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2012年12月4日
中国：房地产
证券研究报告
2013年 - 良性循环的开始；上调目标价；强力买入万科A (摘要)
房价稳步上涨将推动利润率/盈利增速复苏...... 我们认为房价/销量回升、房地产投资复苏的良性循环已经开始，这将推动开发商利润率和盈利增长复苏以及净资产价值扩张。同时，进入2013年下半年后，鉴于开发商现金流状况改善且库存持续下降，控制限购令城市房价的上涨步伐将愈发
困难，这将重新加剧市场对政策的担忧。但我们认为，即便有新的调控政策出台，这也只会延缓房价的上涨速度，而不会逆转其上涨趋势。 对大部分未实施限购令的城市，我们预计2013年上半年房价/交易量都会基本稳定在今年下半年的水平，但2013年下半年将逐步上升。目前我们假设2013年房价将同比上涨5%-10%，其中已计入房价上涨过快而导致新调控措施出台的可能。我们新推出的2013年底净资产价值预测平均较2012年底预测高8%，此外我们的2013-14年核心盈利预测也上调了5-11%。 ...并推动估值缓慢持续上行 随着利润率/净资产扩张的逐渐复苏，我们预计2013年房地产板块将获得估值重估，表现相对领先大市并突破2012年7月的峰值。对于在限购令城市业务占比较高的海外上市开发商，我们将其目标价格折让幅度收窄了0-10个百分点（对那
些在限购令城市业务占比较低，或管理执行能力较差从而资产周转改善潜力有限的开发商未作调整）；对A 股开发商的调整不一，主要是基于它们各自相对于行
业水平的市盈率溢价/折让而做出调整。因此，我们对基于净资产价值的12个月目标价格进行了较大范围的调整，平均而言，我们研究范围内的海外上市/A 股开发商的目标价格上调了17%/4%，对应19%/27%的上行潜力。 A 股开发商选股调整；海外上市开发商：合景泰富上调为买入 我们看到研究范围内A 股开发商的风险回报状况具有吸引力，与之前两轮上涨行情相比，目前A 股开发商估值已经下滑，平均对应7.8倍的2013年预期市盈率
（2009年上升周期中值为18.9倍，年初至今年7月初中值为8.2倍）。我们将万科A 加入强力买入名单；将招商地产评级从中性上调至买入，将华侨城评级从卖出上调至中性；将保利地产/金地集团/世联地产评级从买入下调至中性，将世茂股份评级从中性下调至卖出。首开股份仍位于强力买入名单，且我们维持对万科
B 和中南建设的买入评级。我们对海外上市开发商的评级不变，唯一例外是将合
景泰富评级从中性上调为买入。风险：上行：房价复苏强于预期；下行：政府调
控之严超出预期。
*全文翻译将随后提供
王逸, CFA 执业证书编号: S1420510120004
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Table of contents
Overview and summary of rating and target price changes 3 Updating our price/volume assumptions for 2013 5 Raising estimates, but still below Consensus 5 Balance sheet improvement on track 10 Accelerating land price recovery to drive buyer price expectations 13 Narrowing target price NAV discounts among offshore coverage 17 Restacking onshore coverage preferences; Vanke A to CL-Buy 18 Vanke A (000002.SZ): De-rating unjustified; add to CL 23 BCD (600376.SS): Retain CL-Buy on upbeat sales 25 CMP (000024.SZ): Strong roots to drive earnings; upgrade to Buy 27 SMC (600823.SS): De-rating continuing on weaker outlook; to Sell 29 OCT (000069.SZ): High-end exposure concerns priced in; to Neutral 31 Poly A (600048.SS): Growth outlook subdued; down to Neutral 34 Gemdale (600383.SS): Weak growth yet to reverse; down to Neutral 37 WorldUnion (002285.SZ): Fewer benefits from ASP rise; to Neutral 40 KWG (1813.HK): Thriving on tier-1/2 cities’ ASP recovery; up to Buy 43 Appendix: Land banking/developments, geographic exposure 45
The prices in the body of this report are based on the market close of November 30, 2012.
