News Alert: A slightly stronger than expected month of m-o-m recovery in June
- Preliminary presales data in June was slightly better than expected, with monthly presales decline notably narrowed despite a higher comparison base.
- Presales recovery expected to continued in 2H22 alongside 1) impact of supportive policies continue to feed through; and 2) developers to further pick up in pace on project launches; monthly presales growth for the sector could potentially swing back to positive territory as soon as in July-22
- High beta names may post better share price performance in the near-term, but sustainability of which depends on the reopening of refinancing channels.
- Recommend to go for quality names with flexibility to accelerate project launches and ride on the physical market recovery
- Sector top picks: COGO (81 HK), COLI (688 HK), Longfor (960 HK), CR Land (1109 HK) and Yuexiu (123 HK).
What’s new?
Preliminary presales data in June posted a slightly stronger than expected rebound a on m-o-m basis according to the CRIC database
Our view:
Strong m-o-m recovery in June as lockdown measures ease and impact from policy started to come through. Upon gradual relaxation of COVID-19 lockdown measures, business activities (including project launches) have progressively resumed in June. Coincided with the trend revealed in weekly presales statistics, presales for the 31 developers we track posted a solid m-o-m rebound both on a simple (+76%) and weighted average (+60%) basis during the month. Monthly presales decline notably narrowed from 54% in May to 36% in June despite a higher base, which came in slightly above expectations. Among individual names, monthly presales growth of Sino-Ocean (3377 HK), CR Land (1109 HK) and Times (1233 HK) edged into the positive territory in June together with Yuexiu (123 HK).
En-route for further recovery and potentially for the sector resume positive y-o-y growth in July. Entering into 2H22, we believe presales recovery will likely continue upon 1) impact from lately introduced supportive policies will continue to feed through and support homebuyer sentiment; and 2) developers to further pick up in pace on project launches in the attempt to regain loss grounds in presales progress. Given a low base in 2H21, we believe monthly presales growth for individual developers and for the sector as a whole can potentially swing back into positive territory as soon as in July-22.
Stay with quality names to ride on market recovery. We believe the sector share price may continue to rally in response to the sequential improvements in the physical market. High beta names like CIFI (884 HK) and Country Garden (2007 HK) may record better share price performance in the near term, but sustainability of their runs would require more signs of recovery on the refinancing side. We suggest investors to go for quality names that have the capability to accelerate the project launches and ride on the potential market recovery. Our sector top picks in this regard are COGO (81 HK), COLI (688 HK), Longfor (960 HK), CR Land (1109 HK) and Yuexiu (123 HK).
