Takeaways from global marketing
? Feedback from our recent global marketing suggests that most investors are
cautious on China property despite central government’s supportive policies.
? Investors appear hesitant because: 1) measures have yet to prove helpful,
and 2) developers’ sales are still tepid.
? However, we think that the strong policy stance from the recent Politburo
meeting should lead to greater implementation of measures announced.
? We remain sector Overweight on supportive policy and attractive valuation.
Our top picks are Longfor, CG, CIFI, Times and KWG.
Only 10% of investors that we met are positive on China property
We hosted a virtual global marketing campaign in the past two weeks on our double
upgrade on China property. We met a total of about 60 investors from the US, Europe,
ASEAN, Hong Kong, China and Taiwan. Overall, we estimate that about 70% of investors
are underweight the sector, 20% are neutral and the remaining 10% are overweight. Most
investors agree that the valuation for the sector is low but they are not in a rush to get in
until they see fundamentals improving.
Investors: Policies have not made an impact thus far
Despite a series of supportive measures announced since Dec 2021, investors said that
those measures look ineffective in helping solve developers’ liquidity issues. Developers
such as Logan, Zhenro, Shimao, Sunac, Zhongliang, etc. have been facing liquidity
problems in the past 1-2 months. Overall, banks appear very selective and have only lent to
state-owned developers (SOEs) or quality developers but not to the developers which need
refinancing. We observe the same situation in the onshore debt market, developers with
liquidity problems are unable to raise funds due to lack of investors’ demand. Meanwhile,
some investors indicated that they will be hesitant to invest in the sector until they see a
meaningful recovery in sales.
Expect a correction in property market sales in the near term
Investors are disappointed in developers’ tepid sales YTD despite supportive measures.
The sector’s sales are down 48% yoy in 4M22 based on China Real Estate Information Corp
(CRIC) estimates, given more city lockdowns due to Covid-19 and weak market sentiment.
Given the gradual containment of Covid-19 recently, we expect developers’ sales to recover
from Jun 22 onwards. From a long term perspective, we think that sales for China property
peaked in FY21 and expect some 20-30% correction in sales value over 2022-2024F. We
however think that it is unlikely to drop too much from this level due to the high proportion of
first time buyers and upgrade demand.
Mainland investors more cautious than offshore investors
In our view, mainland investors are generally more cautious nowadays than overseas
investors on the sector due to 1) weak on-the-ground sentiment, 2) negative newsflow about
developers and property markets, and 3) overall weak economy.
Developers which investors have exposure to or have interests in
Investors with exposure to China property mostly own CR Land, Longfor, COLI or Vanke for
their defensive nature. For high beta names, CIFI, KWG, Country Garden (CG), Times,
Powerlong and SCE are some names that investors have interest in.
Reiterate Overweight; Top Adds: Longfor, CG, CIFI, KWG and Times
We stay sector Overweight on strong supportive policies which could prompt a sales
recovery and the sector’s attractive valuation. We like Longfor, CIFI and CG among midand large-cap plays. For small caps, we like Times and KWG. Among SOEs, we like CR
Land. Key downside risks are continuous Covid-19 outbreak and weaker-than-expected
sales recovery. A re-rating catalyst is faster-than-expected sales recovery ahead.
Our virtual property conference will be held during 14-17 Jun 2022
We will host our 7th HK/China Property & Property Management Virtual Conference during
14-17 Jun 2022 and expect more than 35 companies to participate.