China Property Sector:1H16market data and contract sales update
1H16 property data review NBS data show that total property investment rose 6% YoYto Rmb4.7trn in 1H16. Residential new starts GFA rose 14% YoY to 0.5bn sqm;completed residential property GFA rose 20% YoY to 0.4bn sqm. Total land purchasearea dropped 3% YoY to 95m sqm; total land premium rose 10% YoY Rmb0.3tn. Totalproperty GFA sold rose 28% YoY to 643m sqm. Residential property GFA sold rose29% YoY and residential property sales revenue rose 44% YoY. Office property GFAsold rose 41% YoY and office property sales revenue rose 62% YoY.
First/second-tier city markets overheated New property ASP rose 47%, 29%, 20%and 19% YoY in Shenzhen, Shanghai, Beijing, and Guangzhou respectively. In secondtiercities, new property ASP rose 34%, 30%, 29% YoY in Xiamen, Nanjing and Hefeirespectively. Based on ASP growth, we believe the markets in Shenzhen, Shanghai,Xiamen, Nanjing and Hefei are overheated.
Developers lacking earnings visibility Following previous restrictive policies,residential property transaction volume in Shenzhen and Shanghai dropped significantlyduring Apr-Jun 2016. According to industry leader Vanke (2202 HK, NR), totalresidential properties GFA sold may decline HoH in 2H16. Given rising land costs andslowing contract sales, Chinese developers lack earnings visibility for 2016, in our view.
Yuexiu Property contract sales rose 40% YoY Yuexiu Property (123 HK, Buy)achieved contract sales of Rmb16bn, up 40% YoY; GFA sold rose 31% YoY to 1.4msqm. The company has achieved 62% of its 2016 full year sales target of Rmb25.8bn.
Vanke contract sales rose 73% YoY Vanke (2202 HK, NR) achieved contract sales ofRmb190bn, up 73% YoY; GFA sold rose 56% YoY to 14m sqm.
COLI contract sales rose 12% YoY COLI (688 HK, Buy) achieved contract sales ofHK$95bn, up 12% YoY; GFA sold rose 3% YoY to 6.0m sqm.
Shenzhen Investment contract sales rose 83% YoY Shenzhen Investment (604 HK,Hold) achieved contract sales of Rmb14bn, up 83% YoY; GFA sold rose 23% YoY to0.6m sqm. The company has achieved 76% of its 2016 full year sales target.
KWG Property contract sales rose 21% YoY KWG Property (1813 HK, Hold)achieved contract sales of Rmb11bn, up 21% YoY. The company has achieved 52% ofits 2016 full year sales target.
Guangzhou R&F contract sales rose 44% YoY Guangzhou R&F (2777 HK, Hold)achieved sales of Rmb29.8bn, up 44% YoY. GFA sold rose 44% YoY to 2.4m sqm.
Country Garden contract sales rose 130% YoY Country Garden (2007 HK, Hold)achieved contract sales of Rmb125bn, up 130% YoY. GFA sold rose 85% YoY to 15.6msqm. Management raised its 2016 full year sales target by 31% to Rmb220bn.
Buy undervalued asset plays such as Yuexiu Property and defensive plays likeYuexiu REIT Yuexiu Property (123 HK, Buy) is currently trading at 0.3x 2016E NBV,suggesting it is an undervalued asset play. The company’s new management plans tolaunch more asset-related deals to unlock its value. We expect earnings to resumegrowth in 2017. We reiterate our Buy rating and target price of HK$1.70. We also likedefensive high-yield play Yuexiu REIT (405 HK, Buy), which is trading at 0.8x 2016ENBV and offers a 7% dividend yield.