China Property:Supporting Sales Data Emerging to Catalyze The Sector

China Property has recently been on the sidelines in terms of share priceperformance. COLI was the best performer, stimulated by an NAV-accretiveinjection. We believe developers generally will take advantage of the release inliquidity through RRR cuts for refinancing and home sales. April data reflectrapid sales rebound before the usual home sales season in May and June. COLIand SZI expect to launch more new projects than the rest.

    30% sales growth expected in April: Based on our channel checks, various majordevelopers expect to deliver around 30% yoy sales growth in April, led by SZI, Vanke andCOLI. We believe the good sales performance is underpinned by: 1) continued easing whichhas restored market confidence and supported home prices; 2) the solid price trend whichhas begun to remove the wait-and-see stance; and 3) ample saleable resource carried from2014. We expect sales in May and June to improve markedly, driven by an increase in newlaunches. SZI, CMP and COLI will have more new projects relative to peers.

    Price to rise in tier-1 and select tier-2 cities: In the 70 cities tracked, home prices intier-1 cities grew 0.12% mom on average but declined 0.07%/0.26% mom in tier-2/3 citiesrespectively. We found that inventory in 10 major cities have declined to a manageable levelof 12.6 month at present, compared to the peak level of 18.2 month in Jul 2014. Althoughevery city undergoes de-stocking, the inventory levels vary widely amongst different cities.

    For instance, it is 6.7 months for Shenzhen, 13.5 months for Hangzhou and 22.0 monthsfor Qingdao.

    Supply-demand seeking equilibrium on supply shrinkage: In the first three months,new starts declined 23% yoy (from -20% as of Feb) to 168mn sqm, equivalent to 1.04xGFA sold during the period versus 1.18x in 2014. Residential investment increased 6% toRmb1,116bn, the lowest growth ratio since Jun 2009. During the same period, land purchaseGFA declined 32% to 40.5mn sqm alongside 7% increase in land price to Rmb2,772/sqm. Inour view, the demand-supply situation has been adjusted following a substantial decreasein new investment although home buying demand has moderated on lower investmentpurpose. Further balancing should strengthen the fundamental outlook of the industry,therefore lending support to the property stocks.

    Strong weekly sales data: Among 52 cities we monitor, home transaction volume grew30% wow and 55% yoy on average. Sales have increased 30% MTD and grown 17% YTD.

    Home prices rose 12% in tier-1 cities while tier 2/3 cities still witnessed declines of 4%/8%respectively.

    China Property Stock Picks: MTD, the sector underperformed MSCI China Indexby 2% on weighted average. In the past 5 days, the sector dropped 1.2% on simpleaverage. Evergrande, Franshion and Longfor outperformed (8.9%/4.9%/3.6%). YTD, thesector surged 19.7%, with Evergrande (59.2%), SZI (58.3%) and Powerlong (49.5%)outperforming. Franshion, Longfor & Kerry Properties were the most shorted stocks(49%/27%/20%).