E 2013E 2014E

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1 11 April 2012 Equity Research Report Company Research Construction Engineering Zhejiang Yasha Decoration (002375) Comments on 2011 annual results Rapid growth in results, while profit quality continued to improve Buy (reiterate) Current price: Rmb Target price: Rmb Investment highlights Substantial increase in 2011 profits and purchase orders. The company posted a revenue of Rmb7.25bn in 2011 (+62%), net attributable to shareholders of Rmb449mn (+71% YoY) with EPS of Rmb1.06, in line with our expectation. The substantial growth in earnings mainly benefitted from the rapid increase in revenue and the rise in gross margin. In 2011, the company signed new contracts worth Rmb11.8bn (+64%), while a large amount of on-hand orders may guarantee another sharp increase in revenue this year. Yasha's 1Q12E net is estimated to increase by 50%-70%. Cross-provincial expansion has been the main driving force behind the rapid increase in revenue. Due to fast cross-provincial expansion for the company. revenue from Zhejiang and provinces outside Zhejiang grew 20% and 103% YoY respectively, accounting for 37% and 63% of the revenue respectively. Revenue from provinces other than Zhejiang has been the main source of growth for total revenue. New orders from Zhejiang province and the provinces outside Zhejiang increased by 27% and 100%, In the future, the company will focus on development in the central and western regions as well as in the Tier 2 and Tier 3 cities. The proportion of revenue from provinces outside Zhejiang is expected to increase further, and cross-provincial expansion continues to be the main driving force behind the rapid increase in Yasha's revenue. Substantial increase in gross margin, while ratio may decline in the future. The company's consolidated gross margin was 16.21% in 2011 (+1.3% YoY), for the company's strengthened internal control and a number of projects entering the final accounting cycle in the previous period. As the company strengthens its internal assessment, in addition to more projects entering the final accounting cycle this year, 2012E gross margin will increase further. The ratio increased from 2.68% in 2010 to 3.76% in 2011, mainly due to the company's increased investments in building the distribution network and the Rmb27.07mn in administrative that arose from the amortization of option incentives. As the company's revenue scale rises rapidly and bulk customers and large projects increases, it is expected that the sales and the administrative will trend downwards. Cash flow better than market expectations and look to further improvement in 2012E. Yasha's operating cash flow was Rmb0.14bn for 2011 while the net cash inflow for 4Q11 reached Rmb0.44bn, reflecting the company's superior ability in customer/project selection and strong ability in collecting the receivables. Through the strengthened assessment of customers credibility and the performance assessment of project personnel, in addition to more projects entering their final accounting cycle, Yasha's cash inflow is expected to further improve this year. CITIC Securities Research Tao Yang CITIC Securities Chief Constructions Analyst Tel: yangtao@citics.com Practicing license no: S Contact: Tian Xia Tel: xiatian@citics.com Results Relative to the Indices S&P/ Yasha Construction CITIC 中标 300 建筑业亚 Decoration 厦股份 Source: CITIC Securities Quantitative Investment Analysis System Key data S&P/CITIC 300 Total Equity / Free points / mn Float shares LTM High/Low Rmb 40.64/ month absolute gain 20.09% 6-month absolute gain 0.69% YTD Absolute Gain 53.46% 12-Mth Daily Average Turnover Rmb mn Please do read the Disclaimer at the end of the report

2 Potential risks: Overshooting in the macro control of the real estate industry; and the risk in accounts receivables. Earnings forecast, valuation and investment rating: We predict 2012E/2013E/2014E EPS at Rmb1.80/Rmb2.70/Rmb3.60 with 2011E~2014E CAGR of 50%. Current share price of Rmb31.92 per share is equivalent to 18x/12x/9x 2012E/2013E/2014E PE. Taking into consideration of the high growth potential of the company and adopting the PEG valuation method, we upgrade the target price to Rmb53.2 from Rmb39.2 per share(equivalent to PEG of 1). We reiterate our "Buy" rating. Item/Year E 2013E 2014E Revenue (Rmb mn) Growth rate YoY % Net (Rmb mn) Growth rate YoY % Gross margin % ROE % EPS (Rmb) BVPS (Rmb) P/E P/B Source: CITIC Securities Quantitative Investment Analysis System Note: Closing price as of 19 Mar 12 Please do read the Disclaimer at the end of the report

3 Income Statement (Rmb mn) Balance Sheet (Rmb mn) Indicator E 2013E 2014E Indicator E 2013E 2014E Revenue 4,488 7,253 11,066 15,029 19,297 Cash and cash equivalents 1,849 1,657 1,226 1,353 1,544 costs 3,819 6,076 9,222 12,495 16,041 Inventory Gross margin 14.9% 16.2% 16.7% 16.9% 16.9% Accounts receivable 2,006 3,776 5,420 7,011 8,642 Business tax and Other current surcharges , Current 4,249 6,179 7,753 9, % 1.09% 1.00% 0.90% 0.82% Fixed Administrative Long-term equity investments Administrative 2.36% 2.91% 2.67% 2.40% 2.27% Intangible Financial Other long-term Financial -0.49% -0.23% -0.07% -0.02% 0.01% Non-current ,069 1,188 1,280 Investment 11,05 13, Total 4,462 6,746 8, profit ,400 1,868 Short-term borrowings margin 6.95% 7.66% 8.47% 9.32% 9.68% Accounts payable 1,665 3,309 4,380 5,248 6,015 Non-operating Other current ,368 1,765 Non-operating Current 2,033 3,854 5,361 6,744 7,951 Total profits ,400 1,868 Long-term Income tax Other long-term expense Income tax rate 15.7% 15.4% 15.0% 15.0% 15.0% Non-current Minority interest Total 2,050 3,871 5,378 6,760 7,968 Net profit attributable to parent ,138 1,518 Share capital company s shareholders Net margin 5.84% 6.19% 6.88% 7.57% 7.87% Capital reserves 1,654 1,470 1,470 1,470 1,470 Total shareholders equity 2,412 2,836 3,369 4,165 5,228 Minority interest Cash flow statement (Rmb m) Total 11,05 13,39 and shareholders' 4,462 6,746 8, equity Indicator E 2013E 2014E Pre-tax profit ,138 1,518 Key financial indicators E 2013E 2014E Income tax paid Growth rate (%) Depreciation & amortization Revenue Changes in -1, working capital 1 profit Others Net profit cash flow Profit margin (%) CAPEX Gross margin Investment EBIT Margin Disposal of EBITDA Margin Others Net margin Please do read the Disclaimer at the end of the report 11 April

4 Cash flow from investments Rate of return (%) Equity issuance 1, ROE Changes in ROTA Dividends paid Others (%) Others Debt ratio Financing cash flow 1, Income tax rate Net increase in Dividend payout cash and cash 1, ratio equivalent Source: CITIC Securities Quantitative Investment Analysis System Please do read the Disclaimer at the end of the report 11 April

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