中国地产业：做大市场、小市场或者回家.docx

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1、Table of ContentsRecommendations3Time to extend risk horizon3Prefer large or cluster players3Selectively seek yield on BB and B3Top picks and avoids3Rating Changes4Rank scoring9Financial scorecard9Business scorecard10Valuations16Valuations back near historical average16Offers value relative to EM an

2、d US HY16Sector overview18Recent performance18New supply has surged in 201919A sizeable part of Asia credit19China housing market21Demand remains healthy21Structural demand remains intact22Development of city clusters is a big driver22Some consolidation in 2H but downside cushioned by policy put23Re

3、gulatory framework25Prudent policy calibration25Deliberate industry consolidation25Onshore credit environment26Access to offshore credits28Onshore offshore market dynamic29Key risks31Industry cyclicality compounded by frequent regulatory changes31Refinancing risks31Onshore demand and supply risk31De

4、fault rates to pick up32Companies35Rank12345678910111213141516171819202122232425262728293031323334353637383940Table 4: Developer ranking in city exposureCityShenzhen1%0%3%0%k.GuanqzfoYuzhouShimaoSino-Oci匹 o0%e M 工1%3U)0%(/) 3 E0%11%W c0%0%4%4%Changsha2%1%1%1%0%0%1%0%4%0%3%9%1%2%3%Wuhan2%1%2%4%0%4%5%

5、4%| 8%2%1%0%0%2%1%Guangzhou0%1%3%2%3%0%4%2%0%22%3%12%5%1%0%Hangzhou0%0%3%2%1%4% I2%2%8%2%1%0%0%5%1%Suzhou0%2%2%1%0%8%1%1%3%3%0%0%2%2%6%Nanjing0%0%2%1%0%| 8%3%2%2%0%1%0%1%3%2%Wuxi1%1%2%3%1%0%2%1%2%1%1%0%0%2%0%Sanya0%0%0%0%0%0%0%2%0%0%0%0%0%0%0%Chengdu4%0%4%5%0%0%2%2%1%8%2%0%3%6%3%Beijing2%0%2%0%2%0%3

6、%14%2%4%0%0%1%2%0%Hefei1%0%2%2%0%10%1%0%6%2%0%0%0%1%2%Shanghai0%0%3%2%1%| 4%1%2%| 3%3%1%0%0%2%1%Guiyang3%1%2%1%2%0%0%0%0%0%0%0%0%4%0%Nanchang1%0%1%2%1%0%1%1%0%0%0%0%0%0%1%Xian1%0%6%3%1%0%1%0%2%0%2%0%0%2%2%Nanning0%0%3%1%0%0%0%0%0%7%0%0%2%0%0%Zhengzhou1%1%3%2%1%1%1%1%1%0%1%0%1%0%1%Xiamen0%0%1%0%0%7%2

7、%0%0%0%0%0%0%1%0%Qingdao1%0%3%8%0%0%2%1%4%0%0%0%1%4%4%Beihai0%0%0%1%0%0%0%0%0%0%0%0%0%0%0%Ningbo1%0%2%1%1%0%3%0%2%0%0%0%1%2%2%Fuzhou0%1%1%0%1%2%5%0%0%0%0%0%0%0%0%Yinchuan0%0%0%0%0%0%2%0%0%0%0%0%0%0%0%Dalian0%0%2%2%1%0%11%16%0%0%0%0%0%1%0%Tianjin1%1%2%6%5%9%2%19%3%6%1%0%0%2%2%Lanzhou1%0%0%0%0%0%0%0%0

8、%0%0%0%0%0%0%Jinan1%0%3%6%0%0%3%0%2%1%1%0%0%5%2%Urumqi0%0%1%1%2%0%0%0%0%0%0%0%0%0%0%Shenyang2%1%3%1%1%11%3%2%6%0%2%0%5%4%0%Kunming1%0%2%3%0%0%0%1%0%0%0%0%1%1%3%Haikou0%0%0%1%0%0%0%0%0%0%1%0%0%0%0%Taiyuan1%0%2%1%6%0%0%0%0%0%0%0%0%0%0%Chongqing4%1%4%11%7%4%3%3%14%3%2%0%4%18%3%Xining0%0%0%0%0%0%0%0%0%0

9、%0%0%0%0%0%Harbin1%0%0%2%2%0%0%0%0%0%0%0%0%0%0%Changchun1%0%2%0%0%0%2%1%0%0%0%0%0%0%1%Wenzhou1%0%1%0%1%0%1%0%2%1%0%0%0%0%0%Hohhot0%0%0%0%1%0%0%0%0%0%0%0%0%0%0%Shijiazhuang1%0%0%0%二0%0%0%0%0%0%0%0%0%0%Top 10 Total10%7%|22%20%6%24%24%20%29%39% I12% 20% 12%24%17%Top 20 Total!20%11%47% 41%13%48% 36%40%4

