Event: On 21 Apr, Gemdale was informed that Sino Life held 885,748,901 shares (19.8%) in Gemdale, among which 670,748,901 (15.0%) are voting shares, according to Gemdale’s announcement. Comments: Long-term funds continued to boost investment in the Company, reflecting industrial capitalists’ positive outlook. Since 2H13, long-term funds have been continuously increasing their stake in Gemdale. Sino Life and Anbang Insurance consecutively announced changes in their equity stake, and designated directors to the Company’s Board of Directors through revision of the Company’s Articles of Association. This suggests that the industrial capitalists believe the Company’s capitalization is absolutely underestimated. In fact, many mainstream real estate stocks including Gemdale are trading at significant discounts relative to their respective NAV. For investors with real industry concept (such as insurance funds), buying real estate stocks are better choice than buying housing properties. More importantly, another important reason for the free float shareholders to continuously increase their investment is that they have essential influence on the target listed company and that leverage ratio of the listed company is basically safe. A small step for Gemdale, a big step for the real estate sector: attractiveness of the undemanding real estate stocks to industrial capitals. In our view, on one hand, the divided opinions of the capital market about the real estate sector’s long cycle enable long-term investors to select appropriate investment targets at ease; on the other hand, long-term investors bring new changes to the listed companies, such as reducing their fund cost and even providing land resources support etc. As long as overall valuation of the real estate sector is not changed systemically, industrial capitalists’ boost to investment will occur again. Of course, a moderate market capitalization size, good stock liquidity and trustable management made Gemdale the first stock to reflect the industrial investment value. Although the Company’s valuation is already relatively high among the leading stocks to some investors, it is still lower than the real value of the Company’s assets to the industrial investors. Additionally, the Company’s management is reliable. In order to maintain their influence in the Company, the long-term investors are expected to continue increasing their stake in specific companies. Rise of Gemdale: the right rhythm and the premium products.Gemdale became prudent about land acquisitions and active about de-stocking in 2H13. This effectively improved the quality of its land bank, and made room for the land acquisition after 2Q14E. Additionally, the Company has inherent brand premium and achieved solidsales performance against the huge supply and fierce competition in southeast China. Its previous shortest slab (poor quality of land bank, improper timing of land acquisition) has been filled up completely. In our view, boost of investment by long-term investors is expected to deliver a boost to its income statement in 2014E. Potential risks: restrictions on the settleable resources in 2013-14; earnings growth is mainly due to changes in the accounting policy. Valuation, earnings forecast and investment rating: we reiterate the Company’s 2013/14/15E EPS at Rmb0.91/0.95/1.49. Given that a) continuous boost of investment by industrial capitalists and their appointment of members to the Board of Directors help raise the say of free float shareholders, b) monthly sales of the Company are expected to increase along with increase in the property projects launched, and c) the Company is expected to see frog-leap development after 2014 (due to increase in the settlement scale and profitability, its 2015 earnings growth is relatively high considering the time lag in settlement of sold properties), we assign the Company a 6x 2015E PE and keep its target price to Rmb8.94. Reiterate the BUY rating on the last share price of Rmb7.76.

The Company’s controlling shareholder (Financial Street Group) boosted its stake by more than 41.58mn shares. Following the deal, the Financial Street Group and companies acting in concert jointly hold more than 845mn shares (27.92%) of the Company. Financial Street Group consolidated its position and boosted its share of Financial Street’s profit at relatively small cost. At the current stock price, the purchase of shares will cost a total of ~Rmb220mn. The purchase will raise the controlling shareholder’s stake in the Company. Currently, Financial Street has a dividend yield of more than 4.6% and is trading at a notable discount to its NAV. In our view, the deal is a wise investment choice for the Financial Street Group. Resource value is undisputed. Financial Street currently holds 682k m2 of rental properties (~450k m2 is located in prime districts of Beijing) and over 5mn m2 of above-ground construction area reserve (>1mn m2 is located in prime areas within the third ring road of Beijing). Stripping out reserves in other cities and other areas of Beijing, the Company’s properties and land reserves in core areas within the third ring road are valued at an estimated Rmb40bn-plus (assuming property price > Rmb50,000/m2 and land price > Rmb20,000/m2). After deducting net liabilities, its net asset value (NAV) is notably higher than its current market capitalization. Additionally, projects in core areas of Beijing boast stable value even though China’s new housing developments are reaching a peak. Strong ability to acquire land: Financial Street is expected to actively expand its land bank in 2H14E. Financial Street verified sustainability of its development over the recent years. It successfully bought high-quality land plots on which to build Guangan Plaza, Yuetan Plaza and Jingxi Commercial Center amid stiff competition in Beijing’s land market. In 2013, the Company slowed its acquisition of new land plots due to the overheated land market. We forecast it will actively expand its land bank in the Beijing-Tianjin-Hebei area and other tier-1/2 cities after 2Q14 (opportunities for land acquisition could emerge after 2Q14). Risks associated with investing in the company: (i) YoY decline in 2Q14E earnings due to limited size of related sales proceeds during the period and (ii) excessive investment in non-core areas. Earnings forecast, valuation and investment rating: The Yuetan project sales are expected to be booked in 2014. This will lock up its earnings growth for the year. We maintain the Company’s forecast 2014/15/16E EPS at Rmb1.19/1.45/1.79 and NAV at Rmb11.18/share. Among the stocks trading at high discounts to NAV, no others are posting such rapid earnings growth and trade at a prospective 2014E PER of only 5x. Additionally, among the companies trading at attractive valuation, none of these other companies have such abundant resources reserve. Looming REITS could offer an institutional opportunity. The incremental investment by Financial Street Group confirms the Company’s investment value. We value Financial Street at a 30% discount relative to its NAV and maintain our target price of Rmb7.83. We maintain our BUY rating.

