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China Property Sector Summary

Core Content

• Credit Environment: In 2015, the credit environment for the property sector is expected to improve, with adequate mortgage loan quotas and increased developer loans.
• Sector Valuation: The property sector is trading at a 40% discount to NAV or 1SD below the mean, indicating potential for re-rating.
• Top Picks: Major-city focused developers such as CR Land (1109 HK) and KWG (1813 HK) are highlighted as top picks due to their strong fundamentals and favorable credit environment.

Main Points

• Mortgage Loan Quota: Banks are expected to maintain a favorable stance on mortgage loans, with a growth rate of 15–16% YoY, slightly higher than the domestic loan growth of 13% YoY.
• Approval Process: The mortgage loan approval process is faster than in early 2014, and major banks are offering discounts of 5–10% on benchmark interest rates for home buyers.
• Developer Funding: Developers are expected to see a slight increase in development loans, with banks likely to approve an additional 5–10% in 2015. The government is also expected to approve more developers for issuing medium-term notes.
• Market Outlook: The sector is expected to benefit from improved credit, diversified funding channels, and faster cash collection from presales, leading to a re-rating.

Key Information

• COSL (2883 HK):

  • 80% of total contracts are secured for 2015.
  • Has a lower cost structure and a young fleet, giving it an advantage in winning overseas contracts.
  • Expected daily income to decline by 20% YoY in 2015 and another 3% YoY in 2016.
  • Trading at 6.3x FY15E EPS, which is below its historical mean of 9.72x and industry peers.
  • Maintained as a BUY due to its undervaluation.

• Wynn Macau (1128 HK):

  • 4Q14 slightly missed expectations with adjusted property EBITDA down 36% YoY and 26% QoQ.
  • Cotai project is likely to be delayed, impacting market share.
  • Management shares the same fate as CNOOC, with a 26–35% YoY reduction in capex.
  • Valuation implies a c.20% premium to the industry average.
  • Rating is NEUTRAL, with a trimmed target price of HK$25.00.
  • Galaxy (27 HK) and MGM China (2282 HK) are preferred over Wynn Macau.

Research Highlights

• Nonferrous Metals:
  • A rising cycle of rare earth has started, with prices moving upward.
  • Inner Mongolia Baotou Steel Union (600010 CH) is highlighted as a top choice in the sector.
  • Stocks with solid fundamentals, such as Zinc, Aluminum, and Tin-related stocks, are recommended.
  • Policy changes and increased prices are expected in the rare earth sector.

What to Watch

Economic Data

Company Events

Research Coverage List

Summary of Key Sectors

Property

• CR Land (1109 HK) and KWG (1813 HK) are top picks.
• Evergrande Real Estate (3333 HK) is downgraded to SELL.

Oil and Gas

• China Oilfield Services (2883 HK) is rated BUY.
• Anton Oilfield Services (3337 HK) is rated SELL.

Metals & Mining

• China Hongqiao (1378 HK) and Greentown China (3900 HK) are rated BUY.
• Jiangxi Copper (358 HK) is rated SELL.

Technology, Media & Telecom

• China Telecom (728 HK), China Mobile (941 HK), and Wisdom (1661 HK) are rated BUY.
• Kingsoft (3888 HK) and NetDragon (777 HK) are rated BUY.

Retail

• Sinomax (1418 HK), Cosmo Lady (2298 HK), and Haier Electronics (1169 HK) are rated BUY.
• Chow Tai Fook (1929 HK) is rated NEUTRAL.

Pharmaceuticals & Healthcare

• ESSEX BIO-TECH (1061 HK), CSPC PHARMA (1093 HK), and Sinopharm Group (1099 HK) are rated BUY.
• Phoenix Healthcare (1515 HK) is rated BUY.

Machinery & Equipment

• Lonking (3339 HK) is rated BUY.
• Zoomlion Heavy (1157 HK) is rated NEUTRAL.

Alternative Energy

• Xinjiang Goldwind (2208 HK) and Singyes Solar (750 HK) are rated BUY.
• Datang Renewable Power (1798 HK) is rated SELL.

Bank

• ICBC (1398 HK) is rated BUY.
• Minsheng (1988 HK) is rated SELL.