20140704-DBS_Group-Conference_takeaways__starting_to_see_improvement_in_sales_21页_641kb

Conference Takeaways: Improvement in Sales

Core Content

The conference highlighted a gradual improvement in property sales across key developers, driven by faster mortgage approvals and promotional activities. While some developers face challenges in the second half of 2014, they remain committed to their sales targets and are adjusting strategies to maintain performance. The sector is currently undervalued, with attractive valuations for several companies, and there is anticipation for policy relaxation and sales recovery.

Main Points

General Market Outlook

• June Sales Improvement: Expected to be better than May due to faster mortgage approvals and promotional efforts.
• Sales Targets: Developers are maintaining sales targets despite market challenges.
• Valuation: The sector is trading at 5.2x FY14F PE, 0.6x P/BV, and a 63% discount to NAV, compared to historical averages.
• Policy Expectations: Further policy relaxation is anticipated in the second half of 2014, including support for first-time homebuyers and project financing.

Top Picks

• Country Garden (2007 HK), Shimao (813 HK), COLI (688 HK), and COGO (81 HK) are highlighted as attractively valued and recommended.

Key Developers

China Overseas (688 HK)

• Recommendation: Buy
• Target Price: HK$29.84
• Sales: Expected to exceed Rmb20bn in 1H14 contracted sales, contributing to 42% of full year target.
• Net Debt Ratio: Likely to rise mid-year but is expected to drop by year-end.
• Land Acquisition: Paced with presales to manage balance sheet risk.

COGO (81 HK)

• Recommendation: Buy
• Target Price: HK$10.50
• Sales: Maintains full year target, with some challenges in meeting it.
• Net Debt Ratio: Expected to drop by year-end.
• Land Banking: Has a strong landbank and plans to control land acquisition at 25% of presales.

Country Garden (2007 HK)

• Recommendation: Buy
• Target Price: HK$4.20
• Sales: On track to meet sales target, with some inventory clearance.
• Gross Margin: Post-LAT gross margin in 1H14 is estimated at ~26%, with full year margin expected to stabilize at ~25%.
• Funding Cost: Reduced from 8.5% in 2013 to 8% now, with potential for further reduction.

Shimao (813 HK)

• Recommendation: Buy
• Target Price: HK$25.83
• Sales: Expected to improve in 2H14, with plans for new launches and promotions.
• Net Debt Ratio: Likely to rise mid-year but should improve by year-end.
• Land Acquisition: Paced with presales to manage balance sheet risk.

Agile Property (3383 HK)

• Recommendation: Buy
• Target Price: HK$10.29
• Sales: Expecting significant improvement in June, with 42% of full year target expected in 1H14.
• Promotions: Third round of promotions started in May, with up to 15% discounts on Guangdong projects.
• Gearing: Expected to rise mid-year but drop by year-end.

Central China (832 HK)

• Recommendation: Buy
• Target Price: HK$3.25
• Sales: Expecting a peak in 3Q14, with 39% of planned new launches in that quarter.
• Mortgage Market: Eased in June with more approvals and disbursements, but construction loan rates increased.
• Land Banking: Acquired 2mn sm of land in 5M14, with a 75% cap on net debt ratio.

Minmetals Land (230 HK)

• Recommendation: Not Rated
• Sales: Booked Rmb3bn in subscription sales YTD, or 38% of full year target.
• Land Banking: Has a 5mn sm landbank for 5-7 years' development, with plans to increase land acquisition.
• Debt Management: Plans to keep net debt ratio below 60%, with potential to raise funds in the debt market.

Shui On Land (272 HK)

• Recommendation: Hold
• Target Price: HK$1.95
• Sales: No changes to sales target, with growth expected from tier 2 cities.
• Land Banking: Has 5mn sm of landbank, with plans to expand saleable resources.
• Debt Refinancing: Refinanced 80% of Rmb10.7bn debt due in 2015, with remaining debt to be repaid internally.

Soho China (410 HK)

• Recommendation: Hold
• Target Price: HK$6.47
• Leasing: Wangjing SOHO is expected to be 80% let within 6-9 months after completion.
• EBITA Margin: Targeted at 80%, with net profit at 50-60%.
• Dividend Policy: Committed to HK$0.25/share annual payout.