10、7%55% I17%20%17%42%27%Source: J.P. Morgan Equity Research.Agile Central China CIFICountry Future Land Greenland Greentown Guangzhou Logan Shimao Yuzhou GardenHoldingsR&F 2017 12018 2017 2018Source: Company; J.P. Morgan.Figure 7: EBITDA/lnterest expenses: BB-rated - 2017-18Figure 9: Cash/Short-term d

11、ebt: BB-rated - 2017-18Agile Central China Cl?2% 255%266% 245%BCountryGarden195%18O%So血叫y;J.P. MorganYuzhouR&F81% 86%157%140%135。”%Future Land Greenland Greentown Guangzhou69% 38%165%93%Loy% Shimao 232%Holdings 248%217哪就ebt/TotaTequityrbB-Tated -2bl7-f-igure10:NeFigure 11: Net debt / (Contracted sal

12、es x EBITDA margin): BB-rated - 2017-18Figure 12: Contracted Sales (in RMB bn): BB-rated - 2017-18China B-rated developersFigure 13: EBITDA margin: B-rated - 2017-18Figure 14: Net debVEBITDA: B-rated - 2017-18Figure 15: EBITDA/lnterest expenses: B-rated - 2017-18Figure 17: Cash/Short-term debt: B-ra

13、ted - 2017-181048%Powerlong Sunac96% 114%87% 83%Powerlong Sunac312%Times Property 320%Times Property235%Figure 20: Contracted Sales (in RMB bn): B-rated - 2017-18China SCE Evergra 哂 FantasiaKaisaKWGPowerlong501 八Sunac Times Property461ValuationsValuations back near historical averageValuations are h

14、overing near historical average. The strong rally since the end of 2018 has pushed valuations for the sector closer to its historical average since 2014. The sector is currently offering 8.22%ytw (z+640bp), which is still wider than historical average since 2014 at 7.87% (z+604). Instead of longer h

15、istorical horizon, we have used data since 2014 as comparison largely in recognition of the changing investor base over the past few years. In our view, valuations do not look extremely stretched as was the case in late 2017.Figure 21: China HY property - YTW and Z-spreadIn %ytw and bpSource: J.P. M

16、organ.Offers value relative to EM and US HYThe sector still offers good pick-up over global HY comps. The China property sector is still offering 113bp spread pick-up over Asia HY corporates. Such level is also slightly wider than historical average of 102bp since 2014. The sector is also offering c

17、lose to 176bp spread pick-up over the CEMBI Broad HY against historical average at 84bp since 2014. Another comp is US HY. Relative to their similar rated peers in the US, the China BB property bonds are offering close to 188bp spread pick-up and single-B 142bp spread pick-up.Figure 22: China HY pro

18、perty bonds are offering 117bp spread pick-up over Asia HYZ-spread in bpSource: J.P. Morgan.Figure 23: China HY property bonds offer 176bp spread pick-up over CEMBI HYZ-spread in bpDifference CN Prop HY Spread CEMBI Broad HY Spread AverageSource: J.P. Morgan.Figure 24: China double-B property bonds

19、offer close to 200bp spreads pick-up over US BBZ-spread in bpSource: J.P. Morgan.Z-spread in bp1,100900700500300100(100)(300)Difference 1 CN Prop B Spread 1 US B Spread 1 AverageSource: J.P. Morgan.Sector overviewRecent performanceThe China property sector has been relatively resilient. The sector h

20、as chalked up 12% total return YTD, making it the best performing HY sector in Asia if not globally. The strong performance has more than recouped 2% losses suffered in 2018. While the rally has stalled somewhat since May when US-China trade tension escalated, the sector has held its ground relative

21、ly well and effectively just moved sideways. We believe that such resilience is not reflective of some market complacency, but rather a reflection of the sector fundamentals and technicals.Figure 26: China HY has outperformed its peersCumulative total return since Jan 2014Source: J.P. Morgan.We reco

22、gnize that fundamentals for the sector would feel some downward pressure, but also see some cushions to the downside. The physical housing market is cyclical in nature and is thus sensitive to slower economic growth. Moreover, Chinese developers are also exposed to currency risk given most have size

23、able unhedged USD debts on their balance sheet, and stronger USD would lead to higher financial burden. The mitigating factors are that there are plenty of rooms to maneuver for the government to support the housing market on the policy front, and we are not expecting some major depreciation in RMB

24、that would make their USD debt burden intolerable for developers.More importantly, strong technicals have provided some cushions to downward pressure on fundamentals for the sector. Improved onshore liquidity due to monetary easing started toward the end of last year has led to increased onshore dem

