China Property Sector 2017 Summary
Core Content
The 2017 China property sector analysis highlights the need for caution despite signs of market recovery. The report discusses the impact of tightening measures, the slowdown in transaction volume, and the relationship between home prices and land prices. It also evaluates the profitability of major property developers and provides stock recommendations.
Main Points
- Market Complacency and Caution: The market has been complacent about the growth in contracted sales and profit margin recovery of China's property developers. However, there are reasons to be more cautious due to the sharp slowdown in transaction volume.
- Transaction Volume Slowdown: Transaction volume slowed significantly after austerity measures, with MTD April showing a -35% decline and March showing a -30% decline.
- Home Prices and Land Prices: While home prices have shown resilience, developers may not see higher profits due to the sharper increase in land prices.
- Tightening Measures: A series of tightening measures have been implemented across various cities, including purchase restrictions, increased down payment requirements, and minimum holding periods for newly purchased homes.
- Profitability Trends: Developers' gross profit margins have been declining, with the average margin at 29% in FY16, indicating challenges in maintaining profitability.
- Stock Picks: The report recommends Longfor and COLI as strong buys, citing their superior capital management, cost control, and recurring income.
Key Information
Tightening Measures Timeline
| Date |
City |
Tier |
Policy |
| 1-Mar-17 |
Zhuozhou |
3 |
Launched HPR, 1 unit for non-local hukou residents |
| 7-Mar-17 |
Zhangjiakou |
3 |
Launched HPR, max 2 units for local hukou residents and 1 for non-local |
| 11-Mar-17 |
Sanya |
3 |
Launched HPR, max 2 units for local hukou residents and 1 for non-local |
| 14-Mar-17 |
Ganzhou |
3 |
Launched HPR, max 2 units for local hukou residents and 1 for non-local |
| 17-Mar-17 |
Shijiazhuang |
2 |
Launched HPR, max 1 unit for non-local residents |
| 17-Mar-17 |
Beijing |
1 |
Mortgage down-payment raised from 50% to 60% for 2nd home |
| 18-Mar-17 |
Changsha |
2 |
Launched HPR, max 1 unit for non-local residents; down-payment increased |
| 19-Mar-17 |
Baoding |
3 |
Launched HPR, max 3 units for local hukou residents and 1 for non-local |
| 22-Mar-17 |
Jurong |
3 |
Launched HPR, max 1 unit for non-local hukou residents |
| 22-Mar-17 |
Langfang |
3 |
Down-payment raised for 1st and 2nd homes |
| 23-Mar-17 |
Cangzhou |
3 |
Launched HPR, max 2 units for local hukou residents and 1 for non-local |
| 24-Mar-17 |
Beijing |
1 |
Residents divorced for less than a year no longer qualify as first-time buyers |
| 24-Mar-17 |
Zhenjiang |
3 |
Down-payment raised for 1st and 2nd homes |
| 25-Mar-17 |
Foshan |
3 |
Tightened HPR for non-local hukou residents |
| 26-Mar-17 |
Zhongshan |
3 |
Launched HPR, max 3 units for local hukou residents and 2 for non-local |
| 26-Mar-17 |
Beijing |
1 |
Stop individuals from buying new commercial properties |
| 29-Mar-17 |
Fuzhou |
2 |
Down-payment raised for 2nd homes |
| 29-Mar-17 |
Hangzhou |
2 |
Residents divorced for less than a year no longer qualify as first-time buyers |
| 31-Mar-17 |
Guangzhou |
1 |
Residents divorced for less than a year no longer qualify as first-time buyers |
| 6-Apr-17 |
Renqiu |
3 |
Launched HPR, max 2 units for local hukou residents and 1 for non-local |
| 9-Apr-17 |
Huizhou |
3 |
Introduced minimum holding period for newly purchased homes |
Residential Sales Volume Forecast
| Year |
Nation-wide (m sqm) |
Tier 1 (m sqm) |
Tier 2 (m sqm) |
Tier 3 (m sqm) |
YoY% |
| 2009 |
861,850 |
67,795 |
250,017 |
544,038 |
- |
| 2010 |
930,516 |
44,122 |
254,827 |
631,567 |
8.0 |
| 2011 |
970,303 |
40,188 |
262,535 |
667,580 |
4.3 |
| 2012 |
984,675 |
46,930 |
278,967 |
658,778 |
1.5 |
| 2013 |
1,157,227 |
53,051 |
317,739 |
786,437 |
17.5 |
| 2014 |
1,051,818 |
45,885 |
295,597 |
710,336 |
-9.1 |
| 2015 |
1,124,057 |
52,287 |
313,233 |
758,537 |
6.9 |
| 2016 |
1,375,399 |
52,853 |
391,521 |
931,026 |
22.4 |
| 2017E |
1,324,736 |
49,706 |