Yanlord Land (YLLG SP)

• Recommendation: Hold
• Target Price: HK$1.24
• Sales: Achieved 26% of sales target YTD, with plans to maintain it.
• Land Banking: Acquired one site in Suzhou for Rmb1.35bn, with a watch list for weaker players.
• Debt Ratio: Plans to keep net debt ratio below 60%, with potential to increase land acquisition.

Valuation Comparison

Summary of Key Developers

• Country Garden (2007 HK): Maintains sales target, plans promotions, and has a strong Fitch rating.
• Shimao (813 HK): Focuses on new launches and promotions, with a strong landbank.
• China Overseas (688 HK): Strong valuation, with a clear plan to manage gearing.
• COGO (81 HK): Attractive valuation, with plans to maintain sales target.
• Agile Property (3383 HK): Aggressive promotions, with a focus on inventory clearance.
• Central China (832 HK): Plans to peak in 3Q14, with a strong landbank.
• Minmetals Land (230 HK): Focus on core tier 2 cities, with a solid landbank.
• Shui On Land (272 HK): No changes to sales target, with plans for spinoff.
• Soho China (410 HK): Strong leasing progress, with a focus on investment properties.
• Yanlord Land (YLLG SP): Maintains sales target, with a watch list for land acquisition.

Summary of Key Questions and Answers

Country Garden (2007 HK)

• Q: Why expand in Malaysia?
  • A: Attractive market for Chinese and Singaporeans, with high IRR.
• Q: What about sales in Jinhaiwan?
  • A: Sales are slowing down due to no marketing activity.
• Q: What about the Forward City project?
  • A: No details yet.

Agile Property (3383 HK)

• Q: Will they cut prices further?
  • A: No, they will continue with 10-15% discounts up to August.
• Q: How will price cuts affect margins?
  • A: Margins are expected to remain stable at ~30%.
• Q: Will they expand further overseas?
  • A: No, only Kuala Lumpur is considered.

Central China (832 HK)

• Q: Will they adjust sales guidance?
  • A: No, confident of meeting Rmb17.2bn target.
• Q: What are expectations for margins?
  • A: Margins are expected to remain stable.
• Q: What is the land banking progress?
  • A: Acquired 2mn sm of land in 5M14, with Rmb0.7bn outstanding.

Minmetals Land (230 HK)

• Q: Any plans to raise funds?
  • A: May raise funds in debt market or issue perpetual securities.
• Q: What is the market view?
  • A: Market could remain soft, with ASP dropping slightly.
• Q: Can the company form JV with foreign companies?
  • A: Yes, identified as one of the SOEs eligible for such partnerships.

Shui On Land (272 HK)

• Q: What is the shareholding structure of the spin-off entity?
  • A: Depends on valuation, with Shui On Land and Brookfield likely to be top shareholders.
• Q: Why spin off?
  • A: To make Shui On Land a pure developer and Xintiandi a pure asset management company.
• Q: Progress on debt repayment?
  • A: Refinanced 80% of debt due in 2015, with remaining to be repaid internally.

Soho China (410 HK)

• Q: How stable is the dividend policy?
  • A: Stable, with HK$0.25/share annual payout.
• Q: How long will share buyback last?
  • A: Continues while share price is low.
• Q: When can we expect meaningful rental contribution?
  • A: By 2018, rental income is expected to reach Rmb3.5-4bn.

Yanlord Land (YLLG SP)

• Q: Land banking progress?
  • A: Acquired one site in Suzhou for Rmb1.35bn, with plans to increase land acquisition.
• Q: What is the net debt ratio expectation?
  • A: Plans to keep it below 60%.
• Q: What are the difficult markets in the portfolio?
  • A: Tangshan market is the most difficult, with lower-than-expected ASP.

Yuzhou Properties (1628 HK)

• Q: How active is land banking?
  • A: Acquired two sites in Hefei and Quanzhou, with a total land cost of Rmb511mn.
• Q: What is the impact of policy loosening?
  • A: Improved market sentiment, with shorter cash disbursement period.
• Q: Why did Yuzhou miss its launch target?
  • A: Due to changes in presales standards in Xiamen, affecting launch timing.
• Q: Is the company maintaining its sales target?
  • A: Yes, with plans to increase saleable resources if needed.

Conclusion

The conference indicates that while the property market remains challenging, developers are implementing strategies to improve sales and manage debt. Promotions, inventory clearance, and policy relaxation are key drivers of improvement. Several companies are attractively valued and recommended for investment, with a focus on maintaining sales targets and optimizing balance sheets.