20220120-招银国际-China_Property_Sector__Mildly_positive_if_the_government_relaxes_pre-sales_funds_regulation_4页_701kb

China Property Sector Summary

Core Content

The document provides an analysis of the China property sector, focusing on potential regulatory changes and their implications for developers, liquidity, and market performance. It outlines the anticipated effects of a rumored relaxation of pre-sales funds regulation, as well as market data and ratings for several property companies.

Main Points

• Regulatory Relaxation Rumor:

  • There is a rumor that the Ministry of Housing and Urban-Rural Development (MOHURD) is drafting nationwide rules to ease access to pre-sale funds held in escrow accounts.
  • This relaxation is expected to provide some liquidity to developers, particularly those facing short-term debt obligations and operational needs.
  • The relaxation is likely to be modest, with a reduction of 3–5% in the required escrow ratio, potentially releasing 10% of funds from escrow accounts.

• Timing of Implementation:

  • The proposed rules may be issued before the Chinese New Year (CNY), which is a peak period for salary payments to migrant workers.
  • As an advisory document, not a law, the new rules could be implemented relatively quickly.

• Impact on Developers:

  • The relaxation will be based on the credit rating of developers, meaning that only high-quality or state-owned enterprises (SOEs) will benefit significantly.
  • Distressed developers, such as Evergrande, Aoyuan, and Sinic, are unlikely to benefit much due to their ongoing house delivery challenges.
  • Key beneficiaries are likely to be developers with moderate credit ratings, such as Country Garden, Sunac, CIFI, Agile, Times, and Shimao.

• Debt Maturity in Q1 2022:

  • Several developers are facing significant debt maturities in the first quarter of 2022.
  • For example, Evergrande has a USD 2,025 million bond maturing on March 23, 2022, while CIFI has a USD 49 million term loan due on January 22, 2022.
  • Some developers are able to fund these obligations through escrow accounts or other means, while others are unable to pay and may face defaults.

• Market Comparisons and Ratings:

  • The document includes a table of property sector comparables, showing financial metrics such as market capitalization, price-to-earnings (P/E) ratios, and dividend yields.
  • Companies like Vanke, COLI, and Country Garden are rated "BUY", while Longfor is rated "HOLD".
  • Shimao and Agile are also rated "BUY", indicating potential for outperformance.

Key Information

• Escrow Fund Relaxation:

  • The relaxation is expected to be limited to 3–5% reduction in the required escrow ratio.
  • It may help alleviate liquidity pressures for developers but will not significantly impact overall housing delivery targets.

• Liquidity Benefits:

  • Developers with higher credit ratings will benefit more from the potential release of funds.
  • The policy is aimed at supporting social stability by ensuring timely salary payments to migrant workers and indirectly aiding land markets.

• Ratings Overview:

  • BUY: Vanke - H, COLI, Country Garden, Shimao, Agile, KWG, Times China, China SCE, Radiance, Dexin
  • HOLD: Longfor
  • NOT RATED: Some companies are not rated by CMBIS.

• Market Performance Outlook:

  • The sector is expected to OUTPERFORM the broad market benchmark over the next 12 months.
  • This is based on the anticipated positive impact of the regulatory changes and the overall market conditions.

Summary Table

Disclaimer and Risk Notes

• The report is prepared by CMB International Securities Limited (CMBIS) and is not investment advice.
• There are risks involved in transacting in any securities, and the information provided is not guaranteed to be accurate or complete.
• CMBIS has an investment banking relationship with some of the companies mentioned in the report.
• The report may not be reproduced, reprinted, sold, or redistributed without prior written consent.

Legal and Distribution Notes

• The report is intended solely for distribution to "major US institutional investors".
• In the UK, the report is provided only to individuals who meet the criteria under the Financial Promotion Order.
• In Singapore, the report is distributed by CMBI (Singapore) Pte. Limited, which is an exempt financial adviser.