China / Hong Kong Industry Focus China Property Sector Refer to important disclosures at the end of this report DBS Group Research . Equity 30 May 2018 Intensified concerns on credit HSI: 30,067 environment ANALYST Danielle WANG CFA, +852 2820 4915 [email protected] Regulators rejected some Panda bond issuance; Carol WU +852 2863 8841 [email protected] domestic bond market capacity should be a crucial Ken HE CFA, +86 21 6888 3375 [email protected] Jason LAM +852 2971 1773 [email protected] area to monitor Inventory (no. of weeks of sales) of 16 cities* Presales growth in May should stay healthy, based on our channel checks 100.0 90.0 Concerns on credit environment have intensified. 80.0 Likely to affect market sentiment in the short term 70.0 60.0 50.0 Focus on domestic bond market capacity rather than issuance 40.0 approval. The recent suspension of Country Garden’s issuance of 30.0 Rmb20bn Panda bonds intensified market concerns on onshore 20.0 liquidity, as the chance for small developers to raise funding is 10.0 0.0 likely to be lower if large companies like Country Garden can’t successfully issue bond. However, as mentioned in our weekly Jan-11 Jan-17 Jun-13 Apr-18 Nov-15 Mar-12 update last week, Panda bond approvals have been suspended Aug-14 to control foreign exchange risk exposures on the whole rather Inventory (no. of weeks) 26 weeks rolling avg than aimed specifically at property companies. Nevertheless, our New launches in 10 major cities and sell-through rate channel checks showed that approvals for refinancing regular domestic bonds remain normal, while domestic bond market 20,000 100% capacity is a key area to monitor. In addition, escalated 18,000 90% 16,000 80% tightening in trust financing may require developers to repay 14,000 70% their trust loans through other financing channels. 12,000 60% 10,000 50% 8,000 40% 6,000 30% Channel checks on major developers revealed healthy presales 4,000 20% 2,000 10% growth in May. Under our channel checks with major 0 0% developers, contracted sales achieved in May should remain healthy and stay close to April’s level despite numerous 51W16 12W17 25W17 38W17 51W17 13W18 restrictive housing policies launched during the month. Most Total units launched (LHS) developers plan to accelerate in June to enhance half year target Sell-through rate (RHS) hit rate and many also reported that their saleable resources are 26w avg back-end loaded. Source: CREIS, Fang.com, DBS Vickers * Rolling 26 weeks inventory Intensified concerns over credit environment dampens market New launches in 10 major cities sentiment. Although the property sector is currently trading at No, of project launches an undemanding valuation of 6.9x FY18F PE and 5.2x FY19F PE, 15 rising concerns on the credit environment may dampen 12 sentiment towards the sector after lack of direction for share 9 6 prices during the past two months. Although large developers 3 still have various choices to sustain their balance sheets, 0 investors still think smaller developers’ debt defaults/pressure will Tianjin trigger correction in the physical market and impact sentiment Beijing Wuhan Nanjing Shanghai