20180515-兴业金融证券-Real_Estate_Still_Upbeat_Despite_Near-Term_Sideways_Trend_10页_645kb

Real Estate Sector Summary (15 May 2018)

Core Content and Key Insights

• Sector Rating: The real estate sector in China is rated OVERWEIGHT by RHB, maintaining a positive outlook despite a near-term sideways trend.

• Contracted Sales Performance:

  • In April 2018, the 31 developers tracked by RHB reported a 28.8% YoY growth in contracted sales revenue, but showed a 4.7% MoM decline.
  • The contracted sales revenue for the first four months of 2018 (4M18) grew 29.7% YoY, slightly below the 30% growth in the first three months (3M18), due to a rising base from 2017.
  • The 12 developers under coverage (excluding China South City) achieved 32.4% YoY growth in contracted sales value, exceeding the projected range of 25-30%.
  • The contracted ASP (Average Selling Price) increased by 4.3% YoY (from 3M18), indicating a reacceleration in ASP growth.

• Market Outlook:

  • The sector is expected to trade sideways in the short term, with a marginal slowdown in YoY growth.
  • Over the next 6-12 months, the analysts remain more confident, projecting national property sales to exceed consensus estimates and grow 4.3% YoY.
  • The demand-supply imbalance is expected to persist in Tier-1 and Tier-2 cities, and the recent decline in housing prices is largely attributed to government policies.
  • The mortgage rate for first-home buyers remains low at 5.6%, compared to 7% in 2014, and is unlikely to peak in 2018, which supports the sector's stability.

• GBA Investment Theme: The announcement of development details for the Greater Bay Area (GBA) is expected to provide a boost to stock prices, especially for companies involved in this theme.

Top Picks and Ratings

• Top Picks:

  • Country Garden (2007 HK) – BUY, with a target price of HKD22.00
  • China Resources Land (1109 HK) – BUY, with a target price of HKD31.50
  • Longfor (960 HK) – BUY, with a target price of HKD26.30
  • CIFI Holdings (884 HK) – BUY, with a target price of HKD7.80

• Other Companies with Potential:

  • Agile Property (3383 HK)
  • Evergrande (3333 HK)
  • Shimao Property (813 HK)

• Ratings Overview:

  • BUY: Country Garden, China Resources Land, Longfor, CIFI Holdings, Agile Property, Evergrande, Shimao Property
  • NEUTRAL: Sunac, Poly (HK), KWG Property
  • SELL: COGO

Key Statistics

• National Property Market:
  • Property Sales:
    • 4M18 sales amounted to CNY8,728 bn, up 4.3% YoY.
    • Residential property sales accounted for 11,024 bn (4M18), representing 65.3% of total national sales.
  • Property Prices:
    • National residential property prices increased by 4.3% YoY.
    • Tier-1 cities saw a 5.8% YoY increase, while Tier-2 cities experienced a 4.3% YoY increase.
    • Tier-3 cities showed a 4.1% YoY increase.
  • GFA (Gross Floor Area) Under Construction:
    • Residential GFA under construction was 5,364 m sqm (2017), with a 3.0% YoY growth.
  • Inventory Digestion:
    • National inventory decreased to 589 m sqm (4M18), indicating a 15.3% YoY decline.
    • Residential inventory was 302 m sqm (4M18), with a 25.1% YoY decline.

Sector Valuation and Peer Comparison

• Valuation: The sector's valuation is returning to its historical mean level, in line with the recent market correction.
• Peer Comparison:
  • Large Peers:
    • Country Garden has a P/E of 8.4 (FY18F) and a P/BV of 2.3.
    • Evergrande has a P/E of 6.9 (FY18F) and a P/BV of 2.0.
    • China Resources Land has a P/E of 8.6 (FY18F) and a P/BV of 1.3.
  • Mid-and-Small Peers:
    • Shimao Property has a P/E of 6.6 (FY18F) and a P/BV of 0.9.
    • Agile Property has a P/E of 7.0 (FY18F) and a P/BV of 1.2.

Conclusion

The real estate sector is expected to trade sideways in the near term due to the marginal slowdown in sales and the impact of government policies. However, the consistent YoY growth in contracted sales and earnings, along with the potential for the GBA investment theme, supports a longer-term OVERWEIGHT rating. Companies such as Country Garden, China Resources Land, Longfor, and CIFI Holdings are highlighted as top picks, while others like Agile Property and Evergrande are also likely to benefit from the GBA development. The sector's valuation is returning to historical levels, and the analysts remain optimistic about its future performance.