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China Property Sector Summary

Core Content

This report from DBS Group Research provides an analysis of the Chinese property sector, focusing on dividend policies and valuations for 25 developers as of 26 July 2013. It outlines the expected performance of companies in the sector during the first half of the year and offers recommendations for investors based on dividend yields, valuations, and growth potential.

Main Points

Dividend Policy Outlook

• Interim dividend yield is typically low, but better-than-expected dividends may attract yield-focused investors.
• Shimao and Greentown may resume interim dividend payments in 1H13, potentially offering upside surprises.
• SOHO, SZI, R&F, and Central China are expected to maintain or increase their dividend yields compared to peers.
• Most developers (around half) are likely to keep their dividend policies unchanged, with some not paying interim dividends due to financial constraints.

Key Companies

• COLI, Country Garden, and Shimao are highlighted for their strong execution capability and presales outlook, which may lead to outperformance.
• China Overseas, Country Garden, and CR Land are recommended as "Buy" based on their dividend policies and valuations.
• Shui On Land is recommended as "Hold" with a focus on its dividend policy and potential for dividend growth.
• Evergrande, Longfor, and Poly (HK) are not expected to pay interim dividends.

Valuation Metrics

• The sector is currently trading at 7.1x FY13F PE, which is a 49% discount to NAV and 0.9x P/BV, compared to historical averages of 10x PE, 37% discount to NAV, and 1.2x P/BV.
• Valuations are not considered excessive, and the report suggests focusing on large-cap stocks with strong execution capabilities.

Key Information

Dividend Expectations

• Shimao and Greentown: May resume interim dividends, potentially offering upside surprises.
• SOHO, SZI, R&F, and Central China: Likely to maintain or increase dividend yields.
• Others: May see flat or slight increases in dividends due to earnings growth or stable earnings.

Investment Recommendations

• Buy recommendations are given to China Overseas, Country Garden, and CR Land.
• Hold recommendation for Shui On Land.
• No recommendation (NR) for several companies due to uncertain dividend policies or lack of information.

Valuation Comparison

• Tier 1 players (e.g., China Overseas, Country Garden, CR Land, Shimao Property) are more attractive for investment due to their strong fundamentals and better valuations.
• Tier 2 players (e.g., Agile Property, COGO, Franshion, Guangzhou R&F) show mixed performance and valuations.
• Tier 3 players (e.g., BJ Cap Land, BJ North Star, C C Land, Central China) are generally less attractive with lower valuations and less stable performance.

Tables

Dividend and Valuation Overview

Interim Results and Dividend Expectations

P/E Valuation Comparison (2007 to 2012)

Valuation Comparison (2007 to YTD2013)

Analysts

• Danielle WANG, CFA – (852) 2820 4915 – danielle_wang@hk.dbsvickers.com
• Carol WU – (852) 2863 8841 – carol_wu@hk.dbsvickers.com
• Andy YEE – (852) 2971 1773 – andy_yee@hk.dbsvickers.com
• Ken HE, CFA – +86 21 6888 3375 – ken—he@hk.dbsvickers.com

Summary

The report highlights that while the property sector is expected to show modest earnings growth and higher net debt ratios, the focus for investors should be on dividend yields and execution capability. Shimao and Greentown are likely to resume interim dividends, offering potential surprises. SOHO, SZI, R&F, and Central China are expected to maintain strong dividend yields. The sector is currently undervalued, with China Overseas, Country Garden, and Shimao being top picks due to their strong performance and valuation metrics. Investors are advised to focus on large-cap stocks with a proven track record.