CSRC announced on 19 April that China and Hong Kong REITs will be included in Stock Connect. In the short term, we believe investors will find H-REITs attractive, considering the quality of underlying assets and liquidity of the stocks. Please find an updated list of C-REITs and H-REITs in this report. Maintain MARKET WEIGHT on Hong Kong’s and China’s property sectors. Maintain BUY on LINK REIT, which is trading at an 2025 yield of 8%.
CCL Index fell after increasing for three consecutive weeks while CVI Index rose over 60, reflecting a change in banks' attitude towards granting mortgages from lukewarm to optimistic. CRI rose again by 0.55% mom. With expectation of fewer interest cuts, we foresee primary sales pulling back in 2Q24. However, we maintain our forecast of property prices (-2%) and maintain MARKET WEIGHT on the sector. We prefer retail landlords over developers. Top pick: Wharf REIC.
In Shanghai, the new home market shrank further with divergence among regions; the secondary market saw volume rebound with a weak ASP performance. In Hong Kong, sales performance is still divergent among developers despite new home transactions growing by nearly 15x mom in Mar 23, reflecting a mild recovery of market sentiment. Maintain MARKET WEIGHT. Top picks: CR Land, COLI, SHKP and LINK REIT.
New-home sales in 50 core mainland cities weakened further in the second week of March. Second-hand home sales in Beijing/Shanghai/Guangzhou/Shenzhen are picking up while transaction volume was still lower yoy in Jan-Feb 24. Hong Kong property sales volume continues to surge. However, home buyers are still very picky and sensitive to pricing. Maintain MARKET WEIGHT on the China and Hong Kong property sector. Expect attitudes toward POE and quasi-SOE developers to improve in the near term.
Wharf REIC’s 2023 UNP decreased 2.7% yoy. Total DPS fell 2.3% to HK$1.28. Net gearing ratio dropped further to 18.6% as of Dec 23. Looking forward, the expansion of IVS and further recovery of tourism should support Wharf REIC’s retail growth. Debt reduction will see a full-year cost saving effect in 2024. We expect Wharf to see UNP growth in 2024. Upgrade to BUY with a higher target price of HK$31.20.
KEY HIGHLIGHTS Economics Trade Better exports on improving global manufacturing new orders. Sector Automobile Weekly: PEV insurance registrations rebound 19% in the week ending 3 Mar 24. Maintain UNDERWEIGHT. Top SELLs: XPeng. Top BUY: CATL, Tuopu and Desay SV. Initiate Coverage ASMPT (522 HK/BUY/HK$95.95/Target: HK$115.00) Advanced packaging giant emerging as a major AI play. Results Wharf Real Estate Investment Co. (1997 HK/BUY/HK$26.20/Target: HK$31.20) 2023: Effective debt reduction; ...
GREATER CHINA Economics Trade: Better exports on improving global manufacturing new orders. Sector Automobile: Weekly: PEV insurance registrations rebound 19% in the week ending 3 Mar 24. Maintain UNDERWEIGHT. Top SELLs: XPeng. Top BUY: CATL, Tuopu and Desay SV. Initiate Coverage ASMPT (522 HK/BUY/ HK$95.95/Target: HK$115.00): Advanced packaging giant emerging as a major AI play. Results Wharf Real Estate Investment Co. (1997 HK/BUY/HK$26.20/Target: HK$31.20): 2023: Effective debt reduction; vis...
The 2024 NPC meeting gave little evidence of strong policy support to the property sector. New-home sales in 50 core mainland cities remain weak. Second-hand home sales in Beijing/Shanghai/Guangzhou/Shenzhen are picking up. Hong Kong saw a very strong rebound in new-home sales after the 2024 Budget Speech. Maintain MARKET WEIGHT on the China and Hong Kong property sector. Expect a continuous sales recovery to drive the re-rating of Hong Kong developers.
Financial Secretary Paul Chan delivered the 2024-25 Budget speech in the morning, announcing the removal of all cooling measures (BSD, NRSD and SSD) on property transactions. HKMA also eased countercyclical macroprudential measures for mortgage loans. Overall, in the near term, we expect a strong rebound of transactions to help the stabilisation of property price. Upgrade sector to MARKET WEIGHT on higher transaction volume and better liquidity for developers. Top pick: SHKP.
The CCL index stabilised in Jan 24. Transaction volumes are hovering at a low level but we expect more project launches after the Chinese New Year. Our recent channel checks revealed poor implementation of the easing of property measures for non-PR homebuyers. Rising rental yield may provide some downside protection to property prices. Maintain UNDERWEIGHT. SHKP and LINKREIT remain our top picks for their defensiveness.
