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The three options

Road King’s acquisition of Sunco : Boosting our NAV by at least HK$0.23 a share Joe Zhang, COO & Executive Director 11 September 2006 Disclaimers on final page Three major risks on page 10. The three options.

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The three options

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  1. Road King’s acquisition of Sunco:Boosting our NAV by at least HK$0.23 a shareJoe Zhang, COO & Executive Director11 September 2006Disclaimers on final pageThree major risks on page 10

  2. The three options • On 5 September, together with two other entities, Road King (24.3%-owned by Shenzhen Investment) signed a deal to acquire (via three options) a 55% stake in Sunco A, a 55% stake in Sunco B, and a 100% stake in Suzhou Phoenix (also from Sunco) • Road King’s interest in Sunco A and Sunco B is 49% • A 35% stake in the Suzhou Phoenix will be transferred to Shenzhen Investment • For accuracy, refer to Road King’s announcement on 6 September SHENZHEN INVESTMENT

  3. 43 property projects: Overview SHENZHEN INVESTMENT

  4. Performance guarantees • The seller (Mr. Sun) and team provide Road King with a guarantee that net profit from Sunco A will exceed 20% of ROI (returns on investment) in each of 2006, 2007, and 2008, and that net profit from Sunco B will exceed 20% of ROI in 2007, 2008 and 2009 SHENZHEN INVESTMENT

  5. (1) Worst-case scenario • Now that Road King has secured continued support of Sunco’s creditors, and Sunco is under no duress, Sunco can (in the worst-case scenario) sell land of all projects in an orderly manner • Except 4 projects, Sunco A and Sunco B’s 38 other projects are under construction (some at advanced stages), but we assume they would be sold as land rights only • Our most conservative estimate of the average land price in Sunco A’s and Sunco B’s comparable regions is about Rmb1,800/sqm • For reference, Guangzhou R&F acquired 3m GFA of land reserves in some cities in 1H 2006, costing Rmb1,700/sqm • Net profit from selling the land of the 12 Sunco A projects will be Rmb2,100m (calculation: (Rmb1,800 - 800)*2.1m sqm), and that of Sunco B’s 30 projects will amount to Rmb2,816m. On average, Sunco owns 40% of the JVs • Road King will own 49% of Sunco A and Sunco B, so, its attributable net profit from selling the land will be Rmb2,409m, ie, 49%* (Rmb2,100m + 2,816m) • We further assume that land price in Suzhou Phoenix has not appreciated since January 2004: so it would be sold for no gain to Road King consortium SHENZHEN INVESTMENT

  6. Rmb585m of the net profit belongs to us • About Rmb585m, ie, 24.3% of the Rmb2,409m in net profit from selling land in the 43 projects belongs to Shenzhen Investment • Assume that the profit will be evenly split between the next two years, the net profit will amount to extra (albeit one-off) EPS of about HK$0.12 per share, assuming that our total number of shares stays at 2.5bn in next two years. • NAV gain per share: Rmb585m / 2.5 billion shares = HK$0.23 • In this calculation, we ignored the time value, since the time span is just two years SHENZHEN INVESTMENT

  7. (2) Base-case scenario • According to Road King’s conservative internal estimate (the numbers were used in the negotiations), Sunco A, Sunco B and Phoenix City will command a total post-money NAV attributable to Road King is Rmb576m (using 12% discount). Calculation: 49%*(Rmb750m + 500m)-Rmb500m + 49%*(Rmb630m + 400m)-Rmb400 +65%*550m = 613m +505m +358m = Rmb576m • Shenzhen Investment’s 24.3% portion will be Rmb140m • Shenzhen Investment’s direct NAV from the 35% participation in Phoenix City will be Rmb193m • So, Shenzhen Investment’s total NAV will be Rmb333m • Per share NAV gain: HK$333/2.5bn = HK$0.13 SHENZHEN INVESTMENT

  8. Reconciling the two scenarios • Our “worst-case scenario” gives Shenzhen Investment NAV of HK$0.23 per share • Our “base-case scenario” gives us NAV of HK$0.13 per share. So, selling bare land will generate more gains • This contradiction only shows that our base-case projections are too conservative. Note that these figures were prepared for negotiations and were inevitably too conservative SHENZHEN INVESTMENT

  9. A going concern; IPO in 3 years • Road King indicated that the new enlarged Sunco will seek to go public in 3 years • It is a growing concern and will aim to recover from its recent setback • Management overhaul under way • Tremendous synergies between Road King’s stable cash flows plus old-fashioned conservative management and Sunco’s young, dynamic and experienced team plus vast land reserves • Our valuation does not reflect Sunco’s brand equity SHENZHEN INVESTMENT

  10. Road King in our NAV: HK$0.65 a share • Assuming an efficient stock market, we (and most investors) choose to value our 24.3% stake in Road King as its market value • We hold 146m shares of Road King. At HK$11.24 apiece (closing price on 11 September), our stake is worth HK$1,641m, leading to an NAV of HK$0.65 per share at Shenzhen Investment SHENZHEN INVESTMENT

  11. Three major risks for us • We are an SOE, and are much more rigidly regulated than those in the private sector, and therefore, we are much less efficient, • Our incentives system does not work nearly as effectively as in the private sector, • Our property business can be extremely volatile and cyclical and subject to policy risks. Some of our associates are entirely beyond our control and we are in the process of selling them. SHENZHEN INVESTMENT

  12. Disclaimers • This presentation is prepared in good faith, based on audited financial data, publicly available information, and management’s outlook as of today. Macroeconomic parameters could change unexpectedly. The company’s operating environment and thus strategies could change as a result and without notice. • This presentation does not constitute an invitation to trade this or any other stock. Stocks can go down as well as up. Historical performance is no guarantee for the future. • The NAV estimates in this document are for reference only, and have nothing to do with our views of potential realizable values. SHENZHEN INVESTMENT

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