20140122-大和证券-Balance_sheet_concerns_overdone__dividend_yields_increasingly_attractive_14页_421kb

China Property Industry Update - January 2014

Core Content

This document provides an analysis of the Chinese property industry as of January 2014, focusing on the performance of the bond and equity markets, financing trends, and the valuation of listed developers. It highlights the improved financial conditions for developers, the disconnect between bond and equity markets, and the potential for positive share price catalysts.

Main Points

• Bond Market Strength: In January 2014, about 13 developers successfully raised bonds totaling around US$5 billion, indicating strong investor confidence in the fixed income market.

• Equity Market Cautiousness: The equity market has been more cautious, with the sector trading at valuations close to those seen in 2008 and 2011, when financial distress concerns were high.

• Improved Financing Environment: Developers have shown enhanced financial structures, with reduced reliance on trust loans and lower funding costs. This has improved profit margins and debt maturity profiles.

• Dividend Yields Attractive: Several developers, including R&F, KWG, and CCRE, are offering dividend yields that are more attractive than their bond coupon rates, providing downside support to share prices.

• Sales Recovery: The expectation of sales picking up post New Year and Chinese New Year periods is seen as a positive catalyst for share prices.

• Top Picks: The report recommends several developers for investment, including COLI, China Resources Land, Shimao Property, Country Garden Holdings, China Vanke, and COGO, while being cautious about Sunac, Yanlord, and Agile due to their high-end focus.

Key Information

• Bond Financing: Developers have raised significant amounts through bonds, with notable examples including China Overseas Holdings, Shimao, R&F, KWG, Kaisa, Aoyuan, Wuzhou, and Fantasia. The coupon rates are lower than expected and significantly lower than retiring issues.

• Trust Loans Reduction: The sector's aggregate trust loans decreased by 13% from RMB120 billion at the end of 2012 to RMB104 billion at the end of 1H13, with an estimated further drop to RMB90 billion (US$15 billion) in 2H13.

• Offshore Bonds: Developers have raised US$32 billion through the offshore bonds market, where funding costs are lower and tenure longer.

• Financial Structure Improvement: The improved financial structure of developers is seen as a re-rating catalyst, with lower funding costs and better debt maturity profiles.

• Dividend Yields: Developers like R&F, KWG, and CCRE offer relatively high dividend yields, which are more attractive than bond coupon rates, providing support to share prices.

• Valuation Metrics: The sector is trading at valuations close to historical lows, with discounts to NAV, low PE, and low PB ratios.

Key Risks

• Unexpected Economic and Policy Changes: The report notes that unexpected changes in economic conditions or policy could affect the industry negatively.

Summary Table

Figures and Data

• Figure 1: Shows bond issuances in 2013 and YTD 2014, highlighting the strong bond market activity.

• Figure 2: Displays the trend in China property bond prices and yields.

• Figure 3: Illustrates the cost of financing and debt structure for the sector in 1H13.

• Figure 4: Shows the net gearing trend for various developers.

• Figure 5: Presents dividend per share (DPS) and dividend yield data.

• Figure 6: Displays dividend payout ratios based on reported EPS.

• Figure 7 & 8: Show sector discounts to NAV, both overall and market-cap weighted.

• Figure 9 & 10: Present sector P/E ratios, both overall and market-cap weighted.

• Figure 11 & 12: Show sector P/B ratios, both overall and market-cap weighted.

• Figure 13: Provides a valuation table with key metrics such as market cap, daily turnover, price, discount to NAV, and PE ratios.

Conclusion

The Chinese property sector is experiencing a positive shift in the bond market, with strong financing activities and improved financial structures. While the equity market remains cautious, the attractive dividend yields and potential for sales recovery offer support for share prices. The report recommends several developers for investment, with a focus on those with strong end-user focus and restructuring efforts. However, it also highlights the risks associated with unexpected economic and policy changes.