Projectoftheweek:Vanke–DongguanJinyuInternational.WerecentlyvisitedVanke’s(000002/200002.CH,Not-rated)projectinDongguan,Guangdong.Itisaresidentialandcommercialcomplexprojectwithitsresidentialproducttargetingfirsthomebuyersandupgraders.TheprojectwasinitiallylaunchedinAug2012,andhassold1,700units(outof2,000units)byend-Aug2013.ItistargetingRmb1bnpresalesin2013,basedonsaleableresourcesofRmb1bn,includingstreetshopstobelaunchedinOct.Sofar,cumulativesalesamounttoRmb680m,lockingin68%ofthefullyeartarget.ASPhasrisenfromRmb6.8k/smin2012toRmb9.5k/smnow,partlydrivenbyrisinglandpricesinDongguan.BasedonanASPofRmb9.5k/sm,theprojectshoulddeliverdecentgrossmarginandnetmargin,estimatedtobe30%and14%respectively.
Policyupdate:Liquiditytightenedearlierthanusual.ItwasreportedthatanumberofbanksinseveralkeyTierI/IIcitieshavesuspendedorsignificantlycutmortgageloans,especiallytosecond-handhouses.ThisismainlyduetoexhaustingmortgageloanquotasafterroaringdemandofmortgageloansYTD.Weexpectthetightliquiditytocontinuethroughouttherestoftheyear,whicharelikelytoaffect4Qsales.Developerswitharelativelylowlock-inratesuchasBeijingCapitalLand,Powerlong,Agile,Glorious,Fantasia,andHopsonarefacingchallengestomeettheirfullyearsalestargets.
Propertysales:Salesdeclinedonholidayeffect.Therewere13launcheslastweekinTierIcities,offeringatotalof3,603units.Averagesales-throughrateimprovedto70%.Therewere26launches(5,840units)inmajorTierIIcitieswithaveragesales-throughrateimprovingto68%.Lastweek,salesvolumefell24%/13%w-o-winmajorTierI/IIcities,whilerising2%inmajorTierIIIcities.ASPfell3%w-o-winmajorTierI/II/IIIcities.InthefirstthreeweeksofSep,salesvolumegrew17%/4%/-3%m-o-minmajorTierI/II/IIIcities,whileASPgrew7%/5%/1%.YTDvolumesalesgrew17%/27%/42%y-o-yinmajorTierI/II/IIIcities.
Focusonqualitynames.Thesectorisnowtradingat6.5xFY14PE,0.9xP/BVand49%discounttoNAV(vs.itshistoricalaverageof10x/1.2x/37%).Weexpectthesectortorangetradeasitlacksastrongnear-termcatalyst.Withinconsistentpolicynoises,werecommendinvestorstofocusmoreondevelopers’fundamentals.OurtoppicksareCOLI,COGOandCountryGarden.