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China Property Sector China / Hong Kong Industry Focus China Property Sector Refer to important disclosures at the end of this report DBS Group Research . Equity 19 Apr 2021 Spotlight on future land supply • Solid sales growth momentum sustained with strong HSI: 28,970 potential to ink another year of record-high sales • Developers poised to meet their 2021 targets ANALYST Jason LAM +852 3668 4179 [email protected] • Future land supply and new starts as keys to watch for Danielle WANG CFA, +852 3668 4176 [email protected] • Sector top picks: Vanke, COLI, CIFI and Logan Ken HE CFA, +86 21 3896 8221 [email protected] Solid performance in 1Q21; strong potential for another year of Ben Wong [email protected] record-high residential sales. Residential sales in Mar rose 63% y-o-y (or 44% vs Mar-19) on the back of a 38% (or 19% vs Mar- Recommendation & valuation 19) increment in residential GFA sold and 19% (or 21% vs Mar- 19) rise in residential ASP, marking another solid month of FY22F physical market performance. We believe the market is well- Target Price Price Rec Mkt Cap PE poised to post another record-high sales value this year – as it HK$ HK$ US$bn x will likely attain 2020’s level even if the market records a 12.5% y- o-y decline for the remaining nine months. China Overseas Developers well on track to achieve their 2021 targets. Presales 20.15 25.70 BUY 28.4 4.0 (688 HK) growth of 30 listed developers we track on a weighted-average China Vanke 'H' 28.25 45.56 BUY 49.9 5.3 basis remained strong at 47% y-o-y (or +33% vs Mar 2019) in (2202 HK) Mar (Feb-21: 144%), as compared to their c.10% weighted Logan Property 12.50 16.44 BUY 8.9 3.5 average presales target for 2021. This translates into a decent (3380 HK) weighted average lock-in ratio of c.21% in 3M21 (vs 13%/18% for CIFI Holdings* 7.09 n.a. NR 7.5 4.4 3M20/3M19). To achieve their full-year presales target, (884 HK) developers will only need to maintain a flattish 1% y-o-y growth for the rest of the year. Spotlight on land supply and new starts. Changchun served as * Consensus the first city to execute the concentrated land supply policy and Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”) launched a total of 53 land parcels last week. Feedback appears to be encouraging with less heat being felt in the bidding process. That said, actual execution structure of other cities and the impact of the policy on land prices and developers’ pace of land acquisitions will have to be closely monitored. Meanwhile, growth in residential GFA new starts remained sluggish, with Mar-20 posting a mere 2.2% y-o-y growth or c.30% for 3M21. New start-to-sales ratio has accordingly stayed low at c.0.8x in Mar and for 3M21. Top picks: Vanke, COLI, CIFI and Logan. The sector is trading at 4.8x/4.2x FY21/FY22F PE, which we believe is attractive and should be well supported by the upcoming strong presales numbers over 2Q. We recommend staying with large-cap names that are 1) subject to less pressure to deleverage and may surprise on the upside in terms of land acquisitions; and 2) in possession of positive catalysts ahead that may stimulate share price performance. We have in this aspect picked Vanke (2202 HK) and COLI (688 HK). We also highlight CIFI (884 HK) and Logan (3380 HK) that we think are trading at undemanding valuations given their good growth prospects and fundamentals. ed-TH / sa- CS / AH Industry Focus China Property Sector 3M21 presales performances Targeted 3M21 yoy 3M21 3M20 Comp anies Stock Cod e growth growth lock- in lock- in Large cap COLI 688 HK 10% 50% 23% 17% CR Land 1109 HK 11% 74% 22% 14% Country Garden 2007 HK 10% 38% 22% 18% Evergrande 3333 HK 4% 4% 20% 20% Longfor 960 HK 15% 58% 19% 14% Sunac 1918 HK 11% 88% 18% 11% Shimao 813 HK 10% 82% 20% 12% Large cap average (weighted average) 9% 43% 21% 16% Large cap average (simple average) 10% 56% 21% 15% Mid cap Agile 3383 HK 9% 153% 26% 11% Aoyuan 3883 HK 13% 110% 20% 11% China Jinmao Hldgs 817 HK 8% 141% 25% 11% CIFI 884 HK 15% 153% 21% 10% Seazen 1030 HK 4% 60% 19% 12% R&F 2777 HK 8% 83% 20% 12% Kaisa Group 1638 HK 22% 168% 24% 11% KWG 1813 HK 20% 66% 17% 13% Logan 3380 HK 20% 159% 28% 13% Sino-Ocean 3377 HK 14% 36% 14% 12% Yuexiu 123 HK 17% 174% 22% 10% Mid cap average (weighted average) 13% 111% 21% 11% Mid cap average (simple average) 14% 114% 21% 11% Small cap Greentown 3900 HK 9% 216% 23% 8% CCRE 832 HK 17% 0% 13% 16% SCE 1966 HK 18% 101% 22% 13% COGO* 81 HK 8% 90% 22% 13% Zhongliang 2772 HK 7% 157% 27% 11% Greenland HK 337 HK 10% 73% 11% 7% Zhenro 6158 HK 6% 123% 27% 13% Poly HK 119 HK 19% 94% 17% 10% Powerlong 