20150717-申万宏源研究_香港_-Real_estate__Sector_outlook-Shaky_recovery_13页_660kb

Real Estate Sector Outlook Summary - July 17, 2015

Core Content

This report provides an overview of the real estate sector in China as of the first half of 2015. It highlights the recovery in home sales, the continued weakness in property investment, and the overall sector performance, including financial metrics and future outlook.

Main Points

• Home Sales Recovery:

  • New home sales volume growth turned positive in March 2015 and reached 18% YoY in June, resulting in 444 million square meters of total sales in the first half of 2015, an increase of 4.5% YoY.
  • Sales value increased by 13% YoY to c.Rmb2.9tn, implying an 8% YoY rise in average selling prices.
  • The increase in sales is attributed to rising home prices in higher-tier cities and a higher proportion of sales coming from these cities.

• Property Investment Sluggish:

  • Property investment totaled Rmb4.4tn in 1H15, a 4.6% YoY increase, which is a significant slowdown from the 10.5% YoY increase in 1H14.
  • In the second quarter, investment growth further slowed to 2.3% YoY, compared to 8.6% YoY in the first quarter.
  • Land purchase fell by 34% YoY in area and 29% YoY in value, while new starts decreased by 16% YoY, leading to a new low in total floor space under construction growth at 4.3% YoY.

• Developer Performance:

  • Of the 25 large developers, 12% YoY average growth in contract sales was reported in 1H15, with only six developers experiencing a decline.
  • Developers have completed approximately 45% of their annual sales targets.
  • Land replenishment remained low, with an average of 18% of contract sales proceeds spent on land purchases in 1H15, down from 44% in 2013 and 27% in 2014.

• Leverage and Earnings:

  • Sunac China Holdings is the only developer expected to increase leverage, potentially rising from 45% to above 70%.
  • Evergrande Real Estate Group and Wanda are expected to report double-digit earnings growth in 1H15, while Longfor Properties, Shimao Property Holdings, Agile Property Holdings, and Country Garden Holdings are expected to report single-digit growth.
  • KWG Property Holding and R&F Properties are likely to report flat earnings growth.
  • Poly Property Group and Sino-ocean Land Holdings may experience a mild decline, while Vanke and China Overseas Land and Investment may show some improvement.
  • Gross margins are expected to remain stable, with Poly, Agile, and Country Garden possibly reporting a decline from 1H14.

Key Information

• Market Outlook: The report maintains an Overweight sector rating, suggesting a strong likelihood of continued recovery in the property market over the next 12 months due to weak property investment and economic growth, which support a loose monetary policy stance.
• Valuation: The sector is currently trading at an average 40% net asset discount, with a 0.8x PB (Price-to-Book) and 7.5x PE (Price-to-Earnings) for 2015.
• Recommendation: The report recommends increased allocation to market leaders such as Wanda, China Overseas Land and Investment, and China Resources Land due to their strong performance and growth potential.

Summary of Financial Metrics

Conclusion

Despite the continued weakness in property investment, the real estate sector is showing signs of recovery, particularly in home sales. The report suggests that the recovery is driven by policy support and lower borrowing costs, and that the sector is poised for further upward momentum in the coming year. The Overweight rating is maintained, with a focus on market leaders for investment.