20221014-招银国际-China_Property_Sector_Long_completion,_short_new_start_4页_793kb

China Property Sector Summary

Core Content

This document provides an analysis of the Chinese property sector, focusing on the difference between housing completion and new start. It outlines investment strategies based on current market conditions, policy impacts, and historical trends. The key message is that investors should long the housing completion sector and hedge against the weakness in new start activity.

Main Views

Housing Completion to See a Quick Boost

• A total of RMB140bn in "ensuring completion fund" has been distributed to support housing completion.
• This is expected to result in 100mn sqm of completion, representing 13% of the 2021 total completion.
• A second round of RMB60bn is also anticipated soon.
• NBS will release September figures on 18 October, and the completion YoY growth is expected to flatten after eight consecutive months of decline.
• For 4Q22, the forecast is a 2% YoY increase in housing completion.

New Start to Remain Weak

• Property sales remain weak, with 8M22 sales value down 30% YoY.
• Inventory levels have reached 25 months, indicating a significant backlog.
• Non-state-owned developers are struggling with liquidity and have reduced land purchases by 40% YoY.
• The report forecasts weak new start activity in September and 4Q22.

Key Sectors and Investment Strategy

Sectors Benefiting from Housing Completion

• Floating glass (mainly used in property housing): Xinyi Glass contributes 70% of its revenue from this segment. The floating glass price may see support from October.
• Hardware Supplies: These are expected to benefit from the increased completion activity.
• Kitchenware and Compliance (previously key beneficiaries): These sectors are now less relevant due to liquidity issues and lower housing standards.

Sectors Impacted by Weak New Start

• Traditional sectors like Cement and Steel may suffer due to reduced demand for new construction.

Recommended Pair Trade

• Long Xinyi Glass (868 HK, NR) and hedge with CNBM (3323 HK, NR).
• CNBM is the largest cement player in China with high gearing (70%), making it vulnerable to declining demand.
• Historical analysis suggests that a higher spread between completion and new start correlates with a larger spread between Xinyi Glass and CNBM.

Ratings and Outlook

• OUTPERFORM: The property sector is expected to outperform the broad market over the next 12 months.
• CMBIGM Ratings:
  • BUY: Potential return of over 15%.
  • HOLD: Potential return of +15% to -10%.
  • SELL: Potential loss of over 10%.
  • NOT RATED: No rating provided.
  • OUTPERFORM: Sector expected to outperform the market.
  • MARKET-PERFORM: Sector expected to perform in line with the market.
  • UNDERPERFORM: Sector expected to underperform the market.

Figures and Data

• Figure 1: Highlights the expected strong outperformance of completion over new start due to the "Ensuring Completion" policy, which is expected to widen the spread between Xinyi Glass and CNBM.
• Figure 2: Shows that completion is expected to rise while new start remains weak in September and 4Q22.
• Figure 3: Indicates that inventory risk continues to accumulate.
• Figure 4: Illustrates the floating glass price trend, suggesting potential support from October.

Disclosures

• The report is not investment advice and is based on publicly available information.
• CMBIGM does not guarantee the accuracy, completeness, or timeliness of the information.
• The report may contain conflicts of interest, as CMBIGM may have investment banking relationships with the companies discussed.
• Distribution restrictions apply in the UK, US, and Singapore, depending on the jurisdiction.

Analyst Certification

• The research analyst certifies that the views expressed in the report accurately reflect their personal views.
• No part of their compensation is tied to the views expressed.
• The analyst confirms no trading in the covered stocks within 30 days prior to the report's release and no trading for 3 business days after.

Disclaimer

• Investment risks are inherent, and past performance does not guarantee future results.
• Investors are advised to consult a financial advisor and independently evaluate any investment decisions.