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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 14 Nov 2017 Whose sales growth can outperform in 2018? HSI: 29,152 · Increasingly high share price sensitivity to presales ANALYST growth compared with previous three years and this Danielle WANG CFA, +852 2820 4915 is likely to continue danielle_wang@dbs.com Carol WU +852 2863 8841 · 2016 land acquisition a leading indicator for 2017 carol_wu@dbs.com sales growth Ken HE CFA, +86 21 6888 3375 ken_he@dbs.com · Consolidation in the land market YTD likely to Trista QIN +852 2863 8820 support developers’ market share gain in 2018 trista_qin@dbs.com · Sunac (1918 HK), KWG (1813 HK), CIFI (884 HK) and Country Garden (2007 HK)’s land acquisition pace topped other developers we track Share price performance this year has been highly sensitive to Recommendation & valuation contracted sale growth. We explored various factors’ relationships with the share price performance YTD. We found that the FY18F correlation between developers’ presales growth and share price Target Mkt Company Price Price Rec Cap PE performance has recovered to a high level comparable with 2013 HK$ HK$ US$bn x after hitting the lowest level in 2014. We believe this is due to a CIFI Holdings 4.05 n.a. NR 3.9 5.3 change in the profile of investors that resulted in southbound (884 HK) money being more active in the market. We see this continuing in KWG Property 7.95 n.a. NR 3.2 4.8 2018. (1813 HK) Fast land acquisitions can lead to higher growth in the next year. Source: Thomson Reuters, DBS Vickers, Bloomberg Finance L.P. Our analysis also shows that developers whose GFA acquired in 2016 accounted for a higher percentage of their total land banks have achieved a higher growth in 2017 YTD. We believe land acquisition pace in one year can well predict the presales growth in the next year except those whose exposures are highly concentrated in several cities where the market has turned dramatically. In 2016, GFA acquired by 21 major developers accounted for 36% of the total land supplied in 70 major cities. This ratio has risen to 38% YTD. In addition, since these numbers have not fully reflected some of the M&A acquisitions, the actual ratio could be higher, which suggests continual market share gain by major developers is likely in 2018. Sunac, KWG, CIFI, and Country Garden were the fastest in land acquisitions in 2017. We found that Sunac, COGO and Country Garden have acquired more land relative to their existing land banks in 2016, and achieved better-than-peer contracted sales in 2017. In contrast, Greentown, Beijing Capital Land, and COLI, which were conservative in land banking in 2016, were not able to grow their presales much even though the market has been good. YTD 2017, Sunac, KWG, CIFI, and Country Garden have been the fastest in land acquisitions, while Shimao, COGO, and Greentown were still slow. We believe the former four are likely to grow their presales faster than others and in turn drive their share prices. ed-TH / sa- AH Industry Focus China Property Sector Top developers land acquisitions vs. 70 major cities land Share price growth ytd vs. contracted sales growth supply Contracted sales growth mn sm 160% 2,000 39% 45% 1,800 36% 40% 140% 1,600 35% 1,400 120% 30% 1,200 25% 1,000 100% 16% 20% 800 11% 15% 80% 600 9% 400 10% 60% 200 5% 0% 40%100% 200% 300% 400% 500% 0 0% Share price growth 2013 2014 2015 2016 9M2017 20% Major cities land supply Major developers' share 0% Source: Company, DBS Vickers Source: DBS Vickers; Company; Ehouse Share price performance correlation with contracted sales growth 2012 2013 2014 2015 2016 YTD 