(HK) China Property Sector - Policy overhang remains

22 January 2010DBS Group Research . Equity In Singapore, this research report or research analyses may only be distributed to Institutional Investors, Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore. www.dbsvickers.com Refer to important disclosures at the end of this report ed-SGC / sa- DC Policy overhang remains • More polices may be forthcoming but the most effective ones have been out. • Lower relative downside risk after 20% underperformance in the past 6 month. • Upside capped for policy noises. Range-trade in the near term; strong and commercial players shall outperform. • We like COLI, CR Land, Shimao and Franshion. Market sentiment will stay weak near term. As a result of policy noises, we foresee weak investment sentiment in the near term. With the launch of the National 11 Measures, which include 40% down payment rule for upgraders, we believe the most effective ones have been out. While our analysis indicates another 20% property price increase in China could trigger more severe measures, we think price surge is unlikely. Recent new measures should help to stabilize prices and volume growth in 2010. Less downside risk, but no near-term catalyst. Given the underperformance of China property stocks against the HSI by 20% in the past 6 months, the market has started to price in potential policy risk. Yet we don’t see near-term positive catalysts given policy noises and the arrival of weak sales season. Two stock selection strategies. Share prices will likely be range bound. Short-term investors could trade at between 11X and 14X FY10 P/E, and long funds could buy strong developers and commercial plays on dips. Strong players tend to outperform in an uncertain market - we like COLI, CR Land and Shimao. Commercial plays, like Franshion, are also defensive as the outlook for commercial properties is turning positive and they are less affected by policy tightening. HSI: 21,654 ANALYST Carol Wu · (852) 2863 8841· carol_wu@hk.dbsvickers.com Danielle Wang · (852) 2820 4915· danielle_wang @hk.dbsvickers.com Top picks FY10FNAVPEHK$HK$mxHK$HK$C R Land (11 09 H K)15. 62 78, 569 1 8.8 2 1.6 Buy23.7 3 China Overseas(688 HK)15. 36 125, 476 1 4.2 1 6.8 Buy21.1 0 Franshion (817 HK)2. 63 24, 095 2 2.8 4.2 Buy3.3 6 Shimao (813 HK)13. 08 46, 337 1 0.0 2 2.9 Buy21.5 6 TargetCompanyPrice Mkt CapRec Source: Bloomberg, DBS Vickers Hong Kong / China Industry Focus China Property Sector Hong Kong Research Team Corporate Research Head of Research Derek Cheung (852) 2971 1703 Derek_cheung@hk.dbsvickers.com Automobile, Infrastructure, Machinery Rachel Miu (852) 2863 8843 Rachel_miu@hk.dbsvickers.com Banking & Finance Jasmine Lai (852) 2971 1926 jasmine_lai@hk.dbsvickers.com China Property Carol Wu (852) 2863 8841 Carol_wu@hk.dbsvickers.com China Property Danielle Wang (852) 2820 4915 danielle_wang @hk.dbsvickers.com Consumer Alice Hui, CFA (852) 2971 1960 alice_hui@hk.dbsvickers.com Consumer Mavis Hui (852) 2863 8879 mavis_hui@hk.dbsvickers.com Consumer Titus Wu (86 21) 6888 3360 titus_wu @hk.dbsvickers.com Electronics & Technology Dennis Lam (852) 2971 1922 dennis_lam@hk.dbsvickers.com Environmental Patricia Yeung (852) 2863 8908 patricia_yeung@hk.dbsvickers.com Hong Kong Property Jeff Yau, CFA (852) 2820 4912 Jeff_yau@hk.dbsvickers.com Oil & Petrochemicals, Pharmaceuticals & Shipping Gideon Lo, CFA (852) 2863 8880 gideon_lo@hk.dbsvickers.com Software & Telecom Steven Liu, CFA (852) 2971 1780 steven_liu@hk.dbsvickers.com Table of Contents Investment summary 3 Lower downside risk after recent measures and correction 4 Lack near-term positive catalyst 11 No significant downside risk either 13 Commercial market will outperform 16 Stock Selection 32 Stock Profiles 40 Appendix: comparison - sales performance of developers in 2009 54 Appendix: comparison – land acquisitions details of developers in 2009 58 Appendix: comparison – fund raising details of developers in 2009 60 Appendix: ASP and sales volume trend, 22 selected cities 61 Appendix: Policies against share price performance 65 Appendix: Developers’ land bank breakdown by cities 67 Appendix: Developers’ gross asset value breakdown by city 69 Appendix: A glance of financial forecasts 70 Appendix: PE & PB & discount to NAV trend 72 Note: Prices used as of 15 Jan 2010 Cover photos supplied by: Shimao Property, Soho China, Shui On Land and Sino-Ocean Land.