China Property:1H17data update;takeaways from discussions with developers

类型：行业研究机构：广发证券(香港)经纪有限公司研究员：广发证券(香港)研究所日期：2017-07-31

1H17 property market data NBS data show total property investment rose 8.5% YoY toRmb5.06trn in 1H17, while residential property investment was up 10% YoY toRmb3.4trn. GFA new starts increased by 11% YoY to 857m sqm, and residential GFAnew starts rose 15% YoY to 614m sqm. Total land purchased was up 9% YoY to 103msqm; land premium rose 39% YoY to Rmb437.6bn; average land price rose 28%. TotalGFA sold rose 16% YoY to 747m sqm, and residential GFA sold increased 13.5% YoYto 648m sqm. Total property sales rose 22% to Rmb5.9trn, while residential salesincreased 18% YoY to Rmb4.9trn.

    Key takeaways from discussions with developers We spoke with three developerstoday about the outlook for the property market. Key takeaways below.

    Gemdale P&I (535 HK, Buy) The company believes that overall property investmentgrowth should continue at around the same level in the second half of the year amid arise in new project launches, land purchases and new starts GFA. GFA sold hit a recordhigh in 1H17, so the company sees limited growth in the next 2-3 years. Leadingdevelopers will achieve sales growth through M&A, increasing market share and ASPgrowth. Ongoing restrictive policies may last for the next 12 months. Demand forproperty in third/fourth-tier cities will not be sustainable given limited local demand andsupportive industries. Land prices will continue to rise for some years in all major citiesdue to the limited land supply. Total GFA will reach a record high in 2017, which it doesnot see as sustainable in China’s cyclical property market. Developers will post goodearnings growth in 2017-18 on the back of strong contract sales performance in 2015-16. Most small developers will be forced out of market due to a lack of capital, poorbranding and limited operating scale.

    COLI (688 HK, Buy) COLI also expects overall property investment growth to continueapace in the second half given increasing new starts GFA. GFA sold in third/fourth-tiercites may drop HoH in 2H17, given the record high comparable base in 1H17. Currentrestrictive policies may continue until 1Q18. The company will increase new projectlaunches in 2H17.

    Evergrande (3333 HK, NR) The company also sees total property investment growth ofabout 8.5% in 2H17 on increased new project launches and a rise in GFA new starts.

    Evergrande has been shifting its focus to first and second-tier cities. In terms of contractsales in third-tier cities, 75% of sales revenue comes from real demand. The companywill benefit from rising market share concentration.

    We expect GFA sold to drop 10% HoH in 2H17 We estimate third and fourth-tier citiesaccounted for 75% of GFA sold in 1H17. We expect this to drop 10% HoH in 2H17 inthird and fourth-tier cities, due to record high comparable sales, and also drop 10% HoHin first and second-tier cities, given ongoing restrictive policies. We estimate totalresidential GFA sold will drop 11% YoY to 1.2bn sqm in 2017.

    Buy undervalued industry leaders such as COLI and CR Land (1109 HK, Buy)China’s property market is seeing ongoing market share concentration, which shouldbenefit the big industry leaders. Vanke (2202 HK, Underperform) is trading at 2.0x 2016NBV, while COLI and CR Land are trading at 1.3x 2016 NBV and 1.4x 2016 NBVrespectively, clearly undervalued.