Site Visit Notes —Yue Xiu (123) Update

Guangzhou IFC should fully operate in 1Q11. The interior of IFC is still under furnishing as of Nov 8. The 432 m-building with 103 floors building is next to the Internationals Finance Place (IFP) owned by KWG, which has a rental rate of RMB ~160-200 pm /sqm according to soufun data. Soft opening of IFC has already been conducted in Oct and part of the retail portion has already started running. 100% of the retail area has been leased. About 25% of the office portion has been leased as of Nov 8 and the rental rate is ~RMB 160-260/sqm per month, but management may consider lowering rate to attract clients. Management expects by end-2011 the occupancy will be 50-65% .The building will contribute about RMB800mn per year in maturity and should be ready for use in 1Q11. Although short-term leasing of IFC could be pressured, due to the abundant supply of offices in the surrounding area and that the complementary facilities have yet to be fully developed, we believe leasing of IFC should not be a problem in the long run given the prestigious status as one of the landmark in Guangzhou and the most premium office buildings available in Guangzhou.

Potential spinoff of hotel portion. The hotel portion will be managed by the Four Seasons Group. Management indicated they may sell this part of the project (1/5 of total project in terms of GFA) should the price is right, and interested buyers have offered a price of about RMB 40k/sqm.  Assuming  the hotel is sold at that price, a total of RMB 3.7bn can be recouped –which is 49% of the total investment of RMB7.5bn. We believe this would be a potential upside catalyst for the company.

Sales of the Company’s luxury residential project Starry Winking is at Tianhe, Guangzhou (CBD area) achieved enthusiastic responses. Since its sales in May 2009, the project has achieved total contract sales of RMB1.51 bn. all units have sold out except for the large sized (>330 sqm) duplexes with an ASP of RMB35k –55k/sqm. While the project is sold at RMB 2.6k /sqm on average, total cost is only about RMB1.2k/sqm, implying that gross margin for this project could be as high as 45% or more. Most units are ready for delivery by end- 2010, meaning that the Company may be able to recognize part of the revenue should the customers chose to have their units delivered before end-10, though they may choose to have them delivered in Apr 2011.

Talbe1：Breakdown of IFC  

The Company has been actively expanding its land bank. In Aug and Sep, YX acquired four sites in Panyu, Nanhai and Zhongshan with an aggregate GFA of 981,271sqm, which would support its expanded scale of development going forward. 10M10 presale hit RMB7.5bn, meaning that 95% of the 10-bn sales target has already been accomplished.

Reiterate BUY on positive prospects. Given our positive view on the long-term contribution from Guangzhou IFC, potential spin-off of the hotel portion of the IFC project and the robust presale this year, we remain POSITIVE on the Company. With a NAV/shr at ~HK$4.00 (current market estimate), the counter is trading at 46.5% discount to its estimated NAV/shr based on its closing price on Nov 10 at HK$2.14. Reiterate BUY.