[ET Net News Agency, 12 October 2018] HSBC Global Research said the China real estate
sector has taken a beating and is now trading at an NAV discount of 62% and a 2019 PE of
4.1x, both more than one standard deviation below historical mean.
These levels were last seen in the previous property downcycle, which started in 2014.
However, HSBC believes it is still too soon to bottom-fish and anticipates more bad news
ahead. It expects to see price cuts as we approach year-end and developers step up project
launches amid intensified competition to hit growth targets.
HSBC forecast a sliding scale of ASP corrections in different categories of cities next
year - flat in tier 1, -3% in tier 2, and -5% in tier 3.
It also forecast a 10% decline in national transaction volumes, but HSBC thinks these
moderate price cuts can help underpin the sales of more successful developers. This is
important, as the market gives far more weight to sales volume than to the ASP growth of
developers.
But HSBC said housing inventory is down 20-35% across city tiers - the situation was
much worse in the 2014 property downcycle - creating a buffer for the housing market. It
believes the inflection point for property stocks may arrive only in 1Q 2019.
It thinks price cuts will reduce government concerns about overheating and lower the
risk of further policy restrictions being applied to the market. HSBC revised its target
prices for the Chinese developers as follows:
Name Rating Target Price
----------------------------------------------------
Agile (03383) Hold HK$9.50 from HK$14.1
COLI (00688) Buy HK$31.00 from HK$36
CR Land (01109) Buy HK$37.30 from HK$39
China SCE (01966) Buy HK$4.00 from HK$5
CIFI (00884) Buy HK$4.80 from HK$6.6
CG (02007) Reduce HK$6.60 from HK$10.5
Jinmao (00817) Buy HK$4.90 from HK$4.5
GZ R&F (02777) Hold HK$14.80 from HK$16.2
Joy City (00207) Buy HK$1.30 from HK$1.4
KWG (01813) Hold HK$6.40 from HK$10
Logan (03380) Buy HK$10.60 from HK$12.1
Longfor (00960) Buy HK$25.80 from HK$29.9
Shimao (00813) Buy HK$27.30 from HK$33.2
Sino-Ocean (03377) Buy HK$4.00 from HK$5.6
SOHO China (00410) Reduce HK$2.60 from HK$2.6
SZI (00604) Hold HK$2.20 from HK$2.6
(KL)