瑞信-中国房地产业报告：增长放缓但质量提高-2019.11.22-93页.pdf

China Property Sector Slower growth but better quality Real Estate|Theme Figure 1:More balanced business model better appreciated by the investors Source:the BLOOMBERG PROFESSIONALTM service,Credit Suisse estimates Slower growth but better quality.We raise our national property sales estimates by 11%/9%for 2019/20E on stronger-than-expected demand in lower-tier cities and a more stabilised policy environment.While the sales CAGR of our covered developers will likely moderate from a high base to 16%over 2018-21E,the momentum is satisfactory against the markets low expectation.More importantly,we expect growth quality to improve(i.e.,lower operation risk+lower gearing+more transparent B/S).The more balanced development of Longfor and CRL has been well rewarded by a higher valuation premium.We expect more developers to follow suit,and the improving growth quality will support a re-rating for these names.Remain positive on sales growth prospects.With a four-year land bank duration,we believe developers current saleable resources are sufficient to drive satisfactory sales growth,even with the regulators strict controls on financing.Nevertheless,we do see more operational divergence among developers as execution capability/capital utilisation efficiency will count more.Sufficient buffer to smooth the margin squeeze.We estimate an embedded GPM of 27.0%for the developers current land bank on a flattish home price trend(vs 31.9%booked in 1H19).Meanwhile,as 77%of our property development revenue estimate for 2H19-2020 has already been secured as at end of Jun-2019 with a 29%embedded gross margin,we are comfortable with our margin estimate of 30.3%/28.9%for FY19/20E and earnings CAGR of 17%over FY18-21E.Improving quality merits a rerating.Longfor and CRL outperformed since end-2017 on more balanced growth(i.e.,stable earnings growth+strong B/S).Looking ahead,we prefer developers that have higher potential for operational improvement with a more attractive valuation.We prefer COLI,Sunac,CIFI,and KWG.In particular,we believe KWG acceleration in delivery from 2H19 will well address markets concerns on its earnings growth quality,and stronger-than-peers sales momentum on its land bank edge will drive a further rerating.We upgrade Country Garden to NEUTRAL(from Underperform).We downgrade Jinmao to NEUTRAL(from Outperform)and Sino-Ocean to UNDERPERFORM(from Neutral).AgileCGCIFICOLICRLEvergrandeGreentownJinmaoKWGLongforPoly PropR&FShimaoSino-OceanSunacVanke-HYuexiu PropYuzhouLogan-50%-25%0%25%50%75%100%0%20%40%60%80%100%120%140%160%180%200%GearingShare px performance since end-1722 November 2019 Equity Research Asia Pacific|China DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.Research Analysts Jianping Chen 852 2101 7189 jianping.chencredit- Summer Wang,CFA 852 2101 6539 summer.wangcredit- 22 November 2019 China Property Sector 2 Focus charts and table Figure 2:Developers revenue lock-in ratio for 2H19-2020 Figure 3:We expect 2018-20E sales/profit CAGR of 16%/17%Source:Company data,Credit Suisse estimates Source:Company data,Credit Suisse estimates Figure 4:Capital utilisation efficiency counts more Figure 5:China propertys valuation discount to narrow Source:Company data,Credit Suisse estimates Source:Company data,the BLOOMBERG PROFESSIONALTM service,Credit Suisse estimates Figure 6:Our top picks are COLI/Sunac/CIFI/KWG Company Ticker Market cap(US$mn)Share price(HK$)Target price(HK$)Upside Rating Fwd NAV Disc to fwd.NAV Target disc P/E(x)P/B(x)Net gearing(%)Div.yield(%)FY19E FY20E FY19E FY20E FY18A FY19E FY18E FY19E COLI 0688.HK 36,694 26.20 39.40 