The China property sector has rallied 56% YTD and has outperformed the
MSCI China by 51%. After rolling over of PT timeframes and revising our
PTs based on FY13E EPS, we suggest the sector is subject to 1% share
price downside, and expect laggards to continue the valuation catch-up.
We believe Agile offers most upside, followed by KWG and Evergrande.
刪 Introducing Dec-13 PTs based on 9x FY13E P/E. We roll over the
price target time frame of the China property sector to Dec-13 and revise
our PTs by 1-14% based on an average 9x FY13E P/E. We apply 9x
FY13E P/E on average (without P/E expansion) due to: 1) no change in
policy environment, 2) inventory to hold stable, 3) net gearing would
unlikely improve as yet as they acquire land, and 4) increasing fund
raising risks.
刪 Earnings growth beyond FY13 is visible but placement risk exists.
The current valuation has priced in the FY13E earnings growth (sector
average 17%). In case of stronger-than-expected price and volume
recovery in FY13, there could be upside risks to our FY14 earnings
forecasts. We thus see 10-15% growth beyond FY13 to be achievable by
the property developers. However, with more land acquisitions ahead,
placement risks are emerging and could partly undermine the earnings
growth prospects.
刪 Valuation and news flow support laggards to catch up to peers. We
believe big caps have fairly priced in the positive growth outlook and
even margin expansion opportunities, while mid/small-caps have better
share price upside potential. Among the mid/small-caps, we expect Agile
to outperform in the near term as sales could improve significantly in the
last two months with new project launches finally. We believe KWG and
Evergrande also offer greater upside potential given current low
valuations.