China developers’ FY23F results preview
- We forecast developers under our coverage to register an aggregate net loss in 2023F — the first time since their listing — in line with our expectations.
- Yet, SOE and quality private developers should stay profitable. We expect CR Land and COLI to stand out, with flat to stable profit growth for FY23F.
- We assess that whitelist projects policy should help developers obtain more project financing and improve market sentiment, if implemented properly.
- We retain our cautious view on the sector until sales improve. We suggest staying defensive, with CR Land, COLI and Longfor as our preferred names. We expect China developers to register aggregate net loss in FY23F
We expect China developers to announce their FY23 results in the second half of Mar 2024.
We expect overall results to remain weak, dragged by: 1) weaker-than-expected sales since 2022, 2) lower-than-expected ASP, and 3) recognition of high land cost projects. For the 10 developers we cover, we estimate a collective net loss of Rmb4.4bn in FY23F — the first aggregate net loss since our coverage of China property space, due to huge losses from private developers (e.g. Country Garden) facing liquidity issues.
SOE/quality private developers should remain profitable in FY23F
However, we expect state-owned developers (SOE) and some quality private developers to report profits in FY23F due to their stable sales and solid balance sheets. Specifically, we estimate SOE developers CR Land and COLI to report flat to low single-digit net profit growth in 2023F. For quality private developers, such as Longfor, Vanke and Greentown, we estimate their net profit to drop 10-40% yoy in FY23F. Meanwhile, we expect these developers to continue paying dividends in FY23F based on 30-50% of their core net profit.
Record-low GPM of 11.6% in FY23F
We estimate developers’ GPM to narrow by 1.1% pts to 11.6% in FY23F on average, dragged by lower ASP and higher land costs. We expect average GPM of SOE/quality private developers at 18.6% and troubled private developers at 4.7% in FY23F.
Whitelist policy helps developers obtain more project financing
The progress of the whitelist projects policy supported by banks and regulators looks faster than we expected. We expect more projects to be included soon as policymakers seem keen to stabilise the property market. In our view, this policy would help developers obtain more project financing and boost homebuyers’ confidence, if implemented properly.
CR Land, COLI and Longfor are our preferred names
To solve China property issues holistically, we believe policy banks should step in directly to help the sector. Overall, we remain cautious on the sector until developers’ sales improve. We reiterate our Neutral sector rating and recommend investors to stay defensive; we prefer state-owned CR Land and COLI. Among non-SOE players, we like Longfor for its low liquidity risk. Key sector downside risks include further declines in property sales and more developers defaulting in 2024F. Strong policy support and unexpected sales recovery are key potential upside risks for the sector.
