UOB Kay Hian says China property sales have been disappointing
Analysts: Johnson Hu, CFA, and Sylvia Wong
What’s New
Stock market has priced in 20-30% price drop in properties, says UOB KH
Sales continued to slip due to wait-and-see mood. Overall sales in major cities slipped 15% wow and 63% yoy. The primary cities saw sales dropping 70-80% yoy while the central and western region cities- Wuhan, Changsha, Chongqing and Chengdu- outperformed the overall market with sales falling 35-45% yoy.
Listed developers’ sales in May also fell significantly. So far, major listed China property developers reported fairly disappointing sales with average monthly sales dropped 37% m-o-m in May. Poly HK’s contracted sales was relatively resilient with May sales declining only 17% m-o-m and 5M10 contracted sales increasing 40% yoy to Rmb4.2b. Greentown’s contracted sales dropped nearly 70% mom, the worst performer among China property developers.
Clarification on second-home definition in line with our expectation. The recent policy on standardising the second-home definition is stringent. The second-home buyers include:
a) any member of a family already owning a property,
b) individuals having a mortgage no matter paid off or not, and
c) individuals with more than one home in other channel checks.
As most of the banks in major cities have widely applied the above definition on second-home mortgage, the policy is largely in line with our expectation.
But non-local home buyers can get mortgage. The recent policy also made further clarification where non-local buyers without local income tax proof for more than one year can still get a mortgage based on local banks’ discretion on regional market risk and individual’s specific risks. Many had interpreted from the policies released on 17 April that the central government called for the suspension of mortgage for non-local buyers. In our view, the clarification on mortgage for non-local buyers looks more reasonable and sustainable in implementation.
Action
Physical market to correct further, but stock market have priced in an average 20-30% price drop. Due to the consistent wait-and-see moodand sluggish sales, we expect more price cuts by developers in the coming 2-3 months. Nonetheless, we think the current average of a 45% discount to NAV in the sector has priced in a 20-30% decline in housing prices. Maintain MARKET WEIGHT.
CIMB says ‘overweight’ container and dry bulk shipping stocks
Analyst: Raymond Yap, CFA
Bulk shipping may experience weakness in iron ore purchasing in 3Q.
CIMB’s Shipping Monitor returns today after a five-week hiatus during which shipping shares saw significant pressure from a broad market sell-off as fears over the European sovereign debt crisis grew.
In the container sector, share-price movements did not correspond with improving fundamentals. Trans-Pacific (TP) box rates have done very well over the past month, as 2010/11 contract negotiations are successfully wrapped up, while even AE rates moved higher last week, reversing from a consecutive 10-13 week slide.
In contrast, tanker rates did poorly as eastern refinery maintenance peaked and West African output slowed. Capesize bulk rates were very strong in May as Chinese traders imported more iron ore from Australia on expectations of a 25% rise in 3Q contract prices. Other segments were flat m-o-m, as grain cargoes were gradually reduced.
The container shipping and bulk shipping segments will likely have very different fortunes in 3Q. Box rates are likely to rise further as ship capacity remains tight, forward bookings remain robust, and boxes are constantly being rolled. TP carriers are targeting a PSS of US$400/FEU while AE carriers are targeting US$250/TEU.
Carriers may also take advantage of a shortage of container boxes to raise base rates, impose repositioning fees, and other types of surcharges. Bulk shipping, on the other hand, may experience weakness in iron ore purchasing as higher raw material costs and falling steel prices could force mills to reduce output.
Furthermore, the grain season is coming to a close and a four-month Indian monsoon season has just started. Meanwhile, tanker rates should benefit from the US driving season and seasonally higher oil output, while more active hurricane activities in the US Gulf could cause rates to spike.
We are OVERWEIGHT on container and dry bulk shipping, and NEUTRAL on tanker shipping. Our top OUTPERFORM calls are NOL (TP: S$2.50), Pacific Basin (TP:HK$8.15), Precious Shipping (TP: THB23), and BLTA (TP: Rp1,000). Despite the weak 3Q outlook for bulk shipping, recent share-price declines have unearthed longer-term value, in our view.
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