The authors would like to thank Olivia Xiao for her contribution to this report.
中国价值投资网 最多、最好用研究报告服务商
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https://www.doczj.com/doc/2b9068495.html, 中国价值投资网 最多、最好用研究报告服务商Overview and summary of rating and target price changes
Our rating changes in this report focus primarily on our onshore coverage, based on
revised risk/reward after we update our NAV estimates, target prices, and estimates.
Rating changes
? Retain our Buy rating on Vanke A and add it to our regional Conviction list
? Upgrade China Merchants Property to Buy from Neutral
? Upgrade OCT to Neutral from Sell
? Downgrade Gemdale , Poly A , and World Union to Neutral from Buy
? Downgrade SMC to Sell from Neutral
? We upgrade KWG to Buy from Neutral.
? Note that we updated our offshore coverage in October. (Restacking offshore stock picks;
Greentown/Longfor to Conv. Buy, October 22, 2012)
Target price changes
We revise our NAV-based 12-month target prices across the board in a broad range of +49% to -
21%, although a large majority of these are positive revisions. For our onshore coverage the
average change is +4% and for offshore +17%. We also update our bull and bear case NAVs.
Target price changes are driven by:
? Our more positive outlook for property prices and margins
? Company specific revisions to NAV estimates based on business and city mix
? Target price NAV discount narrowing, mainly for our offshore coverage universe
? We roll over our NAV base year to 2013E from 2012E
? Generally positive revision to our estimates to reflect our new assumptions for property price,
updates in the development pipeline and our revised volume assumptions.
Transfers of coverage; terminations of coverage
With this report, we transfer coverage from Jason Sun: Poly A to Yi Wang; China
Merchants Property, Gemdale and Overseas Chinese Town to Vicky Li; Beijing Capital
Development, Risesun and Zhongnan to Jacqueline Du
Primary coverage for onshore property names is as follows: Yi Wang: China Vanke A/B
and Poly A. Vicky Li: China Merchants Property, Gemdale, Overseas Chinese Town and
Shanghai Shimao. Jacqueline Du: Beijing Capital Development, Risesun, Zhongnan and
WorldUnion.
In addition, we are terminating coverage of Lushang Property (600223.SS, Buy), Financial
Street (000402.SZ, Neutral), Hangzhou Binjiang (002244.SZ, Neutral), Huafa (600325.SS,
Neutral), Beijing Urban Construction (600266.SS, Neutral) and China World Trade Center
(600007.SS, Sell). Please see the companion note on these stocks, December 4, 2012,
“Termination of coverage”.
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中国价值投资网 最多、最好用研究报告服务商https://www.doczj.com/doc/2b9068495.html, Updating our price/volume assumptions for 2013
Exhibit 2 and 3 summarizes our base, bull and bear-case price and base-case volume
assumptions for our coverage universe.
Base-case: We expect a 5-10% price increase in 1H13, but then limited or no growth in 2H13,
based on our expectation of possible government intervention to control the pace of price
appreciation.
Bull-case: Property prices to increase by 15-20% in 2H13, assuming no government
intervention to stop price appreciation.
Bear-case: Property prices to return to 1H12 tough levels, if the government takes pre-emptive
and harsh policy action to eliminate any price appreciation possibilities.
Exhibit 2: Our base, bull and bear-case price assumption for our coverage
Exhibit 3: Our base-case volume assumption for our coverage universe
Source: Gao Hua Securities Research estimates. Source: Gao Hua Securities Research estimates.
Raising estimates, but still below Consensus
Our 2012E-2014E underlying profit estimates are 2%/5%/11% below consensus,
reflecting our more conservative margin estimates
We raise our underlying profit estimates by an average of 0%, 5% and 11% in 2012E-2014E after
factoring in our new assumptions for property price, updates in the development pipeline and
volume assumptions. Our new underlying EPS forecasts for 2013E/2014E are 5%/11% below
Bloomberg/Wind consensus on our lower sales and margin estimates. Accordingly, we raise our
underlying EPS estimates by the same magnitude (see Exhibit 5).