2017 Correlation 60% 65% 16% 57% 72% 68% R-square 36% 42% 3% 33% 52% 46% Source: DBS Vickers; Company Page 2 Industry Focus China Property Sector 2016 land acquisition vs. 9M17 growth: the two parameters are highly related Contracted sales growth 160% Sunac 140% Longfor 120% Sino-Ocean100% Central China Country Garden V anke COGO^ 80% CIF I Yuzhou Shimao 60% Land acquired as % of total landbank KWG 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% 40% Agile CR Land Yuexiu Property Ev ergrande 20% China J inmao R&F COL I^ 0% Beijing Capital Land Greentown ^ Exchange rate: 1.2 HK$/Rmb Source: Company; DBS Vickers 2017 land acquisition as % of total landbank 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% CIFI R&F Agile KWG Sunac COLI^ Vanke Shimao Yuzhou Longfor Yanlord COGO^ CR Land Evergrande Greentown Sino-Ocean China Jinmao Central China Yuexiu Property Country Garden Country Beijing Capital Land 2017 YTD vs. 2016 landbank 2016 acquisition vs. 2016 landbank ^ Exchange rate: 1.2 HK$/Rmb Source: Company; DBS Vickers Page 3 Industry Focus China Property Sector Valuation comparison 3-mth daily Net Disc/ 14-Nov Mkt trading 12-m EPS gth PE PE Yield Yield ROE ROE Gearing P/Bk NAV (Pre m) Price Ca p value Recom target 17F 18F 17F 18F 17F 18F 17F 18F 1H17A 1H17 to NAV Compa ny Na me Code HK$ US$bn US$m HK$ % % x x % % % % % x HK$ % Large cap China Overseas* 688 HK 24.4 34.3 84.0 BUY 28.28 (17) 8 8.2 7.5 3.7 4.0 14.0 13.8 15.7 1.1 26.0 6.3 CR Land* 1109 HK 22.4 19.9 42.8 BUY 28.79 (2) 15 8.2 7.1 3.3 3.8 15.4 15.9 41.5 1.2 28.0 20.1 China Vanke 'H'* 2202 HK 27.85 46.7 45.2 BUY 25.00 17 17 10.7 9.2 4.0 4.8 20.3 20.9 19.6 2.0 23.0 (21.3) Country Garden* 2007 HK 12.88 35.2 75.8 BUY 11.70 35 48 14.7 9.9 2.1 3.1 21.8 27.2 37.8 3.0 11.9 (8.6) Evergrande* 3333 HK 29.5 49.7 153.1 BUY 27.72 407 62 13.3 8.2 0.0 10.6 43.6 56.1 240.0 4.8 29.2 (1.2) Longfor* 960 HK 18.98 14.3 16.5 BUY 21.22 4 25 9.8 7.9 3.6 4.5 14.8 16.7 56.2 1.4 32.3 41.2 Average 74 29 10.8 8.3 2.8 5.1 21.7 25.1 2.2 6.1 Mid cap Agile Property* 3383 HK 11.76 5.9 19.9 HOLD 8.94 115 8 7.9 7.3 6.7 6.2 11.7 11.9 51.0 0.9 16.8 29.8 BJ Cap Land 'H' 2868 HK 3.95 2.5 2.5 NR n.a. (13) 34 5.7 4.3 6.6 8.7 19.3 22.8 70.4 0.6 n.a. n.a. China Jinmao Hldgs* 817 HK 3.63 5.0 18.0 HOLD 3.20 42 15 10.6 9.2 3.8 4.4 10.3 11.1 69.6 1.1 4.6 21.8 CIFI Holdings 884 HK 4.05 3.9 19.1 NR n.a. 28 21 6.4 5.3 5.6 6.6 22.2 22.6 59.3 1.3 n.a. n.a. Greentown 3900 HK 9.31 2.6 10.9 NR n.a. 21 13 9.3 8.2 2.2 2.2 7.6 6.7 57.9 0.6 21.6 56.9 Guangzhou R&F 2777 HK 17.48 7.2 29.6 NR n.a. 19 19 5.9 4.9 7.2 8.1 16.9 17.8 203.3 0.9 27.6 36.6 Hopson Dev 754 HK 7.69 2.2 2.0 NR n.a. (62) 6 11.8 11.2 2.5 2.7 n.a. n.a. 70.8 n.a. n.a. n.a. Kaisa Group 1638 HK 4.55 3.5 29.5 NR n.a. (228) 263 25.3 7.0 0.0 1.4 n.a. n.a. 349.0 n.a. n.a. n.a. KWG Property 1813 HK 7.95 3.2 17.2 NR n.a. 3 19 5.7 4.8 6.3 7.5 14.3 15.4 64.1 0.8 12.7 37.4 Logan Property 3380 HK 7.17 5.1 19.0 NR n.a. (6) 32 8.1 6.1 5.1 6.4 19.5 20.6 74.8 1.5 11.0 35.0 Shimao Property* 813 HK 16.2 7.0 19.2 HOLD 13.50 (11) 19 8.8 7.4 6.1 7.3 10.0 11.4 49.9 0.9 28.5 43.2 Sino-Ocean Land* 3377 HK 4.96 4.8 11.3 BUY 5.20 10 10 7.7 7.0 4.4 4.9 9.0 9.2 62.5 0.7 8.0 38.1 Soho China* 410 HK 4.64 3.1 7.3 BUY 5.02 (57) (10) 52.1 57.8 0.0 0.0 1.2 1.1 40.2 0.7 7.2 35.3 Sunac China 1918 HK 34.6 18.4 130.4 NR n.a. 17 100 35.0 17.5 1.0 1.8 16.1 18.5 356.5 3.7 25.9 (33.4) Yanlord Land*^ YLLG SP 1.71 2.5 4.8 BUY 2.25 (4) 16 6.2 5.4 2.7 3.0 11.7 12.3 61.0 0.7 3.2 45.7 Yuexiu Property* 123 HK 1.48 2.4 10.0 BUY 1.91 (7) 21 10.9 9.1 3.7 4.4 4.6 5.3 52.0 0.5 3.2 53.4 Yuzhou Properties 1628 HK 3.64 2.0 13.5 NR n.a.
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