[ET Net News Agency, 19 September 2018] Goldman Sachs said the China property sector is
oversold. Its developer coverage aggregate market cap implies about Rmb700bn cash profit
to be accreted to their end-2017 book value (ex-cumulative revaluation gain).
The research house said its estimates suggest: (1) its developer coverage generates
Rmb356bn cash profit in 2018 and over Rmb1,200bn in 2018-20; and (2) the industry could
generate Rmb7,488bn total profit during 2018-30.
The depressed valuation the sector is currently trading on implies its developer
coverage's share of industry profit will drop from 30% in 2018 to less than 10% during
2018-30. Alternatively, keeping 2018 profit share unchanged, it implies zero industry
profit after 2019. This appears too bearish.
Goldman expects prolonged government tightening and weaker economic growth, especially
on the back of US-China trade tensions, to lead to lower property sell-through rates and
pricing levels.
Goldman thinks supply pressure will increase but that it will still not be as stressed
as previous downturns, as it sees considerable room for the government to loosen current
tightening. It therefore forecast a smaller price decline than the 10-15% in previous
downturns, revising its 2019 property price assumption to down 5% from flattish yoy.
Reflecting slower growth amid macro and industry headwinds, Goldman cut coverage 2019-20
underlying EPS forecasts by 2-6%, and target prices by 10% on 6% lower end-2018 NAV and
increased/reduced stock NAV discounts/premiums.
Name Rating Target Price
---------------------------------------------------------
CG (02007) Buy HK$20.20 from HK$25.60
Shimao (00813) Buy HK$35.20 from HK$36.30
CIFI (00884) Buy HK$6.30 from HK$7.90
Future Land (01030) Buy HK$8.80 from HK$10.00
R&F (02777) Buy HK$22.90 from HK$25.70
Sino Ocean (03377) Buy HK$5.30 from HK$7.00
Longfor (00960) Buy HK$31.40 from HK$32.20
COLI (00688) Buy HK$34.90 from HK$36.50
COGO (00081) Neutral HK$3.50 from HK$3.70
KWG (01813) Neutral HK$10.60 from HK$11.50
Logan (03380) Neutral HK$12.40 from HK$12.90
Joy City (00207) Neutral HK$1.23 from HK$1.45
CRL (01109) Buy HK$37.60 from HK$39.00
Agile (03383) Neutral HK$15.60 from HK$17.20
Greentown (03900) Neutral HK$10.20 from HK$11.10
China Vanke (02202) Neutral HK$34.00 from HK$39.20
RS Macalline (01528) Neutral HK$10.00 from HK$10.70
Poly Property (00119) Neutral HK$3.60 from HK$4.30
Evergrande (03333) Neutral HK$27.90 from HK$28.60
SOHO China (00410) Sell HK$3.10 from HK$3.64

(KL)