20220620-招银国际-China_Property_Sector_Three_reasons_to_drive_the_rally_5页_636kb

China Property Sector Summary

Core Content

The China property sector is currently experiencing a recovery, driven by three key factors: policy enhancements, sales rebound, and potential M&A activity. Analysts from CMB International Global Markets Limited (CMBIGM) maintain a "OUTPERFORM" rating for the sector, indicating it is expected to outperform the broad market benchmark over the next 12 months.

Main Points

• Sales Recovery:

  • Both primary and secondary property sales have reached yearly highs in recent weeks, surpassing market expectations.
  • Primary sales in 30 major cities increased by 9% YoY last week.
  • Secondary sales in eight tier 1-2 cities also recorded yearly high volumes and positive YoY growth for the first time.
  • Sales are expected to continue recovering, with a projected 10% YoY increase in the second half of 2022 (2H22E).

• Policy Breakthroughs:

  • Housing vouchers have been reintroduced in Zhengzhou, Nanjing, and Xuchang to boost shanty town redevelopment.
  • These vouchers offer monetary compensation for relocated households, and can be used for resettlement and purchase subsidies.
  • The policy is seen as more effective than previous measures in clearing inventory and boosting primary sales.

• PM Sector Opportunities:

  • The property management (PM) sector is expected to benefit from the sales recovery and consumption growth.
  • M&A activity is resuming, with recent deals such as Jinmao Services acquiring Beijing capital's PM unit and China Merchants Service acquiring Xinzhong PM's 67% stake.
  • These transactions suggest a valuation bottom for the industry, with the sector trading at 13x 2021 PE (7x for those with troubled parent companies).

• Top Picks:

  • Strong Buy on the sector: COLI, CIFI, and CR Land.
  • Preferred PM stocks: Ever Sunshine, Jinke PM, and CGS (high beta).

Key Information

• Debt Risks:

  • June and July 2022 are expected to be debt repayment peaks, with US$10.6bn in obligations.
  • Specific names facing potential pressure include Powerlong (US$200mn due in July), Central China (US$500mn in August), Agile (US$600mn in August), and KWG (US$900mn in September).
  • Sales recovery is unlikely to be fast enough to resolve all debt issues, leading to volatility in the next few months.

• Data Overview:

  • Property GFA sold in May 2022 was 110mn sqm, down 31.8% YoY.
  • Property sales were RMB1,055bn, down 37.7% YoY.
  • New starts were 119mn sqm, down 41.8% YoY.
  • GFA under construction was 8,315mn sqm, down 1.0% YoY.
  • GFA completion was 33mn sqm, down 31.3% YoY.
  • Property investment was RMB1,298bn, down 7.8% YoY.

• Company Comparisons (Figure 6):

  • Vanke - H (2202 HK): Last price RMB16.94, market cap RMB238,477mn, target price RMB33.92, P/E 4.3x (20A), 3.8x (21A), 3.7x (22E), P/B 0.7x, dividend yield 8% (20A), 7% (22E).
  • COLI (688 HK): Last price RMB21.75, market cap RMB238,051mn, target price RMB30.49, P/E 5.4x (20A), 5.2x (21A), 4.6x (22E), P/B 0.5x, dividend yield 6% (20A), 6% (22E).
  • Country Garden (2007 HK): Last price RMB4.31, market cap RMB99,770mn, target price RMB13.36, P/E 2.7x (20A), 2.0x (21A), 1.8x (22E), P/B 0.7x, dividend yield 12% (20A), 10% (22E).
  • CR Land (1109 HK): Last price RMB33.00, market cap RMB235,321mn, target price RMB44.79, P/E 7.9x (20A), 7.4x (21A), 6.8x (22E), P/B 0.9x, dividend yield 5% (20A), 5% (22E).
  • Shimao (813 HK): Last price RMB4.42, market cap RMB16,786mn, target price RMB44.94, P/E 1.2x (20A), 1.0x (21A), 0.9x (22E), P/B NA, dividend yield 29% (20A).

Key Risks

• Debt default remains a significant risk, particularly for developers with upcoming debt repayments in June/July 2022.
• Market volatility is expected for companies with large upcoming obligations, such as Powerlong, Central China, Agile, and KWG.

Conclusion

The China property sector is showing signs of recovery, supported by improved macroeconomic conditions and new policy measures. The sales rebound is faster than expected, and the PM sector is poised for growth due to increased demand for services. However, debt risks are still a concern, and volatility is anticipated in the short term. The sector is rated "OUTPERFORM", with specific buy recommendations for COLI, CIFI, and CR Land, and preference for PM stocks such as Ever Sunshine, Jinke PM, and CGS.