Chengdu towards the property stocks. Shenzhen Hangzhou Chongqing Guangzhou 21W18 20W18 Source: CREIS, Fang.com, DBS Vickers * Rolling 26 weeks inventory ed-TH / sa- CS/AH China / Hong Kong China Property Weekly Digest Financing conditions among Chinese developer Domestic corporate bonds due in 2018 by month Rmb (bn) Rmb (bn) 35 35 30 30 25 25 20 20 15 15 10 10 5 5 0 0 Jun Jul Aug Sep Oct Nov Dec Jun Jul Aug Sep Oct Nov Dec Domestic bonds due FY18 Callable/puttable FY18 HK-listed developers Rest Source: Wind, DBS Vickers Source: Wind, DBS Vickers Government bond yield (10-year) 5 4.5 4 3.5 3 2.5 2 6/10/2005 1/10/2006 8/10/2006 3/10/2007 5/10/2008 7/10/2009 2/10/2010 9/10/2010 4/10/2011 6/10/2012 1/10/2013 8/10/2013 3/10/2014 5/10/2015 7/10/2016 2/10/2017 9/10/2017 4/10/2018 10/10/2007 12/10/2008 11/10/2011 10/10/2014 12/10/2015 Source: Wind, DBS Vickers Page 2 China / Hong Kong China Property Weekly Digest Offshore bond due in 2018 Rmb bn 14.00 12.00 10.00 8.00 6.00 4.00 2.00 - Jun Jul Aug Sep Oct Nov Dec Senior notes due in FY18 Callable FY18 Source: Wind, DBS Vickers Onshore bond issuance 900 Rmb bn 800 700 600 500 400 300 200 100 0 2014 2015 2016 2017 YTD2018 Source: Wind, DBS Vickers Page 3 China / Hong Kong China Property Weekly Digest Share price performance Average short selling interest as percentage of trading YTD Share price performance volume (May 21 – May 25) Zhong An Road King Renhe Sector avg: +6% Glorious China Vanke Sector Avearge: 13% SOHO Yuzhou Properties COGO Central China Ying Li Modern Land (China) China South City SRE Zhong An Evergrande Greenland Poly HK Powerlong Vanke Lai Fung BJ Cap Land 'H' Hopson China SCE First Sponsor China Vanke 'H' Sino-Ocean Sunac Logan Property Kaisa Poly (Hong Kong) SZI CIFI Holdings BJ North Star Sino-Ocean Land HSI Index Small caps Times Property BJ Cap Land Soho China MSCI China KWG Property CC Land Yanlord China South City COLI Greentown Mid caps COGO C Garden GZ R&F Shui On Land Shui On Land Shimao Property Large caps Shenzhen Inv Road King Glorious Property Minmetals Greenland HK Sunac China Greentown Agile Property Longfor Country Garden Powerlong China SCE China Jinmao Hldgs Yuexiu Longfor CR Land CR Land KWG Agile Hopson Dev CIFI SRE Group Shimao Guangzhou R&F China Jinmao China Overseas Yuzhou Evergrande -60% -40% -20% 0% 20% 40% 60% Renhe Commercial BJ North Star 'H' 0% 10% 20% 30% 40% 50% Daily trading volume (May 21 – May 25) US$ mn 70 60 50 40 30 20 10 0 SZI CIFI COLI Agile KWG Sunac SOHO Renhe Vanke COGO Yuexiu Li Ying GZ R&F GZ Shimao Poly HK Poly Yuzhou Hopson Longfor Yanlord Glorious CR Land CR C Garden C Road King Road Minmetals China SCE China Powerlong Evergrande Greentown Sino-Ocean BJ Cap Land Cap BJ China South… China BJ NorthStar BJ Shui On Land On Shui China Jinmao China Greenland HK Greenland Source: Bloomberg Finance L.P, HKEx, DBS Vickers Page 4 China / Hong Kong China Property Weekly Digest Average weekly trading volume US$ mn 700 600 500 400 300 200 100 0 SZI CIFI COLI Agile Kaisa KWG Sunac SOHO Vanke Renhe COGO Yuexiu Ying Li Ying Shimao GZ R&F GZ Poly HK Poly Yuzhou Hopson Longfor Yanlord Glorious CR Land CR C Garden C