The CCL index declined 6.1% in 2023, while the CVI index has been staying below 20 since Sep 23. In Jan 24, secondary transactions of 10 major real estates went up 10.8% mom (Dec 23: +9.8% mom). The sustainability of sales recovery needs to be monitored. With higher-than-expected fiscal deficits for 2023-24, the upcoming Budget speech will be a key focus in the near term. With a historically high inventory level, property prices remain under pressure. Maintain UNDERWEIGHT.
In 11M23, Hong Kong’s tourist arrivals and retail sales reached 51.3% and 84.1% of 11M18 levels. However, it will be quite challenging to achieve further recovery. For 2024, we estimate 15% yoy growth in tourist arrivals and 2% yoy growth in retail sales. Office landlords are facing long-term pressure of cap rate expansion. Maintain UNDERWEIGHT on the property sector. LINK REIT is our top pick. We lower our target prices for Wharf REIC and Hysan in view of lower underlying net profit and DPS est...
With negative carry of property investment and outflow of tourists, we expect developers and landlords to continue facing multiple challenges in 1H24. Given the weaker-than-expected property market recovery after the 2023 Policy Address, we downgrade the sector to UNDERWEIGHT. We cut target prices of SHKP, NWD, Wharf REIC and Hysan. LINK REIT and SHKP remain our top picks.
We have a neutral view on the policies related to the stock market and we expect a short-term rebound in ADT but sustained recovery will still depend on China’s macro development and US monetary policy. For the property sector, the relaxation of demandside management measures is within expectation. However, combining the aggressive land supply plan and weak population policy, the overall impact on the property industry is natural to negative. Sales need to be closely watched.
With Paul Chan softening his tone, when/how to ease cooling measures on non-PR buyers again becomes a market focus. We expect the government to marginally relax BSD/NRSD rules in the 2023 Policy Address. However, it may still be a bit too early to bet on the complete removal of cooling measures, as: a) the CCL index is still flat ytd, and b) Hong Kong has a very large pool of non-PR talents waiting to apply for PR a
Wharf REIC’s 1H23 underlying profit fell 9.3% yoy, Revenue growth and margin improvement were offset by a sharp increase in interest expense. Although sales recovery at HC/TS slightly fell behind the Hong Kong market, we are positive on the company’s continuous margin improvement and effective debt management. Management remains prudent for 2H23. Maintain HOLD with a lower target price of HK$40.30. End of rate hike will be a strong catalyst.
KEY HIGHLIGHTS Strategy Small-Mid Cap Biweekly Eyeing further consumption stimulus; beneficiaries: Haitian International, Moon Environment Technology. Sector Commodities Weekly: Awaiting more clarity on stimulus measures. Results Q Technology Group (1478 HK/HOLD/HK$3.32/Target: HK$3.80) 1H23: Earnings below profit warning; recovery in sight but still lacking visibility. Wharf Real Estate Investment Co. (1997 HK/HOLD/HK$36.75/Target: HK$40.30) 1H23: A mixed bag of results; stay resilient amid...
GREATER CHINA Strategy Small-Mid Cap Biweekly: Eyeing further consumption stimulus; beneficiaries: Haitian International, Moon Environment Technology. Sector Commodities: Weekly: Awaiting more clarity on stimulus measures. Results Q Technology Group (1478 HK/HOLD/HK$3.32/Target: HK$3.80): 1H23: Earnings below profit warning; recovery in sight but still lacking visibility. Wharf Real Estate Investment Co. (1997 HK/HOLD/HK$36.75/Target: HK$40.30): 1H23: A mixed bag of results; stay resilient amid ...
CCL index stabilised at 166.77 while CVI index fell to 58.88. As the Hong Kong dollar exchange rate moves away from the weak side boundary, the pressure on its short-term rate will be partially eased. Considering the resilience of demand in the primary market, we expect property prices to further stabilise for the rest of 2Q23. For landlords, the retail segment continued to outperform the office segment in 1Q23 (ie opening up). Maintain MARKET WEIGHT. Top picks: SHKP and LINK REIT.
CCL hits new eight-week low. In April, we saw divergent market performance in primary and secondary markets. Besides, the recent price cut (relative to previous batches) is the main fuel for the hot prime home market. We see property prices stabilising, as mortgage borrowing is feeling less pressure from the interest rate hike. We expect a more resilient demand from local consumers than tourists. Maintain MARKET WEIGHT. Top picks: SHKP and LINK REIT.
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