BNP Paribus Turns Bullish On China’s Property DevelopersBy Shuli Ren
Property stocks in mainland China are soaring for a second day.
This blogger asks traders why the real estate developers are soaring. Corporate actions are certianly providing the fuel. China’s largest residential real estate developer China Vanke (000002.China) is soaring limit up 10% for a second day amid heavy buying, while blue-chip commercial developer Dalian Wanda (3699.Hong Kong) has reportedly already gained shareholders’ approval on its $4.4 billion buyout deal to take its Hong Kong-listed shares private. Once Wanda leaves Hong Kong, presumably it will list in mainland China, which boosts the real estate stocks’ offerings there.
But investors and analysts are also
turning more bullish ahead of real estate developers’ earnings.
Last Friday, BNP Paribus analysts Wee Liat Lee and Tracy Cheng raised their price targets on real estate developers.
It is well-known China’s property market accelerated in the first-half this year. Developers under BNP’s coverage have already delivered a sizable 71% year-on-year sales growth. Therefore, “we expect most developers we cover to raise FY16 contracted sales targets by 10-15% as 1H16 achieved 58% on average,” wrote the BNP analysts.
In addition, BNP sees better profit margins in the first-half, thanks to rising average sales prices.
Third, developers’ balance sheets will look better too. Sure, they are still paying astronomical amounts to buy land from the government, but sales and cash collection should exceed land acquisition, thereby lowering developers’ indebtedness – their Achilles’ heels.
In addition, real estate developers can now
issue corporate bonds at lower costs. Country Garden (2007.Hong Kong), for instance, saw its average funding cost fall from about 10% in 2011 to 7.2% in 2015, and it issued 9 billion yuan in bonds at around 4.6% coupon rate in the first-half this year. As such, BNP Paribus thinks most developers will pay out higher dividends this coming year.
BNP Paribus particularly likes China Jinmao (817.Hong Kong), China Resources Land (1109.Hong Kong), China Overseas Land & Investment (688.Hong Kong) and Country Garden.
Blue-chip state-owned enterprises such as COLI, China Resources Land and Jinmao can see their core earnings accelerate first because of their faster asset turn and BNP likes Country Garden’s improving debt profile.
Source: Barron's Asia
http://blogs.barrons.com/asiastocks/201 ... evelopers/
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