20160129-招商证券_香港_-China_Property_Sector_Property_Quantitative_Easing_–_the_key_driver_in_2016_102页_14mb_14mb

China Property Sector Summary - 2016 Outlook

Core Content

The China property sector is expected to remain robust in 2016, driven by government quantitative easing (QE) measures. These include affluent mortgages from banks and the Housing Provident Fund (HPF), as well as mortgage assets securitization. The sector is also expected to undergo further consolidation through M&A activity, with large developers benefiting from acquiring land and reducing competition.

Main Points

• Property QE as Key Driver: The government's QE measures are expected to boost first-home and home-upgrade demand, especially in major cities. These include:

  • Increased mortgage loan quotas
  • Higher utilization of HPF mortgages
  • Mortgage assets securitization
  • Prolonged mortgage repayment years

• Supply Constraints: Housing supply is expected to decline due to:

  • Two consecutive years of reduced new housing starts
  • Slow residential investment growth (0.4% in 2015)
  • Exit of small developers

• Demand Trends: Sales volume is expected to remain flat, supported by loosening credit policies. In Tier-1 and Tier-2 cities, home prices are expected to increase by 5%.

• Earnings Growth: Listed developers are projected to achieve 17% YoY core net profit growth in FY16E, supported by 15% contracted sales growth in FY15 and price increases in major cities. GPM is expected to remain stable at 27-28%.

• Valuation: The sector is currently trading at a 45% discount to 1-year forward NAV and is close to 1.5SD below 7-year mean, indicating attractive valuation levels.

• Investment Recommendations: The report recommends several companies with strong fundamentals and growth potential, including:

  • CR Land (1109 HK): Strong sales and profit growth, with a major-city focused landbank.
  • COLI (688 HK): High dividend yield and potential M&A opportunities.
  • KWG Property (1813 HK): Attractive valuation and consistent dividend payments.
  • CIFI (884 HK): Strong contracted sales growth through joint ventures.
  • Shimao Property (813 HK): Distressed valuation and focus on major cities.
  • Greentown China (3900 HK): Strong reform progress and decent earnings growth.
  • COGO (81 HK): Improved fundamentals and potential for earnings rebound.
  • Yuzhou (1628 HK): Strong regional presence and potential M&A opportunities.
  • CM Land (978 HK): Expected to benefit from cooperation with parent company and project participation in Qianhai and Hong Kong.

Key Information

• Valuation Metrics:

  • The sector is trading at 45% discount to 1-year forward NAV.
  • Close to 1.5SD below 7-year mean.
  • Individual companies like KWG and Yuzhou offer high dividend yields (9.6% and 9.6% respectively).

• Financial Highlights:

  • CR Land (1109 HK): Expected to achieve 19% YoY sales growth and 16% YoY earnings growth in 2016.
  • COLI (688 HK): Expected to grow contracted sales by 18% YoY and achieve 33% YoY profit growth.
  • KWG Property (1813 HK): Expected to see 9% YoY sales growth and maintain a strong dividend yield.
  • CIFI (884 HK): Expected to achieve 34% YoY profit growth, driven by joint venture earnings.
  • Shimao Property (813 HK): Expected to maintain 30% GPM and 9% YoY profit growth.
  • Greentown China (3900 HK): Expected to achieve 15-17% earnings growth and maintain a 63% discount to NAV.
  • COGO (81 HK): Expected to achieve 34% YoY profit growth, with a 61% net gearing.
  • Yuzhou (1628 HK): Expected to see 19% CAGR in profit from 2014 to 2017E.
  • CM Land (978 HK): Expected to see a 2.6x YoY core profit rebound in 2016.

• Dividend Growth and Yield:

  • KWG Property offers a high dividend yield of 9.6% in FY15E and 9.8% in FY16E.
  • Yuzhou and Greentown also offer strong dividend yields, with Yuzhou at 9.6% and Greentown at 4.7% in FY15E.

• Key Risks:

  • The buoyant home sales in 2015 may have exhausted pent-up demand, leading to weaker sales than expected in 2016.

Investment Picks

• Top Picks: CR Land, COLI, KWG, CIFI, Shimao, COGO, Yuzhou, and Greentown.
• Rating Upgrades: KWG and Greentown upgraded from NEUTRAL to BUY.
• Target Prices: Based on valuation metrics and growth expectations, the target prices for each company are provided.

Conclusion

The report highlights the positive outlook for the China property sector in 2016, driven by government QE measures and M&A activity. The valuation is considered attractive, with several companies offering strong growth potential and high dividend yields. The investment thesis is centered around major-city focused developers and potential M&A opportunities, with a focus on improving balance sheets and generating better returns.