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Asian Property Developers Focus on Market Leaders

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Asian Property Developers Focus on Market Leaders Building on principles One-Asia Research | August 12, 2020 Asian Property Developers Focus on market leaders Yongdai Park Le Quang Minh Tran Tuan Long [email protected] [email protected] [email protected] This publication was prepared by Mirae Asset Daewoo Co., Ltd. and/or its non-U.S. affiliates (“Mirae Asset Daewoo”). Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation, or warranty, express or implied, as to the fairness, accuracy, or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opin- ions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed, or published in whole or in part for any purpose. Please see important disclosures & disclaimers in Appendix 1 at the end of this report. August 7, 2020 Asian Property Developers CONTENTS I. Executive summary 3 II. Asian property developers: Peer comparison tables 5 III. Vietnamese housing market: Led by Vingroup 9 Strong demand growth 9 Rise of the mid-end housing segment 12 Stabilization of housing market via selective supply control 14 Low/mid-end housing affordable for Vietnam’s middle class 15 Middle-class homeownership scenarios 17 Vietnamese company analysis 19 Vinhomes (VHM VN) 20 Vingroup (VIC VN) 34 IV. China, still the land of opportunity 48 China’s residential property market has enjoyed a long-term boom 48 Market is stabilizing 49 Chinese housing market: Likelihood of hard landing is low 51 Short-term uncertainties linger 51 Market consolidation led by mid/large-sized developers 52 Additional growth through revenue diversification 53 Urban redevelopment projects to help prop up margins 55 Global X MSCI China Real Estate ETF 56 Chinese company analysis 58 Sunac China Holdings (1918 HK) 59 China Resources Land (1109 HK) 69 China Vanke (2202 HK) 80 Mirae Asset Daewoo Research 2 August 7, 2020 Asian Property Developers I. Executive summary When an economy is in the early stages of growth, real estate stocks tend to outperform the broader market amid a sharp pickup in development activities. With this in mind, it makes sense that investors are increasingly gravitating toward the underdeveloped but rapidly growing Asian real estate sector. Within Asia, we believe that the Vietnamese residential property market has the greatest upside thanks to its strong prospects for recovery and sustained growth. Housing demand is rising sharply—due to the expansion of the middle class and urbanization driven by rapid economic development—while supply remains limited. In addition, foreign direct investment (FDI) is on the rise YoY. Meanwhile, the timely introduction of government restrictions on housing supply and loans has contributed to market stabilization. We present Vinhomes (VHM VN/Buy/TP: VND112,000), Vietnam’s largest property developer, as our top pick. Boasting a dominant market share, the company has a broad residential housing portfolio with offerings in all price segments. Looking ahead, we also see increasing earnings visibility, as the developer has already secured a project pipeline extending through the coming decade thanks in large part to its massive land bank. We also recommend Vingroup (VIC VN/Buy/TP: VND116,000), the holding company of Vinhomes and Vietnam’s largest private sector company, for those seeking a proxy on Vietnam’s broader economic growth. In our view, the COVID-19-driven correction offers a good buying opportunity. China’s real estate sector also deserves attention. The housing market is bottoming, and we believe that a recovery is in the offing. We see limited downside risk given the government’s commitment to maintaining a balance between growth and regulatory discipline. Although the housing segment’s urbanization-driven growth will likely decelerate gradually, market expectations remain intact in light of increases in the middle-income population and aging homes. We project that top-tiers will continue to enjoy earnings growth, as they are building stable