PCRT – DBSV

Execution on track

• Site visit reaffirms our view that execution is on track at Shenyang Longemont Mall

• Chengdu Qingyang in final stages of design, recent acquisition of 50% of Chengdu Longemont Mall likely earnings and NAV accretive

• Maintain Buy, TP $0.83

Site visit to Chengdu and Shenyang. Our site visit to Chengdu and Shenyang reaffirmed our view that execution is on track. Shenyang Longemont Shopping Mall (SLM) has opened in July and is currently about 60% occupied (70% committed). Including leases pending receipt and under negotiations, commitment would have been a higher 83%. SLM is well laid out with thematic zones to attract shoppers conveniently as well as offer destination attractions such as indoor theme parks and ice staking rink. Daily shopper traffic average 40,000 while the Golden Week saw a 90,000 throughput. The Mall has currently secured an average daily rent of RMB3.28psm and is on track to achieve a targeted daily rent of RMB4.28psm.

Deepens exposure in Chengdu. The group is in the final stages of design for the Chengdu Qingyang mall. Located in the west of Chengdu, it will cater to a wide existing catchment of resident and working population of 641,000 (and growing) when completed in 2Q14. Meanwhile, recent purchase of a 50% stake in the Chengdu Longemont Mall, which connects directly to the operational Chengdu East High Speed Rail station will enable the group to benefit from accelerated growth footfalls when fully ramped up. More importantly, the purchase will likely to be earnings and NAV accretive as it will be debt funded and have favourable payment terms that is back-end loaded. As such, gearing will only rise in stages to 27% in FY12.

Maintain Buy, TP $0.83. At the current share price, investors are essentially valuing the Shenyang portfolio (excluding Chengdu Qingyang and Foshan) at below replacement cost or getting the Shenyang furniture and shopping mall, with the office component thrown in for free. Our TP of $0.83 is based on the present value of the initial portfolio when fully operational by FY14 and have not included any accretion from the recent Chengdu Longemont acquisition. As the group continues to execute and convert the development component of its portfolio into an income generating portfolio, thereby reducing execution risks, we believe share price should narrow the gap to RNAV. Our TP offers significant upside.