[ET Net News Agency, 22 November 2018] After almost a three-year bull run, the China
physical property market began to slow down in 3Q and this could continue into 1H 2019.
Deutsche Bank, therefore, cut developers' earnings by 1/5/10% for FY2018-20, respectively,
after applying 5% ASP cuts over the next six months and slower sales ahead.
It expects developers' gross margins will trend down gradually to 28% by 2020 due to
potential price cuts and the relatively high cost of land that developers purchased in
2017 and early 2018. However, DB remains bullish on the overall stock performances of
major listed developers at the current level, considering the following factors.
First, their sales growth has outperformed the industry by 30% since 2016 amid market
consolidation and DB expects 20% outperformance to continue into 2020 even with a further
slowdown in the physical market. Second, they have accumulated large amounts of unbooked
sales for delivery over the next 1-2 years. DB estimated >80% FY2019 earnings lock-in
ratios by the year-end. Hence, it still forecast 25% earnings CAGRs in FY2018-20 after the
earnings cuts. Lastly, DB expects potential policy relaxation measures in 1H 2019 (but no
stimulus), which may help to smooth the physical market slowdown.
It revised its target prices for the developers it covers as follows:
Name Target Price Rating
---------------------------------------------------------------
Agile (03383) HK$17.16 to HK$11.30 Buy to Hold
Aoyuan (03883) HK$9.59 to HK$7.53 Buy
China Jinmao (00817) HK$5.83 to HK$4.68 Buy
China SCE (01966) HK$5.83 to HK$4.36 Buy
CIFI (00884) HK$7.89 to HK$5.53 Buy
COLI (00688) HK$33.91 to HK$31.76 Buy
Country Garden (02007) HK$19.75 to HK$15.09 Buy
CR Land (01109) HK$37.31 to HK$34.68 Buy
Evergrande (03333) HK$33.94 to HK$22.27 Hold
Future Land (01030) HK$10.76 to HK$8.77 Buy
Greentown (03900) HK$9.55 to HK$7.20 Hold
GZ R&F (02777) HK$23.55 to HK$17.42 Buy
KWG (01813) HK$15.69 to HK$11.30 Buy
Logan (03380) HK$14.77 to HK$11.17 Buy
Longfor (00960) HK$30.55 to HK$24.92 Buy to Hold
Shimao (00813) HK$27.86 to HK$22.56 Buy
Sino-Ocean (03377) HK$4.98 to HK$3.83 Hold
Sunac (01918) HK$46.97 to HK$41.17 Buy
Times (01233) HK$13.48 to HK$10.07 Buy
Vanke (02202) HK$40.56 to HK$30.36 Buy to Hold
Yuzhou (01628) HK$6.15 to HK$4.43 Buy
(KL)