revenue models through business diversification (beyond residential property development). Moreover, the growing focus on housing inventory sales (as opposed to land purchases) is enhancing their financial health. We recommend Global X MSCI China Real Estate ETF (CHIR US) as a play on China’s potential housing market recovery and improvements in developers’ fundamentals. The ETF, which has a dividend yield of around 4%, comprises 50 real estate stocks included in the MSCI China Index, with the top 20 accounting for 83% of the fund’s value. Figure 1. Major Asian countries’ property clock positioning Source: Chan & Naylor, Mirae Asset Daewoo Research Mirae Asset Daewoo Research 3 August 7, 2020 Asian Property Developers Figure 3. Relative performance of Global X MSCI China Real Figure 2. Global X MSCI China Real Estate ETF performance Estate ETF and HSI (since inception) (US$) (12/11/18=100) 22 140 CHIR HSI 20 130 18 120 16 110 14 100 12 90 10 80 12/18 3/19 6/19 9/19 12/19 3/20 6/20 12/18 3/19 6/19 9/19 12/19 3/20 6/20 Source: Bloomberg, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Daewoo Research Table 1. Top 20 constituents of Global X MSCI China Real Estate ETF Company Ticker Weight (%) Company Ticker Weight (%) 1 CR Land 1109 HK 9.1 11 Wharf Holdings 4 HK 2.7 2 Sunac 1918 HK 9.0 12 Logan. 3380 HK 2.7 3 Country Garden 2007 HK 8.6 13 KWG 1813 HK 2.4 4 Longfor 960 HK 8.3 14 Seazen 1030 HK 2.3 5 COLI 688 HK 7.9 15 Agile 3383 HK 1.9 6 Evergrande 3333 HK 4.9 16 China Aoyuan 3883 HK 1.9 7 Shimao 813 HK 4.1 17 Guangzhou R&F 2777 HK 1.8 8 Vanke-H 2202 HK 3.9 18 Yuexiu Property. 123 HK 1.6 9 Jinmao 817 HK 3.8 19 Kaisa Group 1638 HK 1.5 10 CIFI 884 HK 2.8 20 Poly Developments 600048 C1 1.5 Source: Bloomberg, Mirae Asset Daewoo Research In selecting our top picks, we look for competitive development capabilities, solid earnings growth prospects, healthy financials, and business diversification. (Companies that satisfy these criteria are projected to gain market share going forward.) We present Sunac China Holdings (Sunac; 1918 HK/Buy/TP: HK$47.63), China Resources Land (CR Land; 1109 HK/Buy/TP: HK$40.88), and China Vanke (Vanke; 2202 HK/Buy/TP: HK$31.34) as our top picks. Table 2. Top picks Mkt cap Price TP P/E (x) ROE (%) EPS growth (%) Dividend yield (%) Company Ticker Rating Upside (US$bn) (local) (local) 20F 21F 20F 21F 20F 21F 20F 21F Vinhomes VHM VN 11.2 Buy 79,000 112,000 42% 9.4 8.2 37.4 31.5 28.7 14.8 0.0 1.6 Vingroup VIC VN 12.7 Buy 88,000 116,000 32% 68.3 31.1 4.1 8.2 -47.1 119.3 0.0 0.0 Sunac 1918 HK 21.4 Buy 35.55 47.63 34% 4.7 4.0 31.5 29.0 14.7 16.4 4.7 5.5 CR Land 1109 HK 30.3 Buy 32.95 40.88 24% 8.6 7.7 13.9 14.6 11.4 10.8 3.6 3.9 Vanke 2202 HK 44.7 Buy 25.00 31.34 25% 6.0 5.4 21.5 21.8 5.2 11.0 5.0 5.8 Source: Bloomberg, Mirae Asset Daewoo Research Mirae Asset Daewoo Research 4 August 7, 2020 Asian Property Developers II. Asian property developers: Peer comparison tables Table 3. Asian property developers: Valuation table Dividend yield Price Mkt cap P/E (x) P/B (x) ROE (%) EPS growth (%) Company Ticker (%) (local) (US$bn) 20F 21F 20F 21F 20F 21F 20F 21F 20F 21F Vanke-H 2202 HK 25.0 44.7 6.0 5.4 1.2 1.1 21.5 21.8 5.2 11.0 5.0 5.8 Evergrande 3333 HK 22.0 37.1 7.9 7.0 1.5 1.4 20.7 21.6 89.7 12.8 5.5 6.5 COLI 688 HK 23.5 33.15.9 5.1 0.8 0.7 13.4 13.8 (7.6) 15.3 4.9 5.6 CR Land 1109 HK 33.0 30.3 8.6 7.7 1.2 1.1 13.9 14.6 11.4 10.8 3.6 3.9 China Longfor 960 HK 38.0 29.4 10.6 9.0 1.9 1.7 18.7 19.4 2.8 18.6 4.1 5.0 Country Garden 2007 HK 10.1 28.4 4.3 3.9 1.1 0.9 26.2 24.5 13.1 11.8 7.1 7.8 Sunac 1918 HK 35.6 21.4 4.7 4.0 1.3 1.0 31.5 29.0 14.7 16.4 4.7 5.5 Avg. 6.9 6.0 1.3 1.1 20.8 20.7 18.5 13.8 5.0 5.7 CapitaLand CAPL SP 2.8 10.1 14.3 12.0 0.6 0.6 5.4 6.5 (58.6) 19.8 4.4 4.3 Keppel KEP SP 5.2 6.9 31.8 12.5 0.9 0.8 0.6 6.8 (57.8) 154.9 2.5 3.7 City Developments CIT SP 8.2 5.4 18.5 13.0 0.7 0.7 4.0 5.3 (27.6) 42.7 2.4 2.4 UOL Group UOL SP 6.5 4.0 18.1 13.7 0.5 0.5 2.9 3.7 (36.6) 31.7 2.8 2.8 Singapore Frasers Property FPL SP 1.2 2.5 9.7 9.7 0.4 0.4 5.3 5.1 (37.5) (0.8) 4.0 4.4 Avg.
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