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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  Shimao Property Holdings Limited    813   KYG810431042

SHIMAO PROPERTY HOLDINGS LIMITED

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China?s big developers shrug off short-term virus impact to splurge on land

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04/07/2020 | 01:27am EDT

China's top developers are prising open their war chests to snap up land this year as local governments sell more prime real estate to boost revenues and smaller, distressed property firms look to offload assets as the coronavirus takes a toll.

Despite some analysts' warnings that an economic recovery could take longer than expected, many major property companies said at recent earnings conferences that they planned to ramp up spending thanks to a faster-than-expected home sales rebound in the first quarter and more abundant liquidity.

Others said they would maintain purchasing levels on a par with last year as they were confident demand for housing will remain intact in the long run.

China's property market ground to a halt earlier this year as the virus outbreak escalated and authorities imposed tough curbs on travel and movement, shutting down crowded places such as property showrooms.

But restrictions have been eased in many parts of the country in recent weeks, and the latest data from researcher CRIC shows sales of the top 100 developers in March surged 136% from February, narrowing the first-quarter decline to 21% compared with a year earlier.

Developers said they expected sales to normalize in April, following an 80-90% recovery in March, though Oxford Economics notes consumers remain cautious amid lingering fears of the virus and uncertainty over job losses.

A spate of government economic support measures and increased liquidity will provide some boost to property sales,

Hui Ka Yan, chairman of China Evergrande, the third- largest developer by sales, said last week.

The optimism underscores the increasing polarization in China's real estate market, where analyst forecasts of a single digit drop in national home sales this year is expected to see many smaller developers collapse.

In a note of caution, analysts said that given the land market lags the home market, developers would need to slow their investment if home sales decline at a faster pace.

"The industry downtrend is unchanged," said Larry Hu, head of China Economics at Macquarie.

"Despite the strong rebound in March sales, Q1 was still a big drop so I think the full-year sales will be weak, and that may lead to a drop in home prices. I'm more prudent on the property industry."

UPBEAT OUTLOOK

Bigger property companies usually focus their developments in major cities where housing demand is stronger.

Many developers still posted double-digit sales and profit growth last year despite a sputtering economy.

Evergrande's Hui forecasts stable transaction volumes for this year, a more optimistic view than analysts.

Despite concerns over the shock from the coronavirus to consumers, some of the larger developers said it would only have a short-term effect and would not derail long-term housing demand.

Undeterred, they have set more or less the same sales targets as last year, in some cases even higher.

Evergrande aims to sell 30% more homes totalling 800 billion yuan ($112.82 billion), while Shimao Property targets 15% more at 300 billion yuan.  

Country Garden, the country's largest developer by sales, purchased more land in the first quarter than a year ago.

"We saw more good-quality land opportunities and M&A opportunities," company executive vice president Cheng Guangyu said at an earnings conference.

Both Country Garden and Shimao said they would spend at least the same amount on land as last year, as they have adequate cash.

Loosening of policies, including cutting interest and tax rates, have allowed developers to pay less of a deposit over a longer instalment period and helped to boost the land market. More stimulus is expected in the second quarter, according to analysts.

The outlook for more ample liquidity has already driven up land prices in major cities.

CRIC said while 20% of the top 100 developers bought no land in the first three months, reflecting cautious sentiment, land transaction volumes had gradually recovered, with some sales in first and second-tier cities recording premiums of more than 40%.

Another major real estate researcher, CREIS, said the average land floor price sold during the period was up 33% in tier-one cities, while flat and 7% in tier-two and three cities, respectively.

Because of the high land prices, some developers said they would be more prudent in public auctions and opt instead to build their land bank through acquiring smaller companies.

"We think 2020 will see a big wave of M&As," said Evergrande CEO Xia Haijun, who forecast the market share of the top three developers will increase from 12.6% in 2019 to over 20% in the next three to five years.

By Clare Jim

Stocks mentioned in the article
ChangeLast1st jan.
ALPHABET INC. 0.58% 1421.37 Delayed Quote.6.12%
BYD COMPANY LIMITED 5.66% 44.8 End-of-day quote.15.32%
CHINA EVERGRANDE GROUP 4.70% 16.92 End-of-day quote.-21.67%
COUNTRY GARDEN HOLDINGS COMPANY LIMITED 3.23% 9.6 End-of-day quote.-23.08%
SHIMAO PROPERTY HOLDINGS LIMITED 2.88% 33.9 End-of-day quote.12.25%
THE LEAD CO., INC. -9.07% 441 End-of-day quote.13.08%
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Financials (CNY)
Sales 2020 143 B
EBIT 2020 33 336 M
Net income 2020 13 318 M
Debt 2020 72 777 M
Yield 2020 4,79%
P/E ratio 2020 8,19x
P/E ratio 2021 6,78x
EV / Sales2020 1,28x
EV / Sales2021 0,89x
Capitalization 110 B
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Number of Analysts 21
Average target price 33,05 CNY
Last Close Price 31,20 CNY
Spread / Highest target 21,8%
Spread / Average Target 5,94%
Spread / Lowest Target -15,1%
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Managers
NameTitle
Sai Tan Hui Vice Chairman & President
Wing Mau Hui Chairman
James Yu Head-Corporate Finance & Investor Relations
Lai Kuen Kan Independent Non-Executive Director
Hong Bing Lü Independent Non-Executive Director