100
150 180
162 138
151 167
167 200
100
120
140160180200Beginning-09End-09End-10End-11Mid-12End-12Mid-13E End-13E
Base-case Bull-case Bear-case 138
20
4060
80
10012020112012E 2013E
(mn sqm)
9%yoy
+25%yoy
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中国价值投资网 最多、最好用研究报告服务商Exhibit 4: We raise our 2012E-2014E underlying profit forecasts by 0%/5%/11% on average
Note: (1) We use non-GAAP net profit for E-House; (2) We use distributable income for Perennial. (3) We have excluded E-House and WorldUnion in the average numbers calculation.
Source: Gao Hua Securities Research estimates.
We factored in the revaluation gain the companies booked in 1H2012 in our 2012E total net profit
forecast, hence the difference between underlying profit and net profit forecasts in 2012E for
some companies.
For all but the companies listed below, revisions are driven by the general impact of our 2013
price/volume adjustments:
? BCD: We revise down BCD’s 2012E-2014E underlying profit forecast by 6%/8%/6% on
1%/1%/0% downward adjustment of underlying margins to 16%/15%/15, mainly due to
adjustments in the completion schedule of its Beijing JV project and higher financing cost
from trust loan financing from 1H12 (we have raised our financing cost forecast by 0.5-1ppt).
? OCT : We revise up OCT’s 2012E-2014E underlying profit forecast by 13%/36%/56% on 3-8
pp upward adjustment of underlying margins to 17%/17%/18%, mainly to factor in: (1) its ytd
achieved presales ASP was c.35% higher than our previous estimate for 2012E and (2) our
new 2013E-2014E price assumptions for the sector.
? Shanghai Shimao: We revise up SMC’s 2012E underlying profit forecast by 9% to reflect
the Rmb113mn non-operating gain in 3Q2012. As a result of our general 2013-2014
price/volume adjustment across the sector, our 2013E/2014E underlying profit was up
https://www.doczj.com/doc/2b9068495.html, 7%/14% respectively, but our earnings estimates for SMC is still 10%/19% lower than Wind
consensus for 2013E/2014E.
? Vanke A/B : Our underlying profit cuts for Vanke A/B in 2012E mainly reflect the shift in
earnings booking from 2012 to 2012 and 2014, given the risk from the concentration of
completions planned for 4Q12. Our earnings estimates for Vanke A/B are still 8%/7%/2%
higher than Wind consensus for 2012E/2013E/2014E, respectively.
? World Union: We cut our net margins forecasts for WorldUnion by 2-3 pp mainly due to
slower-than-expected gross margin recovery, which resulted in 19%/22% downward
adjustments to 2013E-2014E net income forecasts. We estimate that the company shall have
Rmb95.4bn/115.3bn unbooked primary agency sales by end-2012E/2013E, which implies
45%/46% lock-in ratio of 2013E/2014E revenue vs. average 37% during 2009-2011.
? EJ: We cut EJ’s 2012E-2014E EPS (non-GAAP) to $0.03/$0.35/$0.46 from
$0.14/$0.40/$0.53 respectively, after factoring in: 1) Slower-than-expected online service
revenue growth, especially dragged by online advertising business. We forecast
25%/17%/17% online revenue growth from 2012E-2014E; 2) Slower-than-expected gross
margin recovery.
Exhibit 5: We adjust our 2012E-2014E underlying EPS forecasts by 0%5%/11% on average
Note: (1) We use non-GAAP EPS for E-House; (2) We use DPU for Perennial.(3) We have excluded E-House and
WorldUnion in the average numbers calculation.
Source: Bloomberg, Wind, Gao Hua Securities Research estimates.
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Updating NAV, target prices and our bull/bear case valuations
We introduce our end-2013E NAV (Exhibit 6), which are on average 8% higher than our 2012E
NAV estimates, mainly as a result of our change in our property price assumptions updating of
companies’ land bank/development pipelines.
