20221024-招银国际-China_Property_Sector_Major_policy_support_may_mute_for_now_5页_798kb

China Property Sector Summary

Core Content

The China property sector is currently experiencing a mixed performance, with recent data showing in-line September figures but ongoing challenges in key areas. The sector is expected to remain cautious in the near term due to a combination of weak sales, limited policy support, and financial pressures.

Main Points

1. Property Sales and Investment Trends

• Property sales in September 2022 declined by 14% YoY, narrowing from -20% in August. This reflects a 34% MoM increase, suggesting some stabilization.
• Property investment dropped 12% YoY in September, with a historical low of 8% YoY decline for the first nine months of 2022.
• New starts saw a significant 44% YoY decline, indicating a slowdown in construction activity.
• Sales sentiment is expected to weaken in October and November due to pandemic disruptions and limited policy support (only 60% of 2015 intensity).

2. Completion and Inventory

• Completion of property projects improved, with a 6% YoY decline in September, showing a narrowing trend compared to earlier months.
• The "ensuring completion" fund has played a key role in supporting project completions. A total of RMB140bn has already been distributed, benefiting >1 million units or 13% of 2021 completion levels.
• A second round of RMB60bn is expected to be distributed soon, further aiding completion.
• Unsold residential inventory slightly decreased to 259mn sqm in September, driven by higher sold GFA than new starts.

3. Policy and Market Outlook

• The 929/930 policy support has been partially neutralized by the pandemic disruption.
• The new leadership is likely to take time to assess the housing market, which may delay major policy interventions.
• Offshore debt repayment is expected to peak in January 2023, increasing pressure on property companies (POEs).

4. Investment Strategy

• Hedge funds may consider pair trading strategies, such as longing first quadrant stocks (with better sales and land acquisitions) and hedging with third quadrant stocks.
• The difference between completion and new starts is expected to further widen, indicating a structural imbalance in the market.

Key Information

• Sales are expected to remain weak in the coming months, with sluggish sentiment due to pandemic and policy constraints.
• SOEs are generally more resilient than POEs, as they have better sellable resources.
• Completion is supported by government funds, with additional RMB60bn expected soon.
• Inventory levels are slightly declining, but not enough to signal a recovery.
• Debt repayment pressures are increasing, especially for offshore debt.

CMBIGM Ratings and Outlook

• OUTPERFORM: The property sector is expected to outperform the relevant broad market benchmark over the next 12 months.
• Investment Recommendations:
  • BUY: Stocks with potential return of over 15%.
  • HOLD: Stocks with potential return of +15% to -10%.
  • SELL: Stocks with potential loss of over 10%.
  • NOT RATED: Stocks not rated by CMBIGM.

Analyst Certification

• The research analyst certifies that the views expressed accurately reflect their personal views.
• The analyst confirms no direct or indirect compensation related to the report's views.
• The analyst confirms no trading in the covered stocks within 30 days before the report's release.

Disclosures

• Investment Banking Relationships: CMBIGM or its affiliates have investment banking relationships with the issuers covered in the report within the preceding 12 months.
• Risks and Disclaimer: The report contains general information and is not tailored to individual investors. It is not an offer or solicitation to buy or sell any securities. No liability is accepted for any reliance on the report's content.
• Conflicts of Interest: CMBIGM may have investment positions or conflicts of interest that could affect the objectivity of the report.

Distribution Restrictions

• United Kingdom: The report is only for persons within Article 19(5) of the Financial Services and Markets Act 2000 or High Net Worth Companies, Unincorporated Associations, etc..
• United States: The report is only for major US institutional investors and not for retail investors.
• Singapore: The report is distributed by CMBISG, an Exempt Financial Adviser, and is subject to regulatory oversight. Legal responsibility is limited to Accredited Investors, Expert Investors, or Institutional Investors.

Conclusion

The China property sector is still in a challenging phase, with limited policy support and ongoing financial pressures. While completion is showing signs of improvement, sales and investment remain weak. Investors are advised to stay cautious and wait for a better entry point.