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Real Estate Developers:Tracking 110A-share developers,Strong contract sales helped balance sheet,GPM mixed
2021-07-13 00:30
Financial position repaired but not enough
Operating cash flow stayed positive in 3Q on theback of 72% yoy increase in cash inflow fromproperty sales. Cash balance as % of short-termdebt recovered to 1Q14 levels but gearingincreased 4ppt qoq to 105% due to more negativeinvestment cash flow. We think developers shouldcontinue focusing on de-stocking to improve theirbalance sheet further.
Mixed profitability trend
Pretax margins (excl. investment income) furtherdeclined 2ppt qoq to 9% though GPM recovered2ppt qoq. That said, larger developers’ GPM saw acertain degree of stabilization but smaller oneswere still struggling with weakening profitability.。
Market share continued to expand
Overall market share of 110 A-share developersexpanded by 9ppt/5ppt to 40%/22% of top 40cities/nationwide. This gain was largely beingconcentrated in the Top 15 developers, mainlyresulting from the inclusion of GreenlandHoldings’ financials since 2Q15.
Performance
Our offshore/onshore coverage is trading at48%/29% disc. to end-15E NAV and 1.0X/2.0X 15EP/B ex. revaluation. We expect mortgage easingand rate cuts to further improve housingtransactions in 4Q15. Top picks (CL-Buy): Agile,Shimao and Vanke A. Risks: Sales/margin miss (-)/beat (+), macro hard landing (-).