1238 HK 29% 207% 23% 10% Yuzhou 1628 HK 5% 113% 20% 10% Yanlord YLLG SP -11% 93% 19% 9% Small cap average (weighted average) 10% 126% 22% 11% Small cap average (simple average) 11% 115% 20% 11% Overall (weighted average)# 10% 73% 21% 13% Overall (simple average)# 12% 101% 21% 12% s Source: Companies, DBS HK Page 2 Industry Focus China Property Sector Developers’ presales lock-in ratio RMB mn 900,000 Average=21% 30% 27% 27% 28% 26% 24% 800,000 23% 25% 23% 25% 22% 23% 23%22% 25% 700,000 22% 22% 20% 19% 20% 600,000 18% 20% 20% 20% 22% 17% 20% 17% 500,000 19% 21% 17% 15% 400,000 14% 13% 300,000 11% 10% 200,000 5% 100,000 0 0% Pre-sales target (LHS) 3M Pre-sales (LHS) Pre-sales lock-in ratio (RHS) Source: Companies, DBS HK Page 3 Industry Focus China Property Sector Developers’ monthly average presales growth RMB Mn 3M21 3M20 2020 3M2021 3M2021 vs vs 2020 3M2020 Developers with monthly sales above Rmb10bn Evergrande 64,800 62,080 60,271 4% 8% Vanke 62,840 54,940 58,679 14% 7% Country Garden 52,690 47,040 47,555 12% 11% Sunac 47,860 30,920 47,938 55% 0% Poly CN 49,205 27,370 41,904 80% 17% COLI 38,832 26,774 30,060 45% 29% Shimao 30,502 20,324 25,026 50% 22% CR Land 26,053 22,410 23,753 16% 10% Longfor 24,940 21,050 22,551 18% 11% Seazen 20,554 14,258 20,914 44% -2% China Jinmao 22,500 13,045 19,258 72% 17% CIFI 26,000 10,100 19,250 157% 35% Greentown 20,500 10,400 17,892 97% 15% Zhenro 15,393 7,700 11,825 100% 30% Logan 12,900 7,120 10,058 81% 28% Agile 13,000 7,650 11,516 70% 13% R&F 12,900 7,120 10,058 81% 28% Aoyuan 11,990 7,280 11,084 65% 8% China SCE 10,834 6,022 8,461 80% 28% Kaisa 13,390 4,800 8,908 179% 50% Yuexiu Property 11,415 4,843 7,980 136% 43% KWG 10,306 6,168 8,634 67% 19% Sino-Ocean 11,020 9,000 10,920 22% 1% Average 26,540 18,627 23,239 42% 14% Developers with monthly sales Rmb7bn - Rmb10bn Powerlong 9,513 3,196 6,796 198% 40% Central China 8,425 6,562 5,695 28% 48% Yuzhou 8,561 5,717 8,747 50% -2% BCL 8,590 2,400 5,905 258% 45% COGO 7,130 4,214 5,392 69% 32% Average 8,444 4,418 6,507 91% 30% Developers with monthly sales below Rmb7bn Yanlord 5,292 3,461 6,538 53% -19% Poly HK 2,000 2,100 4,342 -5% -54% Fantasia 4,509 2,103 4,101 114% 10% Average 3,789 2,123 4,993 78% -24% Sector average 38,773 25,167 34,739 54% 12% Source: Companies, DBS HK Page 4 Industry Focus China Property Sector Developers’ y-o-y sales growth Source: Companies, DBS HK Page 5 Industry Focus China Property Sector Developers’ ASP growth RMB/sm Recorded ASP Drop Recorded ASP Increase 60,000 120% 100% 40,000 80% 60% 20,000 40% 13% 18%20% 8% 8% 10% 5% 7% 8% 20% 2% 4% 26% 0 17% 0% 9% 10%11% 2% -4% -3%-3% -1% 0% 1% 1% -20% -10%-9% -9% -6% -5% -18% (20,000) -40% -60% (40,000) -80% -100% (60,000) -120% CIFI R&F Agile COLI Kaisa Vanke Sunac COGO Seazen Zhenro Yuzhou Aoyuan Shimao Poly HK Poly Poly CN Poly Longfor CR Land CR Fantasia Gemdale China SCE China Powerlong Evergrande Sino-Ocean China Jinmao China Central China Central Greenland HK Greenland Yuexiu Property Yuexiu Country Garden Country Beijing Capital Land Capital Beijing Shenzhen Investment Shenzhen 3M2021 ASP 2020 ASP Change Source: Companies, DBS HK Page 6 Industry Focus China Property Sector Monthly new start GFA (Residential) Monthly RE investments (Residential) '000 sm Rmb m 200,000 80% 1,400,000 50% 180,000 1,200,000 40% 60% 160,000 1,000,000 30% 140,000 40% 800,000 20% 120,000 20% 100,000 600,000 10% 80,000 0% 400,000 0% 60,000 -20% 200,000 -10% 40,000 -40% 0 -20% 20,000 0 -60% Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 RE investments (Residential) (LHS) GFA new start (Residential) (LHS) y-o-y % (RHS) y-o-y % (RHS) Residential GFA sold Residential ASP '000 sm Rmb/sm 250,000 120% 12,000 25% 100% 10,000 20% 200,000 80% 60% 8,000 15% 150,000 40% 6,000 10% 20% 100,000 4,000 5% 0% 2,000 0% 50,000 -20% -40% 0 -5% 0 -60% Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Jun-16 Jun-17 Jun-18 Jun-19 Jun-20 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Residential ASP (LHS) y-o-y % (RHS) Residential GFA sold (LHS) y-o-y % (RHS) Source: NBS, DBS HK Page 7 Industry Focus China Property Sector YTD new start GFA and GFA sold (Residential) China residential inventory – completed but unsold Source: NBS, DBS HK ASP change in 70 cities Source: NBS, DBS HK Page 8 Industry Focus China Property Sector HK listed China property stocks’ PE discount to A-share Source: Bloomberg Financial L.P., DBS HK Large cap HK listed China property stocks’ PE discount to A-share Source: Bloomberg Financial L.P., DBS HK Page 9 Industry Focus China Property Sector PE comparison cross sector Source:
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