www.dbsvickers.com ed-TH / sa- PY Large developers outperform • Listed developers, on average, have locked in 30% of their full-year targets in 5M14, against 37%/33%/37% in 5M11/5M12/5M13 (5M sales vs full-year actual sales) • ASP of listed developers stayed flat, but developers may cut prices to boost sales in 2H • Sales may not pick up in the near term, but we expect a gradual recovery in sales in 2H after more local policy loosening and price cuts • Our picks: Country Garden, COLI, Shimao and COGO Large property players continue to outperform. Property sales in May for the 31 cities we tracked decreased by 2% m-o-m and 14% y-o-y. As a comparison, for the 30 listed developers we tracked, property sales increased by 6% m-o-m and 5% y-o-y in May, outperforming the market average. In May, listed developers achieved 7% of their 2014 sales targets, vs. May sales as % of full-year actual sales of 5%/9%/8% in 2011/2012/2013. Major listed developers have locked in only 30% of their full-year sales target in 5M14, which is the lowest level since 2011. Large developers such as Evergrande, Vanke, COLI, and Country Garden have achieved close to 40% sales lock-in ratio, outperforming their peers. More price cutting is on the way. ASP for 12 major cities decreased by 3.4% m-o-m in May, but edged up by 1% m-o-m for major listed developers. In 5M14, ASP of major developers was 3% higher than FY13 average. Agile has seen m-o-m ASP decreases in the past five successive months. Greentown, Evergrande and Sunac also saw a YTD low level in May. Despite continued news flow on price cuts, not many listed developers have undertaken a wide range of price-cutting measures, yet we expect more developers to cut prices in June and 2H14 to boost sales, given a relatively low sales lock-in ratio in 5M14. Sales may remain lacklustre in the near term. Daily sales volume for the 31 cities declined 14% m-o-m in 12D Jun-2014. As such, we don’t expect strong sales volume in June. Sales lock-in ratio for listed developers will remain relatively low in 1H14 as compared to their historical performance. Yet, we expect a gradual recovery in sales in 2H14, after more local policy loosening and price cuts. Negatives are priced in. The sector is now trading at 5.4x FY14F PE, 0.7x P/BV and 61% discount to NAV (vs. its historical average of 9.3x/1.1x/38%). While sales may remain lacklustre in the near term, some stocks such as Country Garden (2007.HK), COLI (688 HK), COGO (81 HK) and Shimao (813 HK) are attractively valued at their current prices. HSI: 23,301 ANALYST Carol WU · (852) 2863 8841· carol_wu@hk.dbsvickers.com Andy YEE · (852) 2971 1773· andy_yee@hk.dbsvickers.com Ken HE, CFA +86 21 6888 3375 ken_he@hk.dbsvickers.com Danielle WANG, CFA · (852) 2820 4915· danielle_wang @hk.dbsvickers.com Recommendation & valuation FY14FPEHK$HK$HK$bnxChina Overseas(688 HK)20.30 29.84 Buy166 7.4 COGO (81 HK)5.05 10.50 Buy12 3.4 Country Garden (2007 HK)3.19 6.22 Buy59 4.7 Shimao (813 HK)14.72 25.83 Buy51 5.1 CompanyPrice Mkt CapRecTarget PriceSource: Thomson Reuters, DBS Vickers DBS Group Research . Equity 16 June 2014 China / Hong Kong Industry Focus China Property Sector Refer to important disclosures at the end of this report Industry Focus China Property Sector Page 2 Average daily sales performance Tier 1Tier 2Tier 331 cities totalMay-14 vs May-13-27%-10%-19%-14%May-14 vs Apr-14-7%2%-1%-2%12D Jun-14 vs Jun-13-42%-26%-18%-28%YTD vs 6M13-34%-16%-20%-18%YTD vs 6M12-7%20%21%10%YTD vs 6M11-7%27%-8%6% Source: DBS Vickers; CEIC Daily average sales volumes for 31 cities: Daile sales volume decreased by 2% m-o-m in May, and further dropped by 14% in 12D Jun. 010203040506070BeijingShanghaiGuangzhouShenzhenChengduHangzhouSuzhouNingboWuxiWenzhouNanjingHarbinQingdaoDalianXiamenHefeiAnqingHuizhouLuzhouMudanjiangYangzhouHohhotBaotouChangchunChangshaFuzhouGuiyangHaikouShijiazhuangWuhan31 cities averageApr-2014May-201412D Jun, 2014k smSource: CEIC; DBS Vickers Industry Focus China Property Sector Page 3 Daily average sales volumes for 31 cities: May-14 daily average sales dropped from FY13 average (20.5k sm). 05101520253035Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10May-10Jul-10Sep-10Nov-10Jan-11Mar-11May-11Jul-11Sep-11Nov-11Jan-12Mar-12May-12Jul-12Sep-12Nov-12Jan-13Mar-13May-13Jul-13Sep-13Nov-13Jan-14Mar-14May-14k14.218.1k sm20.16. Source: CEIC; DBS Vickers Industry Focus China Property Sector Page 4 Sales price trend for 12 cities: May-14 ASP dropped by 3.4% m-o-m. -15%-10%-5%0%5%10%15%(16,000)(14,000)(12,000)(10,000)(8,000)(6,000)(4,000)(2,000)0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Jan-07Mar-07May-07Sep-07Nov-07Jan-08Mar-08May-08Jul-08Sep-08Nov-08Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10May-10Jul-10Sep-10Nov-10Jan-11Mar-11May-11Jul-11Sep-11Nov-11Jan-12Mar-12May-12Jul-12Sep-12Nov-12Jan-13Mar-