20140724-DBS_Group-1H14_results_preview__Unexciting_results_ahead_but_negatives_in_prices_19页_1mb

DBS Group Research Summary: 1H14 Property Developers Results

Core Content Overview

This report provides an analysis of the first half of 2014 (1H14) results for property developers in Hong Kong and mainland China, highlighting the expected performance, challenges, and valuation insights.

Main Points

1. Sales Performance

• Major Developers on Track: Developers like Vanke, Evergrande, and COLI are expected to meet their 2014 sales targets.
• Potential Sales Target Cuts: Several developers, including Fantasy, Shui On Land, BJ Capital Land, Yanlord, C C Land, Franshion, Powerlong, and Sino-Ocean, may need to significantly increase sales in the second half of 2014 (2H14) to meet their targets.
• Required Sales Increase: Developers may need to achieve up to 634% higher monthly sales in 2H14 compared to 1H14 to meet their full-year targets.

2. Financial Position

• Higher Net Debt Ratios: Developers are expected to report higher net debt ratios due to lower-than-expected sales, reduced cash collections, and land acquisitions.
• High Gearing Developers: Greenland HK, Evergrande, and Agile are likely to have net debt ratios exceeding 80%, while others are expected to keep it below 70%.
• Shimao's Deleveraging: Shimao may slightly deleverage due to its disciplined acquisition strategy and improved cash collection.

3. Forex Impact

• Forex Losses Expected: Developers with high offshore debt and Rmb-based reporting currencies may face forex losses in 1H14 compared to forex gains in 1H13 due to Rmb depreciation (-2.5%).
• Heavily Impacted Developers: Shui On Land, Greenland HK, Agile, and Yuexiu are expected to be most affected by forex losses.

4. Earnings and Valuation

• Core Earnings Growth: Despite higher revenue, core earnings are expected to grow only slightly due to lower margins.
• Valuation Metrics: The sector is trading at low valuations, with a 6.6x FY14 PE and 5.6x FY15 PE, and a 55% discount to NAV, which is undemanding compared to historical averages.
• Attractive Valuation: Stocks such as Country Garden (2007 HK), COLI (688 HK), Shimao (813 HK), and Central China (832 HK) are considered attractively valued.

Key Information

5. Recommendations and Target Prices

6. Results Announcement Dates

7. Valuation Comparison

Policy Outlook and Market Focus

• Policy Relaxation Expected: The report suggests that positive news on policy relaxation and mortgage easing could support share price performance in the second half of 2014.
• Investor Focus Shift: Investors are expected to shift their focus from 1H14 results to policy outlook and developers' presales in 2H14.

Conclusion

The report indicates that while 1H14 results are likely to be unexciting, the sector is currently undervalued. Developers with strong balance sheets and lower forex exposure are more likely to perform well. The report recommends focusing on those with attractive valuations and positive policy outlooks, such as Country Garden, COLI, Shimao, and Central China.