We roll over our target price base year to 2013E and also adjust our target NAV discounts to NAV
for our off/onshore coverage universe by 0-15 percentage points. (See later sections)
Exhibit 6: Summary of 12-month target prices, 2013E NAV and rating changes
Note: (1) *Denotes that this stock is on our Regional Conviction List. (2) Ratings that have changed are in bold typeface.
Source: DataStream, Gao Hua Securities Research estimates.
.
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Exhibit 7: Offshore developers’ existing NAV discount Exhibit 8: Onshore developers’ existing NAV discount Source: DataStream, Gao Hua Securities Research estimates. Source: DataStream, Gao Hua Securities Research estimates.
Exhibit 9: Offshore coverage 12mth forward P/E at 8.02X Exhibit 10: Onshore coverage 12mth forward P/E at
7.58X
Source: DataStream, Gao Hua Securities Research estimates. Source: DataStream, Gao Hua Securities Research estimates.
Exhibit 11: Offshore coverage 12mth trailing P/B at 1.27X Exhibit 12: Onshore coverage 12mth trailing P/B at 1.61X
Source: DataStream, Gao Hua Securities Research estimates. Source: DataStream, Gao Hua Securities Research estimates.
-700-600-500-400-300-200
-1000100
200300
400500600
700800900
1,0001,100-80%-60%-40%-20%0%20%40%60%80%100%120%(%)NAV prem/disc (left scale)Adjusted sector market cap index (right scale)The off-shore sector market cap weighted average discount to NAV is 12.9%Base point
2005/12/9=100-800-600
-400-2000200400
600
800
1,0001,2001,400
1,600
-100%-50%0%50%100%150%200%Base point
2006/2/17=100(%)NAV prem/disc (left scale)Adjusted sector market cap index (right scale)The on-shore sector market cap weighted
average discount to NAV is 14.8%0
10203040506070Off shore 12mth F orward P/E(x)
Average, 15.9X
+1STD 27.9X +2STD, 39.8X
-1STD, 4.0X Current, 8.02X 4 8 12 16
20
24
28 On shore 12mth Forward P/E(x)
Average, 13.2X
?+1STD, 16.1X
+2STD, 20.2X
-1STD, 8.0X
Current, 7.58X
0.001.002.003.004.005.006.00Off shore12mth trailing P/B(x)
Average, 2.0X +1STD, 3.0X +2STD, 4.0X
-1STD, 0.96X Current, 1.27X 0.00
0.50
1.00
1.50
2.00
2.50
3.003.50
4.004.50
5.00On shore 12mth trailing P/B(x)
Average, 2.2X
+1STD, 2.9X
+2STD, 3.6X
-1STD, 1.5X
Current, 1.61X
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中国价值投资网 最多、最好用研究报告服务商中国价值投资网 最多、最好用研究报告服务商Balance sheet improvement on track
We analyzed 110 A-share listed developers’ cash flow, the refinancing needs of our coverage
universe, their balance sheets, and inventory in major cities in the coming year. The result
suggests that as long as our coverage universe do not buy land aggressively between now and
1H13, any potential new policy tightening in 2013 would impact only volumes with no downward
pressure on prices.
Net operation cash flow has been positive for two consecutive
quarters
The cash flow of the 110 A-share listed properties companies’ has improved in the past two
quarters on the back of strong property sales and contained capital expenditure (Exhibit 13).
Since 2007, developers have had positive net operating cash flow during the second and third
quarters only in 2Q07 (a small positive) and 2Q09-3Q09. Given land banking activity from
developers is still well below the level of the past three years (Exhibit 14), we expect balance
sheets to strengthen further in coming quarters.
