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雷达卡
Investment thesis
Outlook
The front sections of this report provide a comprehensive review of the China property sector,
which includes the key macro industry drivers, critical characteristics of property companies
required to thrive in the macro environment, valuation framework we use to value property
companies and relevant investment strategy. We like proven industry leaders with a track
record of volume growth. We’re positive on the long-term operating outlook for the proven
industry leaders primarily due to faster earnings growth potential driven by:
Long-term secular growth of demand – Long-term housing demand will continue to
increase driven by urbanization and housing upgrades in China, especially in provincial
capitals and Tier-II cities. Tier-I cities may experience some short-term weakness.
Policy reorientation - Government policy initiative to increase supplies to meet mass
population market demand, with a long-term goal to foster a harmonious society in China,
will call for increasing output by developers.
Track record - Proven history of volume expansion, while other smaller peers are trying
to overcome capacity constraints.
Nationwide exposure – Broad geographic exposure in China will facilitate proven
leaders’ earnings diversification to mitigate potential regional sales weakness.
We also include company reports on:
COLI (0688.HK): – We reiterate our Buy rating and TP of HK $21.20, as it is a welldiversified
nationwide developer with visible scale expansion.
China Vanke - B (200002.SZ) – We initiate coverage on Vanke - B share with a Buy
rating and TP of HK$31.80, for its strong earnings growth backed by consistent volume
expansion.
R&F (2777.HK) – We reiterate our Sell rating and TP of HK$27.30 on R&F, as completion
slippage, excessive leverage and capacity constraints will slow down its earnings growth.
Valuation
We consider both PER multiple and NAV to be important, relevant valuation metrics for China
property companies. The PE multiple is relevant because property development in China is
akin to a manufacturing model due to rapid asset churn and long-term demand growth.
Earnings are visible in the short-to-medium term given the pre-sale system and the
accounting requirement to book profits upon completion. NAV tends to better reflect the
value of the entire landbank of property companies. We based our TP for two industry
leaders on a 28x 08 PER multiple, slightly higher than the industry average. We use a peer
avg 22x 08 PER multiple for R&F, as a result of its completion slippages. Our TPs for Vanke
and COLI also imply premium to NAV, due to their faster asset deployment than industry
peers.
Risks
The key risks are: (1) Regulatory changes in the industry (taxation, credit policy and land
supply regime) could affect the companies’ development project profit margin and hence the
valuation of the stock. (2) Developers’ ability to pre-sell projects will be essential to growing
development property portfolio. (3) Significant deterioration of property prices in China. (4)
Management resources and local knowledge (in nationwide expansion).
Table of Contents
Investment thesis .............................................................................. 4
Outlook ....................................................................................................................................4
Valuation ..................................................................................................................................4
Risks ........................................................................................................................................4
Housing for a harmonious society – industry drivers..................... 5
New initiative for new presidency.............................................................................................5
Housing for the masses............................................................................................................5
Rising price trend ......................................................................................................................6
Supply shortage ........................................................................................................................9
Short-term policy for demand refinement...............................................................................10
Policy to increase supplies......................................................................................................12
Industry dynamics and key success factors for developers ........ 14
Rising industry competition ....................................................................................................14
Scale expansion is critical .......................................................................................................15
Capacity constraint for smaller developers .............................................................................16
Race to the Tier-II cities ..........................................................................................................16
Emergence of leading regional players ...................................................................................17
Investment properties.............................................................................................................17
Mind earnings quality..............................................................................................................18
Factor 1: Track record and visibility of scale expansion ..........................................................18
Factor 2: Tier-II and smaller cities exposure............................................................................19
Factor 3: Reasonable gearing..................................................................................................19
Factor 4: High asset turnover..................................................................................................20
Factor 5: Sensible landbank strategy ......................................................................................21
Valuation framework....................................................................... 23
PE and NAV metrics................................................................................................................23
Proven nationwide developers with a capacity exceeding 2mm2 ...........................................25
Emerging nationwide developer .............................................................................................25
Small and regional developers ................................................................................................26
Specialty developer.................................................................................................................26
Top picks and recommendations ............................................................................................27
COLI .................................................................................................. 28
China Vanke - B................................................................................ 39
Guangzhou R&F............................................................................... 61
Neo-China Group............................................................................. 73
Greentown China............................................................................. 75
Shanghai Forte Land ....................................................................... 77
China Resources Land..................................................................... 79
Shui On Land Ltd............................................................................. 81
Franshion Properties ....................................................................... 83
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