20180420-兴业金融证券-Real_Estate__Investment_Merits_Remain_Intact_11页_638kb

Real Estate Sector Summary (April 2018)

Core Content

The real estate sector is assessed for its investment merits, with a focus on earnings growth, valuation levels, and market performance. The report indicates that the sector's long-term earnings growth story remains intact, driven by rebounding ROEs and ongoing consolidation. However, there are potential short-term risks due to the expected slowdown in national property sales in the second quarter of 2018, which could lead to a sideways movement in the market. The sector is currently trading close to its 10-year historical mean, with a 40% discount to NAV, suggesting that further pullbacks could offer attractive entry points for investors.

Main Points

• Earnings Growth: Over FY17-20F, the sector is projected to maintain a 30% CAGR in earnings, supported by improved ROEs and consolidation trends.
• Contracted Sales: As of 1Q18, the 31 developers tracked by RHB reported a 30% YoY growth in contracted sales value, matching the projected full-year growth rate. The 12 developers under coverage (excluding China South City) saw a slightly higher growth of 33.1% YoY.
• ASP Growth: Contracted ASP growth for the 12 developers under coverage rose 3.8% YoY, which is slower than previous periods, attributed to developers' fast turnover strategies and the inclusion of low-tier cities.
• Sales Targets: 19 developers who announced FY18 sales targets collectively completed 21.8% of their targets in March, similar to last year's progress.
• Inventory Levels: National inventory dropped 16.7% YoY to 573 million sqm as of end-1Q18, reaching a 3-year low. This indicates a positive trend in inventory digestion.
• Market Outlook: While the sector is expected to face a slowdown in national GFA sold in 2Q18, due to deleveraging and city-specific austerity measures, property prices are anticipated to remain at low single-digit growth rates.

Key Companies and Ratings

The following companies are highlighted as top picks due to their strong cyclical growth capabilities and favorable valuations:

• Country Garden (2007 HK) - BUY, Target Price: HKD 22.00
• China Resources Land (1109 HK) - BUY, Target Price: HKD 31.50
• Longfor (960 HK) - BUY, Target Price: HKD 26.30
• CIFI Holdings (884 HK) - BUY, Target Price: HKD 7.80

Other companies have varying ratings:

• COGO (81 HK) - SELL, Target Price: HKD 2.30
• Greentown China (3900 HK) - SELL, Target Price: HKD 7.10
• KWG Property (1813 HK) - NEUTRAL, Target Price: HKD 10.00
• Sunac (1918 HK) - NEUTRAL, Target Price: HKD 31.00

Valuation and Discount

• The sector is trading close to its 10-year historical mean.
• A 40% discount to NAV is noted, indicating potential for value capture.
• The report reiterates an OVERWEIGHT rating on the sector, suggesting it is undervalued and has long-term growth potential.

Market Performance

• Contracted Sales Growth: Developers showed strong momentum in contracted sales, with a 30% YoY growth in 1Q18.
• Inventory Digestion: National inventory levels have dropped significantly, indicating improved market conditions.
• Price Trends: Property prices are expected to grow at low single-digit rates, with some developers showing declines in ASP growth due to market dynamics and strategy shifts.

Analysts

• Toni Ho, CFA: +852 2103 5888, toni.ho@rhbgroup.com
• Angelo Wong: +852 2103 9218, angelo.wong@rhbgroup.com

Summary Table

Figures and Data Highlights

• Figure 1: Real Estate Investment and Sales data for FY17-2018, highlighting growth trends.
• Figure 2: Contracted sales summary for March 2018, showing individual developer performance.
• Figure 3: Contracted sales summary for 3M18, indicating progress against FY18 targets.
• Figure 4: Sector valuation trends, showing the 10-year ENAV discount bands.
• Figure 5: Peer comparison, offering insights into relative performance and valuations.

Conclusion

Despite short-term challenges, the real estate sector remains a solid investment due to its long-term growth potential and current undervaluation. The report recommends accumulating positions during potential pullbacks, with a focus on companies that demonstrate strong cyclical growth and favorable valuations.