50%O 49.3-47%-20%6.5 5.6 0.90 0.80 32 36 3.4 3.8 Sunac 1918.HK 20,415 35.95 55.00 53%O 78.5-54%-30%5.5 4.6 1.81 1.36 170 170 2.6 3.7 CIFI 0884.HK 5,748 5.70 7.40 30%O 12.4-54%-40%5.5 4.5 1.32 1.08 81 77 5.0 6.3 KWG 1813.HK 3,421 8.43 13.10 55%O 26.2-68%-50%5.1 3.9 0.76 0.67 66 65 7.4 7.9 Average 50%-51%-26%6.0 5.1 1.21 0.99 81 83 3.5 4.2 Note:Priced as at 21 Nov 2019,O=OUTPERFORM.Source:Company data,the BLOOMBERG PROFESSIONALTM service,Credit Suisse estimates 0%20%40%60%80%100%120%140%160%AoyuanKWGJinmaoCRLVanke-HLongforCGYuexiu PropPoly PropSunacGreentownCOGOYuzhouLoganSino-OceanTimesCOLICIFIShimaoR&FEvergrandeAgile17%18%52%44%29%17%17%13%-4%6%14%68%37%19%16%16%-10%0%10%20%30%40%50%60%70%80%2014A2015A2016A2017A2018A2019E2020E2021EContracted sales growthProfit growthLoganCIFITimesSunacKWGAgileSino-OceanAoyuanCOGOR&FShimaoLongforCOLICRLJinmaoVanke-HCGYuexiu PropGreentownEvergrande0.00.10.10.20.20.30.30.200.400.600.801.001.201.40Adjustedcontracted sales/inventory(the higher the better)Completed properties/inventory(the lower the better)0.02.04.06.08.010.012.014.016.018.020.0Jan-11Nov-11Sep-12Jul-13May-14Mar-15Jan-16Nov-16Sep-17Jul-18May-19China property P/EHSCEI P/E(x)22 November 2019 China Property Sector 3 Slower growth but better quality With sales scale of the Top 30 players likely to exceed Rmb100 bn again in 2019,we believe the marginal drawbacks of a continued fast-scale expansion for leading developers is likely to outweigh the benefits.This,alongside the regulators financing controls,will force developers to shift from the three highs model(high sales growth+high gearing+high saleable resources)to a more balanced development model.We expect sales CAGR to moderate to 16%over 2018-21E for our covered developers but growth quality is likely to improve with a strengthening B/S.The more balanced development of Longfor and CRL has been well rewarded by a higher-valuation premium.Looking forward,we expect more developers to follow suit,and an improving growth quality will support a rerating for these names.We raise our 2019/20E national property sales estimate by 11%/9%to factor in better-than-expected sales in lower-tier cities and a more stabilised policy environment.Remain positive on sales growth prospects We agree that a high sales growth rate at the expense of an even higher net gearing is not sustainable amid the governments financing controls.Nevertheless,we believe quality players still have the potential to deliver a 15-20%sales growth on sufficient saleable resources(i.e.,four-year land bank duration)and strong execution.We estimate contracted sales CAGR at 16%over 2018-21E for our covered developers.This is slower than the growth rate of 29%recorded in 2018 but remains satisfactory against the markets low expectation.Sufficient buffer to smooth the margin squeeze We estimate 52%of the developers land bank faces margin pressure whereas 24%carries a hefty margin.This translates into an embedded GPM of 27.0%for the developers current land bank on a flattish home price trend(vs.31.9%booked in 1H19).As 77%of our property development revenue estimate for 2H19-2020 has already been secured and given the embedded GPM of 29%,we are comfortable with our margin estimate of 30.3%/28.9%in FY19/20E.We estimate FY18-21E earnings CAGR of 17%.Better quality:Lower operation risk and stronger B/S With higher entry barriers on capital and talent,the leading developers are better positioned to shift from the three highs model to a more balanced development strategy,in our view.Firstly,the largely completed geographic expansion and a more competitive city positioning will enable them to reduce