Exhibit 13: Net operating cash flows have been positive for the past two quarters
Cash received from contract sales, net operating cash flow, CAPEX for 110 A-share listed property
companies
Source: Wind, Gao Hua Securities Research.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-200-150-100
-50050100
150200Net operating cash flow (LHS)
Total CAPEX (LHS)Cash inflow from property sales (LHS)% of companies with positive operating cash flow (RHS)
40% CAPEX cut from 4Q07 peak in 4Q08. It took 5 quarters
of CAPEX cuts for net operating
cash flow to turn positive in the last cycle
(Rmb bn)
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Exhibit 14: Developers’ ytd acquisitions well below the average level of the past 3 years
Major developers ytd new acquisition amount vs. their contract sales during 2006-ytd2012
Source: Company data, Gao Hua Securities Research estimates.
Our coverage universe will see a funding surplus in 2013
Unlike 2012, during which half our coverage universe has needed to re-financing , we estimate all
of our coverage (except a small funding gap for Risesun) will be in funding surplus in 2013 —
assuming they buy no new land until the end of 2013 (Exhibit 15). Meanwhile, we expect net debt
to equity of our off/onshore coverage at the end of 2013 will also fall to levels similar to the end of
2010 and below levels at the end of 2009, respectively.
Exhibit 15: We estimate all developers (except Risesun) will be in funding surplus in 2013E
2013E Funding gap/surplus calculation for our coverage universe
Source: Gao Hua Securities Research estimates.
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
2006200720082009201020112012 YTD Offshore coverage average acquisition amount as % of sales
Onshore coverage average acquisition amount as % of sales
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
-50
51015
202530
354045
505560652013E Funding surplus/(gap) before additional refinancing (LHS)
Funding surplus/(gap) as % of equity (RHS)Funding gap Cash surplus
(Rmb bn)
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Exhibit 16: We expect balance sheets will shore up substantially in 2013E/2014E
Gearing trend for our off/onshore coverage during 2007-2014E
Source: Company data, Gao Hua Securities Research estimates.
Inventory pressure to be much lower in 2H13
For 2013E, we estimate sales volume growth in major cities will be flat over — even though we
think absolute inventory will begin to fall more quickly in 2H13 and return to its long term average
of nine months (since May 2008). In the last up-cycle, property price appreciation began to
accelerate when monthly inventory fell to 7-8 months (i.e., in June 2009). Therefore, we expect
some pricing upward pressure in 2H13 as inventory levels fall.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
200720082009201020112012E 2013E 2014E
Gearing trend for our onshore coverage Gearing trend for our offshore coverage
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中国价值投资网 最多、最好用研究报告服务商https://www.doczj.com/doc/2b9068495.html, Exhibit 17: We estimate 2013E growth in GFA sold in the eight major cities to be flat over 2012E Historical and our projection for 8 major cities GFA sold during 2007-2013E
Exhibit 18: We estimate inventory will fall to 9 months by end of 2013
Our projection for sellable GFA and month inventory before end-2013E
Note: The 8 cities include Beijing, Shanghai, Nanjing, Suzhou, Hangzhou,
Shenzhen, Guangzhou and Xiamen.
Source: Soufun/CIA, Gao Hua Securities Research estimates. Source: Soufun/CIA, Gao Hua Securities Research estimates.
Accelerating land price recovery to drive buyer price expectations
We expect land price in HPR (home purchase restriction) cities to further accelerate, as
developers are increasingly taking a positive view on large cities and shifting new investment to
HPR cities from lower-tier cities.
We see two effects from this:
? Prospective homebuyers’ property price expectations will increase quickly;
? Margins for newly acquired/new developments will then fall to a much less attractive level,
discouraging developers to buy more.
HPR cities showing a stronger recovery in property sales volumes...
The sequential patterns of residential property sales volume in HPR and non-HPR cities so far
this year are similar (Exhibit 19). However, the recovery in non-HPR cities (yoy growth of monthly
sales) began only in July, Aug and Oct, whereas a recovery has been evident more consistently
in HPR cities since April.
