China Property Sailing through the Storm

Not surprises in 1H08 results. Our 16-stock China property universe increased
1H08 net profit 60% yoy, though core profit grew by 35% yoy to RMB7.3bn. The
gross margin was slightly improved to 44%. As expected, most developers cut
their FY08 and FY09 contracted sales and completion targets though they
contracted sales grew 11.8% yoy in 1H08. As of June 2008, the average net
gearing ratio scaled up to 62%, but this is not at an alarming level, in our
view.


A health check; slowdown on supply and demand — In Jan- Aug 08,
total GFA sold in China was down 15% yoy and the total transaction value was
accordingly down 13% yoy. IN our view, the market is looking only at the rapid
decline in take-ups and ignoring indicators suggesting that the oversupply risk
may be overstated. As of Aug 2008, growth rates for both commencement of
construction area and property under development area recorded the eighth
consecutive decrease since January of 2008. Moreover, the completion growth also
significantly declined to around 12.2% from 31.6% at the beginning of 2008.


Refreshed ASP and sales assumptions. China property market downturn is
likely to continue into 2H08 and 2009, the sales are expected to drop of 19% yoy
in 2008 and further 12% yoy in 2009, returning to the level in 2005. Property
selling prices are expected to drop a total of 30% by the end of 2009 from the
level as of June 2008, implying the price level of late 2006.



Property stock valuation signal "disaster" scenario. China property stocks have been sold
off discriminately, and are down 73% on average since 4Q07. Current valuation
imply an “disaster” scenario (50% ASP drop from the current level) that is hard
to justify. The sector is trading at 68% discount to 08E NAV, far below the 42%
discount at the low end of the historical range. On 08 PE, the sector trades at 
just 7.4X only. A current P/B of 0.88X should be the value floor.

Greentown.   

[此贴子已经被作者于2008-10-8 9:43:49编辑过]