Projectoftheweek:CIFI–JiangwanMansionShanghai.WerecentlyvisitedCIFI’s(884.HK,Not-rated)JiangwanMansionprojectintheJiangwanareaofShanghai.Itisalow-riseprojectcomprisinggardenapartmentsandtownhouses.Thefirstbatchof51gardenapartments(240sm/unit)werelaunchedatanASPofRmb34k/sm,with24unitssoldsofar,fetchingRmb200minpresales.Thelowersales-throughratecouldbeattributabletothelargeunitsizeandhighertotalprices.Yet,ithasachievedthe2013salestargetofRmb200m.BasedonanASPofRmb34k/sm,weexpecttheprojecttodelivergoodgrossmargin/netmarginof57%/25%respectively.Localsalespersonnelexpectsalestoincreasesignificantlyin2014afterthelaunchoftownhouseproductsathigherpricesnextJun.
Policyupdate:Guangzhoutightens,asexpected.Despitegovernment’splantopushfor“marketmechanism”initsreformguidelines,localcoolingmeasuresarelikelytocontinueinthenearterm.Guangzhoujustunveileditssixmeasures,includingraisingdownpaymentforsecondhomepurchasesandtherequirementsfornon-localhouseholds’homepurchaseinthecity.Sofar,thefourTierIcitieshaveannouncedlocalmeasuresasallofthemhaveregisteredmorethan20%y-o-ygrowthinhomepricesinOct.NanjingandXiamen,whichsawhighery-o-ypricegrowths(15.3%and16.9%respectively),mayfollowsuittofulfilltheirpromisestomaintainpropertypricegrowthbelowlocaldisposableincomegrowth.
Propertysalesfellonslowlaunchesandtighteningpolicies/credit.Therewere7launcheslastweekinTierIcities,offeringatotalof1,716units.Averagesales-throughrateimprovedto75%.Therewere14launches(3,059units)inmajorTierIIcitieswithaveragesales-throughrateincreasingto64%.Lastweek,salesvolumesdeclined16%/10%/-8%w-o-winmajorTierI/II/IIIcities,whileASPsrose-2%/3%/3%respectively.YTDsalesvolumeswentup16%/26%/42%inmajorTierI/II/IIIcities.Meanwhile,ASProse15%/4%/8%respectively.
Focusonreputabledevelopers.Thesectorisnowtradingat6.3xFY14PE,0.9xP/BVand49%discounttoNAV(vs.itshistoricalaverageof10x/1.2x/37%).Whilecentralgovernmentispromotinga“marketdriven”economy,theexistingtighteningpolicyislikelytostayandthelocaltighteningislikelytocontinuebeforeanoptimalsupplyanddemanddynamics.Inviewofthis,werecommendthatinvestorstofocusondevelopers’fundamentalsandsustainability.OurtoppicksareCOLI,CRLand,CountryGarden,COGOandFranshion.