20220128-招银国际-Auto_and_China_Property_Sector_NEV_swiping_right_for_hip_malls_15页_1mb

Summary of Auto and China Property Sector

Core Content

The document discusses the growing trend of New Energy Vehicle (NEV) stores entering shopping malls and its impact on the property sector, particularly on mall operators in China. It highlights how NEVs are becoming a key driver for mall revitalization amid ongoing challenges such as high vacancy rates and declining rents due to the pandemic and economic headwinds.

Main Points

1. Shopping Malls Facing Challenges

• Shopping malls in Tier 1-2 cities have a high vacancy rate of 10.4% in 3Q21, up from 7.6% in 4Q19.
• Rents have declined by 7% in Tier 1-2 cities compared to 4Q19 and by 1% in 2Q21.
• The trend suggests a positive rental reversion of 2-5% in 2022E due to reduced new supply and improved pandemic control.

2. NEV's Attraction to Malls

• NEVs are attractive to malls due to:
  • High rental payments: NEV stores typically pay 2-3 times the average rent.
  • Low rent-to-sales ratio: NEVs have a rent-to-sales ratio of less than 1%, making them less sensitive to rent changes.
  • Large space requirements: NEV stores require more than 300 sqm per store, leading to higher rental contributions.
  • Foot traffic and brand exposure: NEVs benefit from the traffic and brand visibility of branded malls, aligning with changing consumer habits.

3. NEV Store Distribution

• 65% of NEV stores are located in Tier 1-2 cities.
• Top 5 mall operators (Wanda, CR Land, Longfor, Seazen, Vanke's SCP) account for 30% of the NEV market share.
• Mid-to-high-end malls are more likely to attract multiple NEV tenants, with CR Land, Hopson, Raffles, and Longfor leading in this regard.

4. NEV's Impact on Malls

• NEVs are expected to add 800-1000 new stores in 2022E, a 67-83% YoY increase.
• This would result in 240-300k sqm of net absorption, reducing vacancy rates in Tier 1-2 cities by 0.2ppt.
• NEV stores contribute 3-6% more to rental income than average tenants.

5. Limitations and Challenges

• Mall space constraints: Most malls are unwilling to host more than 3 NEV stores due to limited ground floor space and the need for a balanced tenant mix.
• NEV store density: 99% of NEV stores are located on the ground floor, limiting their expansion potential.
• Established brands like Tesla are reducing their mall presence, suggesting a long-term shift rather than a short-term trend.

6. Stock Recommendations

• Top Picks: Longfor (960 HK, Buy), CR Land (1109 HK, Buy), and Seazen (1030 HK, NR) are expected to benefit the most from NEV store expansion.
• Least Favorable: SCE, KWG, and Powerlong CM are less likely to attract NEV stores due to their mass-market positioning and smaller market share.

Key Information

• NEV Store Expansion Forecast: Auto team forecasts a 67-83% increase in NEV stores in shopping malls in 2022E.
• Rental Contribution: NEV stores contribute 3-6% more to mall rental income due to their high rent-to-space ratio.
• Foot Traffic: NEVs are seen as a source of elegant traffic, which is more aligned with consumer behavior shifts.
• Mall Operator Performance:
  • CR Land and Longfor are leading in attracting NEV tenants, with 67% and 44% of their malls having NEV stores.
  • Wanda has 41% of its malls with NEV tenants, while SCE and KWG have 33% and 19%, respectively.
• NEV Market Penetration:
  • NEVs are more likely to expand in Tier 2 and high Tier 3 cities due to driving restrictions on ICE vehicles.
  • Tier 1 cities have already seen 30% NEV penetration, limiting further growth.

Conclusion

The integration of NEV stores into shopping malls is a promising trend that could help reduce vacancy rates and increase rental income. However, the expansion is limited by mall space constraints and the need for a balanced tenant mix. The most successful mall operators are those with a strong presence in high-tier cities and a focus on mid-to-high-end retail, such as CR Land and Longfor, which are expected to benefit significantly from this trend.