48%50%
48%40%49%44%0%10%
20%30%40%50%60%020
40
6080100120140160200720082009201020112012E 2013E (mn sqm)GFA sold in 1H (LHS)GFA sold in 2H (LHS)1H as % of full year (RHS)Full-year 0
2
4
6
8
10
12
14
16
18
01020
3040
506070(months)(mn sqm)8 city total sellable GFA (LHS)8 cities 12 mth-rolling inventory months (RHS)
Forecast Average 15months from peak to low during
08-09 cycle
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Exhibit 19: Recovery of property sales volume in HPR cities has been consistent and
stronger than non-HPR cities
Monthly sales comparison in HPR and non-HPR cities
Note: 1) HPR cities captured in this analysis include Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Shenyang, Dalian,
Nanjing, Hangzhou, Wuhan, Changsha, Qingdao, Suzhou, Chengdu, Xi'an, Xiamen, Shijiazhuang, Wenzhou, Taiyuan,
Changchun, Harbin, Jinan, Zhengzhou, Nanchang, Hefei, Nanning, Guiyang, Kunming, Lanzhou, Xining, Yinchuan, Urumuqi,
Fuzhou, Ningbo, Sanya, Haikou and Hohhot. 2) HPR was also announced in Foshan, Quzhou, Shaoxing, Taizhou, Xuzhou,
Yongkang, Yueyang, Jinhua, Zhoushan and Zhuhai but sales volume data is unavailable.
Source: NBS, CEIC, Gao Hua Securities Research.
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
020406080100120140160180200Mar -08Sep-08Mar -09Sep-09Mar-10Sep-10Mar-11Sep-11Mar-12Sep-12Total residential property GFA sold in cities with HPR (LHS)
Total residential property GFA sold in cities without HPR (LHS)
Total residential property GFA sold yoy growth in cities with HPR (RHS)Total residential property GFA sold yoy growth in cities without HPR (RHS)
(mn sqm)(%)10
1
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...driving a recovery in land sales in HPR cities...
With yoy sales volume being consistently healthy in HPR cities for more than six months, it is no
surprise that land sales in HPR cities has also begun to recover. Exhibit 20 illustrates how quickly
and strongly yoy land sales volume has turned positive in October compared with that in non-
HPR cities, where yoy land sales have remained in negative territory. This is despite a similar
trend in land supply (Exhibit 21-22).
Exhibit 20: YoY land sales in HPR cities turned positive in October, but remains negative in
non-HPR cities
Monthly land sales in 302 cities, breakdown by HPR and non-HPR cities
Source: Soufun/CIA, Gao Hua Securities Research.
Exhibit 21: The worst period of land supply and sales is behind us in HPR cities Land sales launched vs. sold in HPR cities Exhibit 22: ...and in non-HPR cities, although the recovery is weaker
Land sales launched vs. sold in non-HPR cities
Source: Soufun/CIA, Gao Hua Securities Research. Source: Soufun/CIA, Gao Hua Securities Research.
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
220%
-80-60-40-20020406080100120140160180J a n -10F e b -10M a r -10A p r -10M a y -10J u
n -10J u l -10A u
g -10S e p -10O c t -10N o v -10D e c -10J a n -11F e b -11M a
r
-1
1A p r -11M a
y -11J u n -11J u l -11A u g -11S e p -
11O c
t -11N o v -11D e c -11J a n -12F e b -12M a r -12A p
r -
1
2M a y -12J u n -12J u l -12A u g -12S e
p -1
2
O c
t
-12Monthly residential land transaction GFA in cities with HPR (LHS)Monthly residential land transaction GFA in cities without HPR (LHS)
Monthly residential land transaction GFA yoy growth in cities with HPR (RHS)
Monthly residential land transaction GFA yoy growth in cities without HPR (RHS)mn sqm 0102030
40
50
6070
8090
Jan-10May-10Sep-10Jan-11May-11Sep-11Jan-12May-12Sep-12Monthly residential land launched GFA in cities with HPR Monthly residential land transaction GFA in cities with HPR mn sqm 0
20
40
60
80
100
120140
160Jan-10May-10Sep-10Jan-11May-11Sep-11Jan-12May-12Sep-12Monthly residential land launched GFA yoy growth in cities without HPR
Monthly residential land transaction GFA in cities without HPR mn sqm
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...and quickly pushing up land prices in HPR cities
As a result, the recovery of both land prices and the premium over government base rates in HPR
cities since 2Q this year has been sharp. This is in contrast to non-HPR cities, where these have
remained stable. Property prices tend to echo changes in land price quickly.
