20181122-招商证券_香港_-Old_village_redevelopment_may_speed_up_in_Guangzhou_7页_984kb

Industry Report Summary: China Property and Old Village Redevelopment

Core Content

This report discusses the potential acceleration of old village redevelopment in Guangzhou, contrasting it with the slower pace in Shenzhen. It highlights the implications for developers, particularly Aoyuan (3883 HK) and Times (1233 HK), and evaluates the investment potential of companies involved in urban redevelopment within the Greater Bay Area (GBA).

Main Points

• Guangzhou and Foshan may speed up redevelopment:
  Guangzhou's new market-driven policies allow developers and villagers to sign agreements and submit for government approval, rather than requiring the government to plan and tender first. This shift is expected to expedite the redevelopment process. Additionally, Guangzhou's larger size and lower property prices and compensation compared to Shenzhen make it more attractive for redevelopment.

• Shenzhen slows down on redevelopment:
  Shenzhen introduced a policy in 2018 that requires 56% of old villages to undergo small-scale renovation instead of full demolition. This is seen as a strategy to manage land supply more effectively due to the city's limited land resources.

• Market and Policy Risks:
  The redevelopment process involves long negotiations with villagers, which can lead to rising compensation costs. Policy changes and increased efficiency or capital requirements may also introduce risks. However, old villages are considered the most feasible for smaller developers due to lower initial costs and manageable risks.

• Aoyuan and Times as Key Beneficiaries:
  Aoyuan and Times are identified as the main beneficiaries of the accelerated redevelopment in Guangzhou due to their extensive projects and potential for increased land bank and saleable resources. The report reiterates a "BUY" recommendation for both companies.

Key Information

• Aoyuan (3883 HK):

  • Has 15 redevelopment projects in various stages.
  • Total planned GFA is approximately 8 million sqm.
  • Estimated saleable resources are about RMB129 billion.
  • These projects are expected to increase Aoyuan's NAV by 20%.

• Times (1233 HK):

  • Has 70 urban redevelopment projects in the pipeline.
  • Projects are mainly located in Guangzhou, Foshan, Shenzhen, Zhuhai, and Zhongshan.
  • Total landbank is up to 19.5 million sqm.
  • Saleable resources are estimated at RMB210 billion.
  • In 1H18, Times recorded a RMB250 million gain from the partial disposal of a redevelopment project.

• Investment Ratings:

  • Industry Rating: NEUTRAL.
  • Company Rating:
    • BUY: Aoyuan, Times, KWG.
    • NEUTRAL: Agile, others.
    • SELL: Not mentioned in the report.

Financials (as of 22 Nov 2018)

Company	Ticker	Current Price (HK$)	Target Price (HK$)	Rating	NAV (%)	Disc to NAV (%)	Adj. P/E (2018E)	Adj. P/E (2019E)	Div Yield (%)	Net Gearing (%)
Aoyuan	3883 HK	4.90	7.20	BUY	12	59	9.3	4.7	9.0	51
Times	1233 HK	7.30	10.80	BUY	18	59	4.4	3.4	8.7	58
KWG	1813 HK	6.54	7.50	BUY	15	56	5.1	4.1	8.6	68
Agile	3383 HK	10.42	10.00	NEUTRAL	20	48	6.3	4.9	10.2	105

Investment Considerations

• Key Risks: Prolonged negotiations with villagers, policy changes, and increased competition.
• Potential Rewards: Access to low-cost landbanks and significant saleable resources.
• Market Performance: The report indicates that the sector has shown mixed performance with an absolute return of 7.1% over 1 month, but a negative return of 16.7% over 6 months and 8.2% over 12 months.

Conclusion

The report emphasizes the potential for accelerated old village redevelopment in Guangzhou, which could benefit developers like Aoyuan and Times. While the process carries risks, the market-driven policies and lower costs in Guangzhou make it a more favorable environment for redevelopment. The report recommends a "BUY" for Aoyuan and Times, highlighting their strong positions and growth potential in the sector.