Weekly sales recover by 26% WoW in tier 1-2 cities.
SOE and non-SOE developers see divergent growth
in 2015. Central government urging for reduction of
land supply is positive for the sector in mid/long
term but depends on local government execution.
Weekly sales recovered: As per Soufun’s latest data,
the major cities’ sales increased by 26% WoW. In
March 2015, major cities sales grew by 14% YoY, vs.
+11% YoY in Jan-Feb 2015. We expect property sales
to increase sequentially in April and May due to more
projects launching.
Divergence growth between SOE and non-SOE
developers: Overall, non-SOE developers guide a
lower sales growth target in 2015 as managements
balance growth and leverage amid falling profitability
but with higher funding costs than their SOE peers. For
example, KWG and Agile guide +10% and flat contract
sales growth in 2015, respectively, from +26% and
+9% in 2014. On the other hand, SOE names like COLI
and CR Land guided 2015 sales targets at +13% and
+20%, from +4% and +2% in 2014.
Reduction of land supply: Last week, China Ministry
of Land and Resources and Ministry of Housing and
Urban-Rural Development jointly issued a notice urging
a reduction or even suspension of land supply in cities
where property is over-supplied. However, we think the
policy’s effectiveness depends on local governments’
execution given their reliance on land sales. Also, cities
where property is over-supplied already face difficulties
in land sales.
Sector further rallies: Thanks to the MoLR and
MOHURD joint notice, the sector rallied in the last week,
up 3.6% WoW. The industry is still trading below
historical average valuations at a -39% discount to NAV
and 6.3x 2015e P/E. We reiterate Vanke and CRL as
our top picks in the industry.