Projectoftheweek:Evergrande(3333HK,BUY)–EvergrandeOasisLanzhou.WerecentlyvisitedEvergrande’sOasisprojectinLanzhou.FirstphaseoftheprojectwaslaunchedinNov-2013atASPRmb6.8k/smwhichwassimilartocomparableprojectsnearbyiftakingoutfittingcosts.Targetingmainlyend-users,theprojectofferedmainly90-100smunitsandwaswellreceivedbymarket.Itfetchedinc.Rmb730msalesin2013.AsthesalesofPh1isalmostcompleted,managementplanstolaunchPh2inSeptandexpectsittocontributec.Rmb2bnthisyear.Weexpecttheprojecttodelivergross/netmarginsof12%/5%.
Policyupdate:YangzhouloosensHPFmortgagerequirements.DuetothelimitedfundsavailableundertheHPFlastyear,theYangzhougovernmenttighteneditsHPFmortgagerequirementsinApr-2013by:(1)DisallowingbuyersfromutilisingHPFfordownpaymentsandmortgageloansatthesametime,meaningbuyerswhoobtainanHPFmortgagemaynotusetheHPFfordownpayment;(2)SuspendingtheswappingofcommercialmortgageloansintoHPFmortgages;and(3)SuspendingHPFapplicationforbuyersofhousesoutsidethecitytowhichbuyerscontributedHPFfund.Effectivefrom20-May,theYangzhougovernmenthaspartlylooseneditsrestrictionstoallowbuyerstouseHPFforbothdownpaymentsandmortgages.WebelievethisrelaxationofHPFusagewouldlightenhomebuyers’upfrontburdenandsupportdemandintheendusermarket.
Propertysales:Salesdroppedslightlyw-o-w.InTierIcities,16projectswerelaunched(2,090units,-2.5%w-o-w)withsellthroughratereaching72%whileinmajorTierIIcities,therewere20launches(3,904units,+4.5%w-o-w)withsell-throughrate54%.Lastweek,salesvolumesmovedby-16%/9%/-14%w-o-winmajorTierI/II/IIIcities.ASPsinTier1citiesweredownslightlyby1%w-o-wwhileASPinmajorTierII/IIIcitieswereupby0%/5%.
ForthefirstthreeweeksofMay,salesvolumespickedupby27%/29%/25%m-o-minmajorTierI/II/IIIcities,whileASPsmovedby2%/-3%/3%.Meanwhile,20W2014salesvolumeforthe51citieswetrackhavedeclined18%y-o-y.
Policylooseningatlocalleveltosupportsectorperformance.Thesectorisnowtradingat5.3xFY14PEand0.6xP/BV(vs.2011troughsof4xand0.5xrespectively).Althoughnationwidelooseningisnotlikelyinthenearterm,weexpectbankstooffermoresupporttofirsthomepurchasesandlocallooseningtocontinue,whichshouldsupportsharepriceperformance.Wesuggestthatinvestorsselectivelyaddpositionsintothesector.WelikeCOLI(688HK),COGO(81HK),CountryGarden(2007HK)andShimao(813HK).