• No sales downtime from CNY
• Strong potential for Greater Bay Area
• KWG Property as our top pick

Brisk Sales in Feb’18 – More So for Some Than Others

February 2018 contracted sales by Chinese developers have been brisk, with those within our peer comparison set registering a 29.8% YoY increase. This is despite Lunar New Year, which typically exerts a dampening effect on sales, being later in February this year.

On a YTD basis, contracted sales has been up 43.2% YoY. Of the stocks under our coverage, KWG Property (1813 HK) has been the clear standout, growing 160.9% YoY in February on the back of better sell-through rates for its Guangzhou and Hainan projects (~85%).

We understand that the slight rise in mortgage rates has not created any notable slow-down in property purchases, as its effects are interestingly mitigated by the existing property sale price caps.

China Evergrande (3333 HK) grew 54.2% YoY, but this was supported by promotional activity, which resulted in a slightly lower ASP of RMB 9,894 psm in February 2018 (-4.1% MoM). Longfor Properties (960 HK) registered mild growth of 6.8% YoY for the month, bringing its YTD growth to 19.7% YoY.

Greater Bay Area Getting Its Share of Limelight

In his recent Budget speech, Mr. Paul Chan (Hong Kong Financial Secretary) touched on developments in the Bay Area, citing the increased convenience that will result from the completion of various transport infrastructure projects. The speech also reaffirmed the bright prospects for the Bay Area, with a large number of cities transforming towards an advanced manufacturing economy, working towards the creation of an international innovation and technology hub.

Separately, during the ‘Two Sessions’ in Mainland China, Premier Li highlighted that China will unveil and implement the development plan for the Greater Bay Area, with the construction of the Hong Kong-ZhuhaiMacau Bridge now completed.

We believe that a robust economic framework with better infrastructure should aid gradual migration of skilled labour into the Bay Area, which in turn should be supportive of property prices. In this regard, we believe KWG Property is again well placed, given that ~33% of its saleable resources are in the Greater Bay Area.

Watch Valuations

Another round of re-rating for Chinese developers could be on the cards as we head into the full-year results season. Firmer sales guidance and earnings assumptions should force valuations back into focus, as the market shrugs off the jitters caused by the fear of earlier-thanexpected implementation of the widelyspeculated property tax.

Our top pick in the sector is KWG Property, which currently trades at a FY18F P/E of 6.2x and P/B of 0.9x, while that of its peers (market-cap weighted average) comes in at 10.1x and 1.66x.

Source: OCBC Research - 15 Mar 2018