Exhibit 23: Land price in HPR cities have recovered quickly since 2Q this year
Monthly land sales price/premium comparison in HPR and non-HPR cities
Source: Soufun/CIA, Gao Hua Securities Research.
Exhibit 24: Change in property prices quickly follows land prices
% of cities with ASP increased MoM vs. % of cities with land transacted price increased MoM
Note: A total of 70 cities and 105 cities were captured in the ASP and land transacted price mom analysis respectively.
Source: NBS, Ministry of Land and Resources.
500
1,000
1,500
2,000
2,500
3,000
3,500
0%10%20%30%40%50%60%70%Jan-10Apr -10Jul-10Oct-10Jan-11Apr -11Jul-11Oct-11Jan-12Apr -12Jul-12Oct-12Monthly land ASP transacted premium to ASP launched in cities with HPR (LHS)
Monthly land ASP transacted premium to ASP launched in cities without HPR (LHS)Monthly land ASP transacted in cities with HPR (RHS)Monthly land ASP transacted in cities without HPR (RHS)
(Rmb/sqm)
0%
10%
20%
30%
40%
50%60%
70%
80%
90%
100%
% of cities with ASP increased MoM % of cities with land transacted price increased MoM
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Narrowing target price NAV discounts among offshore coverage
We narrow our target price discounts to NAV (now on 2013) for most names among our offshore
coverage universe given the positive price trend on improved supply and demand dynamics in
major cities and on the improvement in developers’ cash flow.
? Our new target price discounts are largely in-line with the historical average of 2009 for
individual stocks. We use 2009 to set our discounts for most companies as we believe it
represents a period that will be similar to our view of 2013 — i.e., strong fundamentals but
increasing expectations of policy tightening. We note, however, that tightening actually came
in early 2010.
? We do not include Agile, COGO, Country Garden and Evergrande in this narrowing, given
our less positive view on lower-tier cities and these companies relatively higher exposure to
them.
? We also do not narrow discount for Franshion, Shui On land, SOHO China, Yanlord and
PCRT. For Franshion, we would turn more constructive on valuation should we see
improving ROE and strengthened project pipelines to sustain sales growth after 2013. For
Shui On Land and Yanlord, we believe both companies have de-rated from 2009, as we think
their asset turnover is unlikely to improve. For SOHO and PCRT, we see no scope for a re-
rating as they are more focused on commercial property, on which we are less positive than
residential.
? The only rating change among our offshore coverage is KWG, which we upgrade to Buy from
Neutral (with a discount to NAV of 30%, down from 40%)
Exhibit 25: Summary of our target price discount change for our offshore coverage
Source: Gao Hua Securities Research estimates.
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Exhibit 26: Our new 12-month NAV based price targets for our offshore coverage imply an
average 19% upside potential
Offshore coverage developers’ share price relative performance vs. MSCI China index, historical disc.
to NAV and 11 major cities ASP index
Source: DataStream, Company data, Gao Hua Securities Research estimates.
Restacking onshore coverage preferences; Vanke A to CL-Buy Attractive risk-reward after share retreat from early July
Our onshore sector has corrected by 7.0% vs. CSI300 down 11.0% since early July, when
Premier Wen reiterated tightening in order to curb price appreciation. After this correction, our
onshore coverage universe valuation (7.8X 2013E P/E on average) was only slightly higher than
historical trough of 7.4X in 4Q11.
We believe current valuations already priced in potential volume downside risk from any further
tightening but are not factoring in the potential for margin/earnings growth recovery and NAV
expansion. As such we see the risk/reward is significantly skewed to upside — as evident in our
bull/bear-case valuations (Exhibit 1).
