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China Property Weekly Digest Summary (Issue No. 40)

Core Content

This report provides an overview of the China property market as of 6 August 2013, focusing on sales performance, policy updates, and key developments across different tiers of cities.

Main Points

Project of the Week: Shimao - Changzhou Champagne Lake

• Developer: Shimao (813.HK)
• Project Type: Mid-to-high end, targeting upgraders
• Unit Sizes: 130–180 square meters (sm)
• Sales Performance:
  • 1H13 sales: Rmb1bn
  • 2012 sales: Rmb880m
  • 2013 saleable resources: Rmb2.4bn
  • Revised 2013 sales target: Rmb2bn
  • Target sale-through rate: 83%
  • Current achievement rate: 50%
• Financial Metrics:
  • Blended ASP: Rmb9k/sm
  • Expected gross margin: 28%
  • Expected net margin: 13%

Policy Update

• The policy environment is expected to remain stable in the second half of 2013.
• Recent policy adjustments in various cities have focused on relaxing housing provident fund (HPF) policies, including:
  • Interest subsidies for converting HPF to commercial mortgages
  • Expansion of eligible HPF users to include family members
  • Increased mortgage caps and extended mortgage terms
• However, these changes are not broadly applicable to all developers, particularly leading ones, which have limited exposure to such projects due to low asset turnover and margins.

Property Sales Performance

• Tier I cities:
  • Weekly GFA sales: 193,000 sm
  • Weekly ASP: Rmb20,159/sm
  • Sales volume increased by 9% in Tier I cities and 17% in Tier III cities
  • ASP decreased by 3% in Tier I cities and 2% in Tier II cities, but increased by 8% in Tier III cities
  • Sales growth: 5% m-o-m in Tier I and Tier III cities, 2% decline in Tier II cities
• Tier II cities:
  • Weekly GFA sales: 162,000 sm
  • Weekly ASP: Rmb9,958/sm
  • Sales volume increased by 14% in Tier II cities
• Tier III cities:
  • Weekly GFA sales: 54,000 sm
  • Weekly ASP: Rmb6,313/sm
  • Sales volume increased by 17% in Tier III cities

Inventory Level

• Inventory (000 sm):
  • Beijing: 7,986
  • Shanghai: 9,576
  • Shenzhen: 2,720
  • Guangzhou: 6,453
  • Hangzhou: 5,973
  • Suzhou: 6,016
  • Ningbo: 9,755
  • Qingdao: 12,183
  • Nanjing: 4,475
  • Fuzhou: 2,395
  • Nanning: 5,312
  • Huizhou: 2,140
  • Jiujiang: 1,301
  • Nanchong: 3,685
  • Zhoushan: 1,692
  • Dongying: 2,424
• Average weeks to digest inventory: 58 weeks

Sector Valuation

• The sector is currently trading at:
  • 7.4x FY13 P/E
  • 1.0x P/BV
  • 47% discount to NAV
• Historical averages:
  • 10.1x P/E
  • 1.2x P/BV
  • 37% discount to NAV
• Due to macroeconomic uncertainties, the report recommends focusing on large-cap companies such as COLI, Country Garden, and Franshion.

Key Information

• Market Trends: Sales have continued to recover, with notable growth in Tier I and III cities.
• Policy Outlook: Stability is expected in the second half of 2013, with limited impact on major developers.
• Performance Highlights: Shimao's Changzhou Champagne Lake project has exceeded sales expectations and is performing well.
• Valuation: The sector is undervalued compared to historical averages, suggesting potential for upside.
• Inventory Trends: Inventory levels remain high, with an average of 58 weeks to digest.

Recent Reports

• COLI (688.HK): Back to fast growth trajectory
• Sino-Ocean Land (3377.HK): Profitability to improve
• COGO (81.HK): Continues to outperform in Tier 3 cities
• China Property Sector – Whose 1H DPS will surprise on the upside?
• Shimao (813.HK): Successful execution
• Agile (3383.HK): Turnaround efforts

Analysts

• Ken HE CFA: +86 21 6888 3375, ken_he@hk.dbsvickers.com
• Carol WU: +852 2863 8841, carol_wu@hk.ddsvickers.com
• Danielle Wang CFA: +852 2820 4915, danielle_wang@hk.dbsvickers.com
• Andy YEE: +852 2971 1773, andy_yee@hk.dbsvickers.com

Summary of Sales and ASP

Conclusion

The China property market is showing signs of recovery, with notable performance in Tier I and III cities. While there are policy updates aimed at supporting the sector, they are not expected to significantly impact major developers. The sector is currently undervalued, with a focus on quality names recommended for investment.