operational risk,with sales expansion driven by deeper penetration.Secondly,the better controlled land investment is likely to strengthen their balance sheet and lower JV dependence should improve transparency of their financial statements.This will eventually improve the developers credit profile and,thus,lower the financing cost.Improving quality merits a rerating The China property sectors valuation discount against the HSCEI has priced in the industrys(1)higher policy risk,(2)more stretched/less transparent B/S,and(3)lack of solid profit growth record.These are arguably the inherent flaws with the developers rapid sales growth.Looking forward,we see a more stable policy environment,with demand-side curbing measures largely muted.This,alongside an improving growth quality,will increase the investment value of the China property sector and,thus,attract interest of more long-term investors.On stock selection,we prefer developers that have higher potential for operational improvement with a more attractive valuation.We prefer COLI,Sunac,CIFI,and KWG.In particular,we believe KWGs acceleration in delivery from 2H19 will well address the market concerns on its earnings growth quality,and stronger-than-peers sales momentum on its land bank edge will likely drive a further rerating.We upgrade Country Garden to NEUTRAL(from Underperform).We downgrade Jinmao to NEUTRAL(from Outperform)and Sino-Ocean to UNDERPERFORM(from Neutral).Developers are likely to shift from the three highs model(high sales growth+high gearing+high saleable resources)to a more balanced development model Quality players still have the potential to deliver a 15-20%sales growth With 77%2H19-20 revenue lock-in ratio and embedded GPM of 29%,we are comfortable with our margin estimate of 30.3%/28.9%for FY19/20E Leading developers are better positioned with the higher entry barriers on capital and talent We prefer developers with higher potential for earnings quality improvement with a more attractive valuation;prefer COLI/Sunac/CIFI/KWG 22 November 2019 China Property Sector 4 Figure 7:Valuation summary table Company Ticker Market cap(US$mn)Share price(HK$)Target price(HK$)Up/down side Rating Fwd NAV Disc to fwd NAV Target disc P/E (x)P/B (x)Net gearing (%)Dividend yield(%)FY19E FY20E FY18A FY19E FY20E FY18A FY19E FY18A FY19E Vanke-H 2202.HK 42,720 28.35 35.60 26%O 50.8-44%-30%6.9 5.8 1.81 1.55 1.30 31 34 4.2 4.9 COLI 0688.HK 36,694 26.20 39.40 50%O 49.3-47%-20%6.5 5.6 1.01 0.90 0.80 32 36 3.4 3.8 Evergrande 3333.HK 32,229 19.16 26.10 36%O 43.8-56%-40%4.7 4.5 1.70 1.24 1.06 152 151 6.6 8.3 CG 2007.HK 30,075 10.88 12.00 10%N 20.0-46%-40%5.2 4.4 1.74 1.40 1.12 50 53 5.0 5.8 CRL 1109.HK 31,039 34.05 45.30 33%O 56.6-40%-20%9.5 8.3 1.53 1.42 1.27 38 39 3.5 3.7 Longfor 0960.HK 24,583 32.20 39.40 22%O 49.3-35%-20%10.8 8.8 2.10 1.85 1.60 53 53 3.4 4.2 Sunac 1918.HK 20,415 35.95 55.00 53%O 78.5-54%-30%5.5 4.6 2.50 1.81 1.36 170 170 2.6 3.7 Shimao 0813.HK 11,690 27.70 34.10 23%O 56.9-51%-40%7.6 6.1 1.39 1.21 1.04 65 62 4.1 5.3 Logan 3380.HK 8,479 12.08 13.70 13%N 22.8-47%-40%6.4 5.3 2.22 1.75 1.37 79 75 5.9 6.4 Jinmao 0817.HK 8,180 5.44 5.80 7%N 11.5-53%-50%9.9 7.7 1.58 1.45 1.26 114 116 3.8 4.0 CIFI 0884.HK 5,748 5.70 7.40 30%O 12.4-54%-40%5.5 4.5 1.55 1.32 1.08 81 77 5.0 6.3 Agile 3383.HK 5,548 11.08 10.40 -6%U 20.8-47%-50%5.6 4.6 0.95 0.85 0.76 111 119 8.5 8.0 R&F 2777.HK 5,289 12.84 15.30 19%O 38.3-66%-60%3.3 2.8 0.54 0.49 0.44 184 193 10.7 12.1 Aoyuan 3883.HK 3,687 10.72 11.40 6%N 19.0-44%-40%6.7 4.6 2.17 1.76 1.38 69 66 3.7 5.9 Times 1233.HK 3,912 15.76 19.10 21%O 31.8-50%-40%5.3 4.6 1.53 1.33 1.09 63 62 4.9 5.7 KWG 1813.HK 3,421 