20220519-招银国际-Introduce_leading_indicator__GAIN__to_gauge_property_sales__Reiterate_strong_buy_6页_936kb

China Property Sector Summary

Core Content

The China Property Sector report highlights a positive outlook for the real estate market, driven by strong policy support and signs of sales recovery. The report introduces a leading indicator (GAIN) to estimate property sales trends, which has shown consistent performance in forecasting sales movements based on historical data from 2014. The GAIN model indicates a sequential rebound in property sales during May and June, supported by recent data showing a 58% week-over-week increase in new home sales in 30 cities during the week of 8-15 May 2022.

The market sentiment is further bolstered by recent policy changes, including the PBOC's nationwide reduction of the first-home mortgage rate to 4.4%, the lowest in history, and the relaxation of purchase restrictions in several high-tier cities. These measures are expected to improve local sentiment, especially given the low inventory levels in the market.

Main Views

• Sector Rally: The property sector has experienced a rally for four consecutive days, attributed to policy support and sales recovery.
• GAIN Indicator: A proprietary leading indicator, GAIN, is introduced to estimate sales trends. It is based on Baidu search data and has shown a consistent one-month lead in predicting national sales YoY.
• Sales Recovery: New home sales in 30 cities saw a significant increase in May, indicating a strong rebound in the market.
• Valuation Upside: The report estimates re-rating potential for quality property developers. In the short term, valuation is based on PB, with potential upside for SOEs like COLI and Vanke H, and non-SOEs like CIFI. In the long term, using PE as a metric, the upside potential could be greater than 60% if compared to the US market.
• Recommendations: The report recommends a "Strong Buy" for the sector and identifies specific companies with strong potential for re-rating.

Key Information

Leading Indicator (GAIN)

• GAIN is a proprietary model based on Baidu index data from genuine home buyers.
• It has historically led national sales YoY by one month.
• April showed a narrowing decline, while May indicated a strong rebound, suggesting continued improvement in sales for May and June.

Policy Support

• PBOC reduced the first-home mortgage rate to 4.4% (from 4.6%), saving RMB150K in interest for every million yuan loan.
• High-tier cities like Hangzhou, Suzhou, Nanjing, Guangzhou, and Shenzhen are expected to relax purchase restrictions soon.

Sales Trends

• National property price in 70 cities dropped 0.3% MoM in April, mainly due to lower-tier cities.
• Tier 1 cities saw a 0.2% MoM increase in property prices, with Beijing and Hangzhou leading the growth.
• New home sales in 30 cities increased by 58% week-over-week in May, indicating strong recovery momentum.

Re-rating Potential

• Short-term (ST) Re-rating Upside:
  • COLI/Vanke H: 40% upside from current 0.5x/0.7x PB to 1x PB.
  • CIFI: 30% upside from 0.6x PB to 0.8x PB.
• Long-term (LT) Re-rating Upside:
  • COLI/Vanke H/CIFI may have more than 60% upside if compared to the US market's top 10 developers trading at 9x PE.

Recommended Companies

• Primary Market (PM):
  • COPH > CR Mixc > CGS > Ever Sunshine
• Top Buy Companies:
  • COLI/Vanke H/CIFI

CMBIGM Ratings

• BUY: Potential return of over 15% over the next 12 months.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over the next 12 months.

Risks and Catalysts

• Catalyst: Shenzhen relaxing policies and national mortgage rate cuts.
• Risk: Pandemic-related disruptions and potential market volatility.

Analysts and Contact Information

• Analysts: Jeffrey Zeng, Xiao Xiao, Miao Zhang
• Contact Details:
  • Jeffrey Zeng: (852) 3916 3727 | jeffreyzeng@cmbi.com.hk
  • Xiao Xiao: (852) 3761 8952 | xiaoxiao@cmbi.com.hk
  • Miao Zhang: (852) 3761 8910 | zhangmiao@cmbi.com.hk

Disclaimer and Disclosures

• CMBIGM may have investment banking relationships with the issuers covered in the report.
• The report is not an offer or solicitation to buy or sell any securities.
• The information is based on publicly available data and is not guaranteed for accuracy or completeness.
• The report is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.
• The report is subject to change without notice and may not reflect the views of CMBIGM in all respects.