China China Property Property : Notable sales pick-up in 4Q14, expect momentum to remind robust in 2

Notable sales pick-up in 4Q14

    Despite the national home sales market was sluggish in year 2014, listed China developers managed to achieve 17% contracted sales growth. After the 2nd home mortgage policy changes from 30 September 2014 afterwards, most developers recorded a notable sales pick-up in 4Q14. Our 20 selected developers showed that their 4Q14 contracted sales were 42% higher than the 1-3Q14 quarterly average; while Agile (3383 HK), Greentown (3900 HK) and Sino-Ocean (3377 HK) recorded more than 100% increase vs 1-3Q14 quarterly average (also +35% YoY and +41% QoQ), mainly thanks to the sales recovery in some high-end major-city projects.

    Year 2015: 15-20%YoY contracted sales growth

    Based on our preliminary review, we expect listed developers would achieve 15-20% contracted sales growth this year; while the cash collection from pre-sales would be faster due to better mortgage loan resources. We also expect home price would start to stabilize from 2H15 onwards as we estimate inventory turnover to peak out in 1-2Q15. We are relatively more bullish on contracted sales recovery in major cities compared with Tier-3 cities as we believe home-upgrade demand should be stronger in major cities and where offers better mortgage loan quota.

    Expect sector re-rating on improving outlook

    After the recent panic selling, the sector is trading at about 40% discount to NAV, or 1SD below the 5-year mean. Under a credit loosening and home tightening policy easing background, we believe developers would record better contracted sales, cashflows and earnings which support sector re-rating. We regard more developers to issue medium-term notes at a cheap rate as near-term catalyst.