HK / China SMID-Caps:Affordable housing theme still going strong

研究机构：摩根大通(亚太) 分析师： Leon C ... 撰写日期：2011年04月08日

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    China State Construction (CSC) signed more affordable housing contracts in the first six weeks of 2011 than all of 2010. CSC believes that there is a window of opportunity to expand into affordable housing in the next two years driven by supportive government policies. The lifting of affordable housing starts in 2011 from 6 million units to 10 million units (announced Dec 10) should provide ample opportunities in this Rmb 1.3 trillion to Rmb1.5 trillion opportunity.
    The next major catalyst is the announcement of specific policies that facilitate bank financing for affordable housing projects. Currently the maximum level of debt for these projects is capped at 70% with 30% equity to be provided by local governments (with some central government funding) or from private sources (such as CSC or other property developers). The new policies to be released shortly would specify bank lending targets, interest rates, default protection or other matters that are required before we see an acceleration in bank lending in this area.
    As affordable housing only recently commenced in earnest, we prefer to look at companies that benefit from demand in the later stages of the construction process as the benefits are not yet factored into 2010E earnings and P/E and the enhancement in earnings should endure until well into 2012.
    Our high conviction picks as the key SMID-Cap beneficiaries from affordable housing construction are: CSC (a leading contractor with affordable housing experience in HK), Xinyi Glass (China’s diversified glass maker aggressively expanding into energy saving glass), Kingboard Chemicals (provider of chemicals where prices are surging due to greater construction activity), China Liansu (largest plastic pipe provider) and Haitian (leading maker of plastic injection machines used to make construction products and household goods