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OurchannelchecksforChinadevelopersunderourcoverageshowthatAprilpresalesfiguresshouldbequitemixed,withsomedeveloperslikelytopostaMoMdropwhileothersanincrease.WebelieveJuneshouldbethepeaklaunchperiodin2Qforthestockswecoverwithstrongcontractsalestoberecorded.Mostdevelopersexpecttheir2Qcontractsalestoexceed1Q’sandweexpectbyJune,ourcoverage’saveragelock-inratiovstheirfull-yeartargetstobe40-45%.WebelieveShimao,COLI,andYuexiuPropshouldhaveespeciallygood2Qcontractsalesfigures,giventhattheytargettoachieve50%ormoreoftheirsalesin1H.Havingsaidthat,Shimao'scontractsalesguidanceisquitetransparentwithestimatedCNY28bfor2Q;hencethepotentialupsidesurpriseonCOLIandYuexiumightbebetter,inourview.LongforandCRLandwouldhavelotsofcatchinguptodoin2Qiftheywanttoachieve40-45%oftheirfullyearsalesby1H14,giventheirlackluster1Qfigures.WeexpectSino-Ocean,however,toachieveoneofthelowestlock-inratiosamongourcoveragebyJune,atestimatedonlyaround33%ofitsfullyearsalestarget.
WealsocompareChinadevelopers’1Q14propertysalesASP,whichonaveragerose4.8%YoY.ButthereweremixedresultswithcompanieslikeYuexiuProp,CRL,andKWGpostingover13%YoYdropinpresalesASPover1Q14,whilepeerslikeGZR&F,Cifi,Sunac,andCOLIpostingatleast15%YoYriseincontractsalesASP.
MaintainOverweightonthesector,whichtradesata53%discounttoNAV,5.8x2014PER,and0.73x2014P/B.AlthoughFujiangovernmentwassaidtodenylooseningmeasuresforproperty,webelievetherewouldbesupportivemeasuresmid-yearor3Qfromsomelocalgovernments.ThisisbecausetherewillbelikelybemorepricecutsoverthesefewmonthsandweakChinamacro-economicdatapoints,whichtendtoleadtoeithersomelooseninginmeasuresand/ortheirimplementation.Butwebelievethepropertypolicywillbedualstance,withnolooseninglikelyonTier1citiesnoronkeyTier2citieswhichareseeinggoodpricegrowth.