Zhong An Zhong Road King Road Minmetals China SCE China Powerlong Evergrande Greentown Sino-Ocean BJ CapLand BJ BJ NorthStar BJ Shui On Land On Shui China Jinmao China Greenland HK Greenland YTD 2017 City South China 2016 Source: Bloomberg Finance L.P, DBS Vickers Overall southbound shareholding in CCASS w-o-w % changes of shareholding by southbound trading No. of shares (bn) Country Garden 11,000 China SCE CR Land 10,500 Greentown Yuzhou 10,000 Powerlong 9,500 Road King GZ R&F 9,000 Kaisa KWG 8,500 Agile 8,000 Greenland HK Longfor 7,500 Shimao Yuexiu 7,000 COLI Poly HK 6,500 CIFI 6,000 Vanke Renhe Sunac Shenzhen Inv Evergrande Shui On Land BJ North Star COGO China South City China Jinmao Powerlong Sino-Ocean Hopson SOHO -8% -6% -4% -2% 0% 2% Source: Bloomberg Finance L.P Page 5 China / Hong Kong China Property Weekly Digest Weekly sales performance of major cities Tier I cities Tier I cities: Weekly GFA sales of key cities GFA % change as compared to Avg of Last week previous 4 City (000 sm) w-o-w y-o-y weeks Avg 2017 Avg 2016 Avg 2015 Avg 2014 Avg 2013 Beijing 151 61% 16% 73% 42% -18% -31% -20% -39% Shanghai 257 6% 5% 0% -2% -39% -41% -18% -26% Shenzhen 54 -20% 52% -5% -19% -33% -58% -30% -36% Guangzhou 222 44% 64% 47% -3% -17% 7% 40% 10% Tier I total 685 22% 25% 28% 4% -27% -31% -7% -23% Source: CREIS, DBS Vickers Tier I cities: Weekly ASP of key cities ASP % change as compared to Avg of Last week previous 4 City (Rmb/sm) w-o-w y-o-y weeks Avg 2017 Avg 2016 Avg 2015 Avg 2014 Avg 2013 Beijing 38,540 2% -11% 0% -12% 7% 43% 51% 64% Shanghai 28,902 30% -6% 6% 9% 9% 25% 53% 55% Shenzhen 53,941 -2% 3% 0% -1% -1% 64% 129% 144% Guangzhou 16,731 -6% -8% -1% 3% 1% 11% 13% 31% Tier I total 34,528 6% -6% 1% 0% 4% 36% 62% 74% Source: CREIS, DBS Vickers Tier I cities: YTD avg GFA sales of key cities Tier I cities: Avg ASP of key cities 000 sm Yoy (%) RMB/sm Yoy (%) 6,000 40% 60,000 4% 30% 2% 5,000 50,000 20% 0% 4,000 10% 40,000 -2% 0% -4% 3,000 30,000 -10% -6% 2,000 -20% 20,000 -8% -30% 1,000 -10% -40% 10,000 -12% 0 -50% 0 -14% Beijing Beijing Shanghai Shenzhen Shanghai Shenzhen Guangzhou Guangzhou 2018 avg (LHS) 2017 avg (LHS) Yoy (RHS) 2018 avg (LHS) 2017 avg (LHS) Yoy (RHS) Source: Thomson Reuters, DBS Vickers Source: Thomson Reuters, DBS Vickers Page 6 China / Hong Kong China Property Weekly Digest Tier II cities Tier II cities: Weekly GFA sales of key cities GFA % change as compared to Avg of Last week previous City (000 sm) w-o-w y-o-y 4 weeks Avg 2017 Avg 2016 Avg 2015 Avg 2014 Avg 2013 Hangzhou 63 -22% -45% -25% -49% -60% -46% -23% -29% Suzhou 88 -16% -25% -18% -21% -48% -61% -44% -43% Changsha 155 -29% -16% -29% -24% -69% -48% -43% -53% Ningbo 170 -16% -21% -46% 19% 23% 67% 105% 83% Wuhan 350 19% -18% -1% -9% -47% -29% -14% -7% Chengdu 422 36% 185% 41% 91% 121% 147% 136% 100% Chongqing 547 1% -31% -18% -13% 17% 34% 29% 26% Qingdao 285 -16% -23% -34% -12% -27% 11% 60% 22% Xi'an 360 -30% 22% -20% 21% 3% 31% 58% 53% Nanjing 55 52% -54% -37% -64% -81% -77% -64% -72% Dalian 92 37% 10% 21% 29% 47% 63% 111% 60% Fuzhou 16 37% -25% -21% -60% -70% -69% -62% -65% Shenyang 340 17% -13% 9% 11% 16% 30% 40% 5% Nanchang n.a.