has extensive experience in import and export industry. Prior to joining CDBC, Mr. Ren worked as department manager of China National Machinery Import & Export Corporation during 1995 to 2003 and as managing director of Bidwiin Tech during 2003 to 2009. Mr. Ren is the vice president of the Company and is responsible for, among other things, the management of urban development projects and construction projects.



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