China Property Sector:Continuous buoyant home sales to drive earnings growth

National home sales value/GFA +44%/29% in 6M16

    In June, the national home sales reached 142mn sqm, +14% YoY and +35% MoM; while E-House 32 major cities home sales were +9% YoY and -1% MoM in May. Our selected 21 listed developers increased efforts on sales launching in June and their contracted sales reached a monthly record-high of RMB264bn (+21% MoM and +27% YoY). In 2H16E, we expect home sales to keep robust but the growth rate will decline due to high-base effect in 2H15. Overall, we estimate listed developers’ full-year contracted sales YoY growth at 11% (1H16: +54% and 2H16E: -20% YoY). The negative growth in 2H16E will be mainly attributable to 1) high-base effect and 2) decline in saleable resources.

    Home price +10% YoY in June; expect 14% annual growth

    E-House home price index continued the uptrend at +1.5% MoM and +10.1% YoY in June. We expect the price increase to soften in 2H16E and estimate full-year YoY increase at 14% as affected by cooling measures in more major cities.

    Catalysts: M&As,privatization and asset restructuring

    The continuous credit easing would help support robust home sales and developers’ earnings growth. Meanwhile, sector catalysts arise from 1) M&A and privatization, 2) share buybacks and 3) non-core asset disposals/spin-off. The sector is trading at 40% discount to its 1-year forward NAV or close to 1SD below 7-year mean. Our top picks are CR Land (1109 HK) and COLI (688 HK).