-80
-70
-60-50
-40
-30
-20
-10
10
20
30
40
50
60
-25-20-15-10-5051015
20Relative performance of offshore property index vs MSCI China (LHS)
11 major cities ASP index (LHS)NAV prem/disc (%) (RHS)Price index (1) Cabinet sent teams to inspect the implementation of
property regulation policies by
local authorities (2)In July, CPC Central
Committee meeting stressed the need to unswervingly
implement the real estate market control policies, and to
prevent prices rebounding.
In July 2009, CBRC urged banks to strengthen risk control and optimize
credit structure to prevent possible financial risks amid a surge of bank loans. Outperformance driven by price
increase/NAV expansion before
new policy tightening kicked in TP implied
NAV disc: 25%
GS forecast
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Exhibit 27: We expect valuations for our onshore coverage to return to last July peak or
close to the mid-point of the last two up cycles (January 2009-July 2009, November 2011-
June 2012) — i.e. 10X P/E
Wind A share property index vs. CSI300, onshore coverage developers’ 12-month forward P/E
and 11 major cities ASP index
Source: DataStream, Company data, Gao Hua Securities Research estimates.
Growth prospects still the key to drive valuation divergence
We believe onshore stock performance will be driven mainly by earnings growth prospects. As
such, we set our target price NAV discounts for individual stocks by cross checking our target
price-implied 2013 P/E multiple in the context of each stock’s historical trading range during last
two upturns (January 2009-July 2009, November 2011-June 2012) against consensus forward
earnings growth expectations. We also factor in our expectations for those which we believe
should re-/de-rate — i.e., Zhongnan and SMC.
As a result of such exercise, we revise our target discounts (to 2013E NAV) by -15pp to +10pp
(Exhibit 28) within a discount range of 25%-55%. Our average target price implied 2013E P/E is
10.0X 2013E P/E. This is slightly below the average level of last two upturns, but similar as latest
peak in July. The average upside potential to our onshore target prices is 27% (Exhibit 1).
0.00
5.0010.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
50.00-10-50510152025Relative performance of Wind A share property index vs CSI300 (LHS)
11 major cities ASP index (LHS)
Onshore P/E (X) (RHS)Price index (1) Cabinet sent teams to inspect the
implementation of property regulation
policies by local authorities (2)In July, CPC Central Committee meeting
stressed the need to unswervingly
implement the real estate market control policies, and to prevent prices rebounding.
In July 2009, CBRC urged banks to
strengthen risk control and optimize credit structure to prevent possible
financial risks amid a surge of bank loans.
Outperformance driven by price increase/NAV expansion before new policy tightening kicked in
GS forecast
TP
implied
2013E PE: 10.0X
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Exhibit 28: We cross-check our target price implied 2013E P/E multiples against historical P/E premiums/discounts Onshore 12mth forward P/E premium/(discount) vs. sector average
Note: Historical P/E levels are based on ex-ante Wind consensus estimates during the periods. TP implied P/Es are based on Gao Hua Research estimates. Source: DataStream, Company data, Gao Hua Securities Research estimates.
Names we believe will be re-rate or de-rate against peers
We analyzed the historical valuation gap between large-cap/mid-cap names against their
historical/future growth (Exhibit 29). We found that mid-cap names have consistently traded at
premium to large-cap names during sector upturns. However, we do not think history will repeat
itself this time round, given:
? The structural shift between equity supply and equity demand in the A-share market should
eventually result in a lower overall valuation for the market as compared to that before 2009
(see our Strategy team’s report “A-share strategy topic: Liquidity constraints result in lower
market valuation ” Sept. 26, 2011), particularly smaller cap names.
? Growth prospects for most mid-scale developers have already peaked (Exhibit 29). Mid-
scaled developers delivered superior earnings growth in 2009-2010 from a low base and on
the easy ride on property market exuberance during 2009. However, going forward, in a
more competitive market with decelerating industry growth, we believe only large developers
and select regional leaders with strong balance sheets/brand name, good access to capital,
and proven execution skills are more likely to be industry consolidators in the future and see
their valuation recovery.