Event: Gemdale amended its articles of association and expanded its Board of Directors to 14 members. Ke Ling, Juncan Huang, Aihong Chen, Bi’an Chen, Juyi Sun, Jiajun Chen, Lili Liang, Shengde Lin and Dafeng Yao were nominated as candidates for directors of the seventh Board of Directors, and another five people were nominated as candidates for independent directors, according to its announcement. Comments: Sino Life and Anbang Insurance were allowed to designate directors to the Company's Board of Directors. Upon the adjustment, the four largest shareholders would all have representatives on the Board. The Company plans to expand its Board of Directors from 12 members to 14; and except an independent director who left the position upon expiry of his term, all the other members on the Board were retained. Additionally, both Sino Life and Anbang Insurance were allowed to designate directors to the Company’s Board of Directors. Upon the adjustment, all of the Company’s four largest shareholders would have positions on the Board of Directors, and these four largest shareholders collectively control an estimated stake of more than 25% in the Company. The adjustment reflects the long-term shareholding willingness of Sino Life and Anbang Insurance, and suggests that the major shareholders are relatively united and confident in the management. Since Sino Life took stake in the Company in 2013, other investors have been speculating on its shareholding intention. Although designation of directors doesn’t equal to restriction of the sale of free float shares, it indicates that both insurance companies agree to the medium to long term investment value of the Company. In our view, the adjustment also reflects that the four largest shareholders (i.e. Sino Life, Futian Investment, Anbang Insurance and Futian Construction) are relatively united and confident in the Company’s core management members, such as Ke Ling, Juncan Huang and Jiaun Xu of the Board of Directors. Optimization of the equity structure is forecast to further improve the Company’s corporate governance but not dampen its decision-making efficiency. In our view, both Sino Life and Anbang Insurance are bullish on the Company’s long-term prospect and have good faith in its core management team, as evidenced by their continuous increase of stake in the Company through the secondary market and their designation of directors. The shareholders with great influence on the Company’s operation management and intention to hold stake in thelong term will help improve the Company’s governance mechanism and make sure the management works for the interests of shareholders. Additionally, the Board of Directors comprising of representatives of the major shareholders and core management members of the Company will guarantee great efficiency in the routine decision-making process. Rise of Gemdale: the right rhythm and the premium products. Gemdale became prudent about land acquisitions while active about de-stocking in 2H13. It effectively improved the quality of land bank, and made preparations for the land acquisition after 2Q14E. Additionally, the Company has inherent brand premium and achieved solid sales performance against the huge supply and fierce competition in southeast China. Its previous shortest slab (poor quality of land bank, improper timing of land acquisition) has been filled up completely. Adjustment of the Board of Directors is expected to deliver a boost to its income statement in 2014E. Potential risks: restrictions on the settleable resources in 2013-14; earnings growth is mainly due to alternation of accounting policy. Valuation, earnings forecast and investment rating: we reiterate the Company’s 2013/14/15E EPS at Rmb0.91/0.95/1.49. Given that a) adjustment of the Board of Directors is in favour of the free float shareholders, b) monthly sales of the Company are expected to increase along with increase in the property projects launched, and c) the Company is expected to see a frog-leap development after 2014 (due to increase in the settlement scale and profitability. The Company’s 2015 earnings growth is relatively high considering the time lag in settlement of sold properties), we assign the Company a 6x 2015E PE and raise its target price to Rmb8.94 (from Rmb7.73). Reiterate the BUY rating on the last share price of Rmb7.24.