8.43 13.10 55%O 26.2-68%-50%5.1 3.9 0.84 0.76 0.67 66 65 7.4 7.9 Yuexiu Prop 0123.HK 3,266 1.65 2.25 36%O 4.5-63%-50%7.3 6.2 0.54 0.64 0.61 61 69 5.4 6.3 Greentown 3900.HK 2,228 8.03 8.60 7%N 21.6-63%-60%6.2 6.2 0.57 0.53 0.50 109 102 3.2 4.1 Sino-Ocean 3377.HK 2,833 2.91 2.60 -11%U 8.6-66%-70%5.6 4.7 0.41 0.39 0.38 96 98 6.9 9.4 Yuzhou 1628.HK 2,283 3.55 5.50 55%O 10.9-67%-50%3.7 3.2 0.87 0.76 0.63 83 81 8.4 12.2 COGO 0081.HK 1,882 4.30 6.60 53%O 11.0-61%-40%4.0 3.4 0.76 0.65 0.56 net cash 34 3.3 5.1 Poly Prop 0119.HK 1,329 2.84 3.50 23%O 11.6-76%-70%2.8 3.4 0.35 0.31 0.30 85 87 4.3 10.8 Average 29%-48%-33%6.8 5.8 1.61 1.34 1.13 74 75 4.5 5.4 Note:Pricing date:21 Nov 2019;O=OUTPERFORM,N=NEUTRAL,U=UNDERPERFORM;Source:Company data,the BLOOMBERG PROFESSIONALTM service,Credit Suisse estimates 22 November 2019 China Property Sector 5 Table of Contents Focus charts and table 2 Slower growth but better quality 3 Remain positive on sales growth prospects.3 Sufficient buffer to smooth the margin squeeze.3 Better quality:Lower operation risk and stronger B/S.3 Improving quality merits a rerating.3 Remain positive on sales growth prospects 8 High growth+high gearing+high saleable resources.8 Three scenarios on investment/gearing/land bank.10 Unchanged land bank duration+20%sales growth=180%net gearing 10 Unchanged net gearing+20%sales growth=three years of land bank duration 11 Unchanged net debt scale+20%sales growth=2.5 years of land bank duration 11 More diversified land acquisition channels to alleviate cash flow pressure.12 Three highs model set to change amid financing controls.13 Case study:China Vanke.13 Sufficient buffer to smooth the margin squeeze 15 Rising land cost pressure well known to the market.15 Some legacy gains to buffer the margin squeeze.17 FY19/20E margin likely to stay at 29%,supported by unrecognised sales.19 Better quality:Lower operation risk and stronger B/S 20 Lower operational risk with better city positioning.20 Stronger balance sheet with better transparency.21 Regulation forces developers to scale back off-B/S debts 21 Improving credit profile to lower financing cost 22 22 November 2019 China Property Sector 6 Raise 2019/20E sector projection.23 Improving quality merits a rerating 25 A more stable policy environment expected.25 Our TPs imply a 7.3x FY20E P/E,back to mean.26 Top picks:COLI/Sunac/CIFI/KWG.28 Raise NAV by 2.3%on new land acquisition.30 HOLT view on China property sector 31 Agile Group Holdings Limited 32 China Aoyuan Group Limited 34 China Jinmao 36 China Resources Land 38 China Vanke A 40 China Vanke H 42 CIFI Holdings 44 COGO 46 COLI 48 Country Garden 50 Evergrande 52 Greentown China 54 Guangzhou R&F 56 KWG Group Holdings Limited 58 Logan Property Holdings Company Limited 60 Longfor Group Holdings Limited 62 Poly Property 64 Shimao Property 66 Sino-Ocean 68 Sunac China 70 Times China Holdings Limited 72 22 November 2019 China Property Sector 7 Yuexiu Property 74 Yuzhou Properties 76 22 November 2019 China Property Sector 8 Remain positive on sales growth prospects Over the past two years,the Chinese government has exerted strict controls on developers refinancing.In the short term,it is to curb the overheated land market and,hence,guide down the home price rally expectation.In the medium term,it is to prevent developers from overly stretching their balance sheet and,hence,contain potential risk to the financing system.With an asset-heavy business model,some investors are concerned that such financing control will limit the developers land acquisition capacity and impair their sales growth prospects.We agree that the traditional three highs bus