371,027 |
904,003 |
-3.7 |
Home Price Forecast
| Year |
Tier 1 (YoY%) |
Tier 2 (YoY%) |
Tier 3 (YoY%) |
| 2012 |
2.2 |
-0.9 |
-2.0 |
| 2013 |
23.4 |
7.9 |
6.1 |
| 2014 |
0.6 |
-5.3 |
-5.1 |
| 2015 |
17.2 |
-1.2 |
-2.0 |
| 2016 |
23.0 |
13.5 |
10.8 |
| 2017E |
5.0 |
2.0 |
1.0 |
Developers' Profitability
| Company |
FY12 (%) |
FY13 (%) |
FY14 (%) |
FY15 (%) |
FY16 (%) |
| COLI |
38.3 |
32.5 |
32.7 |
27.2 |
27.8 |
| R&F |
40.8 |
39.2 |
35.5 |
32.1 |
28.3 |
| Agile |
41.4 |
35.6 |
32.4 |
25.1 |
26.5 |
| Shimao |
33.5 |
35.3 |
32.5 |
28.5 |
27.6 |
| KWG |
36.5 |
36.2 |
35.5 |
36.1 |
34.6 |
| Average |
38.1 |
35.8 |
33.7 |
29.8 |
29.0 |
Estimated Gross Profit Margins on Recently Acquired Land Sites
| City |
Acquirer |
Project |
Acq Date |
AV (RMB/psm) |
Est. All-in (RMB/psm) |
Nearby ASP (RMB/psm) |
Est. GPM (%) |
| Dongguan |
COLI |
Fenggang Town project |
Jan-17 |
13,417 |
16,917 |
23,500 |
28.0 |
| Wuhan |
COLI |
Jianghan District project |
Jan-17 |
14,964 |
18,464 |
25,000 |
26.1 |
| Harbin |
COLI |
Songbei project |
Jan-17 |
2,133 |
5,633 |
7,900 |
28.7 |
| Guangzhou |
R&F |
Huadu Shiling project |
FY16 |
3,900 |
7,400 |
8,500 |
12.9 |
| Ningbo |
R&F |
Cicheng New District |
FY16 |
4,500 |
8,000 |
11,400 |
29.8 |
| Guangzhou |
Agile |
Liwan District project |
FY16 |
35,216 |
38,716 |
42,333 |
8.5 |
| Changzhou |
Agile |
Sanjin River, Changzhou |
FY16 |
5,636 |
9,136 |
10,383 |
12.0 |
| Jinan |
Shimao |
Licheng District Xiaoya parcel |
Dec-16 |
8,568 |
12,068 |
16,000 |
24.6 |
| Hangzhou |
Shimao |
Pengbu Unit parcel |
Dec-16 |
36,461 |
39,961 |
39,000 |
-2.5 |
| Beijing |
Longfor |
Mengtougou project |
Jan-17 |
26,519 |
30,019 |
43,500 |
31.0 |
| Chongqing |
Longfor |
Sapingba project |
Jan-17 |
1,501 |
5,001 |
8,000 |
37.5 |
| Average |
- |
- |
- |
- |
- |
- |
21.5 |
Stock Picks and Ratings
| Company |
Ticker |
Rating |
Target Price (HK$) |
Upside (%) |
17E P/E |
18E P/E |
19E P/E |
Dividend Yield (%) |
| Longfor |
960 HK |
BUY |
15.15 |
10% |
7.8 |
7.0 |
6.1 |
4.6 |
| COLI |
688 HK |
BUY |
25.43 |
9% |
7.5 |
6.7 |
6.2 |
4.0 |
| Country Garden |
2007 HK |
NEUTRAL |
6.63 |
-14% |
10.4 |
7.7 |
6.1 |
3.4 |
| Vanke |
2202 HK |
N-R |
21.55 |
N/A |
8.4 |
7.3 |
6.7 |
5.0 |
| CRLand |
1109 HK |
N-R |
22.75 |
N/A |
8.2 |
7.1 |
6.4 |
3.5 |
| Agile |
3383 HK |
N-R |
7.3 |
N/A |
7.2 |
6.3 |
5.5 |
5.5 |
| Shimao |
813 HK |
N-R |
13.26 |
N/A |
6.0 |
5.2 |
4.6 |
5.8 |
Investment Criteria
- Recurring Income: Preference for companies with strong, less cyclical recurring income.
- Operating Cost Control: Ability to manage operating costs at low levels.
- Capital Management: Superior capital management skills.
Overall Scorecard
| Company |
Recurring Revenue |
Cost Control |
Capital Management |
Overall |
| Longfor |
5 |
4 |
4 |
14 |
| COLI |
2 |
5 |
5 |
12 |
| R&F |
3 |
2 |
3 |
8 |
| Agile |
3 |
3 |
3 |
9 |
| Sunac |
2 |
2 |
3 |
7 |
| Country Garden |
2 |
4 |
4 |
10 |
| Shimao |
3 |
3 |
3 |
9 |
Analyst Disclosure
The analysts certify that the views expressed in the report accurately reflect their personal views about the subject securities and issuers. No part of the analysts' compensation was directly or indirectly related to the specific recommendations or views expressed in the report.
Regulatory Disclosure
Please refer to the important disclosures on the website http://www.newone.com.hk/cmshk/en/disclosure.html or http://www.cmschina.com.hk/Research/Disclosure.
Disclaimer
This document is for information purposes only. It should not be construed as advice, offer, or solicitation. The information and opinions are based on sources believed to be reliable but are not guaranteed to be accurate or complete. CMS HK is not liable for any use or reliance upon this document. The contents are current as of the date of publication and may change without notice. Past performance is not indicative of future performance. Estimates are based on assumptions that may not be realized. The analysis is subject to change based on different assumptions. This document is not directed at you if CMS HK is prohibited from making it available to you. It is only made available to certain US persons under US securities laws.
