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This document provides an equity research analysis of the property and architectural decoration sectors in China, focusing on market performance, sector trends, policy implications, and investment recommendations. It also includes a summary of key indices, Hong Kong ADRs, and risk factors.
Key Index Performance (Aug 22, 2018)
| Market |
1D (%) |
1M (%) |
YTD (%) |
EPS 18E (%) |
EPS 19E (%) |
P/E 18E |
P/E 19E |
| HSI |
0.6 |
-1.7 |
-7.2 |
36.8 |
10.9 |
11.3 |
10.2 |
| HSCEI |
1.0 |
0.5 |
-8.3 |
16.0 |
10.6 |
7.7 |
7.0 |
| MXCN |
1.2 |
-4.3 |
-9.1 |
46.7 |
15.8 |
12.3 |
10.6 |
| SHSZ300 |
1.8 |
-4.8 |
-17.5 |
34.0 |
15.3 |
11.2 |
9.7 |
| SHCOMP |
1.3 |
-3.4 |
-17.3 |
37.5 |
13.7 |
10.9 |
9.6 |
| SZCOMP |
1.4 |
-7.7 |
-22.5 |
72.3 |
21.8 |
16.4 |
13.5 |
| INDU |
0.3 |
3.0 |
4.5 |
43.8 |
9.1 |
16.6 |
15.2 |
| SPX |
0.2 |
2.2 |
7.1 |
48.2 |
10.3 |
17.7 |
16.1 |
| CCMP |
0.5 |
0.5 |
13.8 |
84.4 |
16.3 |
23.4 |
20.1 |
| UKX |
-0.3 |
-1.5 |
-1.6 |
173.4 |
7.7 |
13.5 |
12.5 |
| NKY |
0.1 |
-2.1 |
-2.4 |
65.1 |
12.8 |
15.8 |
14.0 |
- HSCEI and MXCN showed mixed performance with negative YTD growth.
- SHCOMP and SZCOMP had significant YTD declines, but CCMP showed strong growth.
- INDU and SPX were positive, with CCMP leading in EPS growth.
Hong Kong ADRs Performance
| Company |
Local (HK$) |
Daily (%) |
ADR (US$) |
Daily (%) |
| 700 TENCENT |
350.6 |
-0.06 |
45.2 |
1.14 |
| 1398 ICBC |
5.7 |
0.35 |
14.6 |
1.07 |
| 939 CCB |
6.9 |
0.73 |
17.6 |
1.03 |
| 857 PETROCHINA |
5.8 |
0.52 |
73.9 |
-0.04 |
| 941 CHINA MOBILE |
73.8 |
-1.34 |
47.1 |
-1.30 |
| 5 HSBC |
70.3 |
-0.35 |
45.1 |
0.09 |
| 2318 PING AN |
70.4 |
1.44 |
31.0 |
4.28 |
| 3988 BANK OF CHINA |
3.6 |
0.00 |
5.7 |
-1.38 |
| 386 SINOPEC |
7.4 |
0.68 |
28.2 |
0.54 |
| 1299 AIA |
68.3 |
1.71 |
8.7 |
6.20 |
- TENCENT and PING AN had positive ADR performance, while CHINA MOBILE and BANK OF CHINA faced downward pressure.
- SINOPEC and AIA showed strong local performance but weaker ADRs.
Main Points and Key Insights
Property Sector
- Commercial floor space sales increased by 4.2% YoY in Jan-Aug 2018, with July's growth at 9.9% YoY, the highest this year.
- Land area purchased reached a three-year high, with July's growth at 32.1% YoY.
- New start buildings increased by 14.4% YoY in Jan-Jul 2018, indicating strong developer willingness to begin construction.
- Property development investment grew 10.2% YoY in Jan-Jul 2018, with July's growth at 13.2% YoY.
- Liquidity conditions for property developers improved, supporting potential valuation correction.
- Regulatory easing is expected, along with improved supply and mortgage rates, which may drive demand in third/fourth-tier cities.
Architectural Decoration Sector
- Construction sector outperformed the market in July, with road & bridge construction seeing the highest growth.
- Infrastructure investment growth in 1H18 was 7.3% YoY, but declined in June due to private financing and PPP control.
- PPP transactions rebounded in July, indicating a recovery trend and a focus on quality over quantity.
- Infrastructure investment is expected to rebound in 2H18, driven by policy support and liquidity easing.
- The infrastructure industry chain is expected to recover, with transportation construction and rural revitalization as key areas.
- Central and western regions will benefit from infrastructure focus, including Sichuan-Tibet Railway and Xinjiang PPP projects.
Investment Recommendations
- Positive outlook on the infrastructure industry chain.
- Recommended stocks include:
- Low P/B construction central enterprises: Gezhouba Group (600068 CH), Shandong Hi-Speed Road & Bridge (000498 CH), China Railway Construction (1186 HK), China Communications Construction (601800 CH), China National Chemical Engineering (601117 CH).
- Local SOEs with higher elasticity: Sichuan Road & Bridge (600039 CH), Shandong Hi-Speed Road & Bridge (000498 CH).
- Front-end design companies: JSTI Group (300284 CH), China Design Group (603018 CH).
Risks
- Macroeconomic policy shifts may lead to sector downturn.
- FAI (Fixed Asset Investment) growth may decline.
- PPP transactions could be affected by market expectations and internet home decoration transformation.
- Environmental business may face challenges.
Rating Definitions
| Rating |
Definition |
| Buy |
Stock expected to outperform benchmark by more than 15% |
| Accumulate |
Stock expected to outperform benchmark by more than 5% but not more than 15% |
| Hold |
Expected stock relative performance ranges between -5% and 5% |
| Underperform |
Stock expected to underperform benchmark by more than 5% |
| Sector Rating |
Definition |
| Positive |
Sector expected to outperform benchmark by more than 10% |
| Neutral |
Expected sector relative performance ranges between -10% and 10% |
| Cautious |
Sector expected to underperform benchmark by more than 10% |
Disclaimer
- This report is for informational purposes only and does not constitute investment advice.
- The research report is intended for GF Securities (Hong Kong) clients only.
- The proprietary trading division and analysts may have conflicting views or interests.
- Investment involves risks, and past performance does not guarantee future results.