25、and for China USD bonds, which are offering higher yields than onshore bonds from similar credits. The recent strength of USD vis-a-vis RMB is another icing on the cake for China onshore investors. We believe that such technical support should remain in place given our expectations of more accommoda

26、tive monetary policies and weakening trend for RMB vis-a-vis USD.New supply has surged in 2019Issuance spiked in an overall supporting environment. Tn the offshore market, HY property issuers raised a total of US$47 billion in bond issuance year (YTD till July 19) that has already far exceeded US$33

27、 billion raised for the whole of 2018. Such record issuance is only possible with step-up demand from China onshore investors. In contrast to the credit tightening situation in 2018, onshore financing conditions started to improve towards the end of last year, after the Chinese government decided to

28、 put its structural corporate deleveraging policy on hold. Coinciding with the Fed pivot, the PBoCs move to lower reserve requirements in January 2019 also helped to release liquidity into Chinas financial system.Figure 27: Cumulative issuance of China HY prop-2017 -2018 -2019Source: J.P. MorganA si

29、zeable part of Asia creditThe sector has grown in importance. Currently, the JACI index encompasses US$111 billion of outstanding bonds issued by Chinese property developers with an index weight of 11.2%. Out of which, HY accounted for US$80 billion or 8.2% of the JACI and close to half of the JACI

30、HY corporates. The Chinese developers listed on the next page account for 68% of outstanding bonds within the China property sector. On the HY side, the top-5 issuers comprise Evergrande (EVERRE/TIANHL), Country Garden (COGARD), Kaisa (KAISAG), Sunac (SUNAC) and Guangzhou R&F (GZRFPR), representing

31、more than 30% of all China property bonds with inclusion under JACI.Figure 28: China HY property issuers (JACI)US$billion14121086420121086420Source: J.P. Morgan. As of July 26, 2019.Table 5: Top China HY property issuersUS$mmCompany NameEquity TickerBond TickerBond Ratings (Moodys/S&P/JACI)Offshore

32、Bonds (US$mm)SectorWeightSINGLE-B & EQUIVALENT1China Evergrande Group3333 HKEVERREEANHLB2/B/B12,26211.0%2Kaisa Group Holdings Ltd1638 HKKAISAGNR/NR/NR5,3284.8%3Sunac China Holdings Ltd1918 HKSUNACB1/B+/B4,6174.2%4Yuzhou Properties Co Ltd1628 HKYUZHOUB1/NR/B3,4983.2%5KWG Group Holdings Ltd1813 HKKWGP

33、RONR/NR/BB2,6322.4%6Ronshine China Holdings Ltd3301 HKRONXINNR/NR/B2,0841.9%7Times China Holdings Ltd1233 HKTPHLB1/B+/B2,0281.8%8Logan Property Holdings Co Ltd3380 HKLOGPHB1/NR/B2,0021.8%9China Aoyuan Group Ltd3883 HKCAPGB2/B/B1,9881.8%10Fantasia Holdings Group Co Ltd1777 HKFTHDGRB3/NR/B1,8751.7%11S

34、hui On Land Ltd272 HKSHUIONNR/NR/NR1,6431.5%12China SCE Group Holdings Ltd1966 HKCHINSCB2/B/B1,4821.3%13Central China Real Estate Ltd832 HKCENCHIB1/NR/B1,2351.1%14Powerlong Real Estate Holdings1238 HKPWRLNGB2/B/B5510.5%Group Total43,22538.9%DOULBE-B & HIGHER GRADE1Country Garden Holdings Co Ltd2007

35、HKCOGARDNR/NR/BBB7,5996.8%2Guangzhou R&F Properties Co Lt2777 HKGZRFPRNR/NR/BB3,9893.6%3Shimao Property Holdings Ltd813 HKSHIMAONR/BB/BB3,4603.1%4China Fortune Land Development600340 CHCHFOTNNR/NR/BB2,9812.7%5Greenland Holding Group Co Ltd600606 CHGRNLGRBa2/NR/BB2,7962.5%6Agile Group Holdings Ltd338

36、3 HKAGILEBa3/BB/BB2,6162.4%7CIFI Holdings Group Co Ltd884 HKCIFIHGNR/BB-/BB2,5612.3%8Greentown China Holdings Ltd3900 HKGRNCHBa3/NR/BB1,9151.7%9Road King Infrastructure Ltd1098 HKROADKGBa3/BB-/BB1,4901.3%10Longfor Group Holdings Ltd.960 HKLNGFORNR/NR/BBB1,2791.2%11Future Land Development Holdings103

37、0 HKFUTLAN/FTLNHDBa2/NR/BB1,5931.4%Group Total32,28029.1%Top 2575,50468.0%Source: J.P. Morgan. As of July 26,2019.RecommendationsTime to extend risk horizonThe short-end of the curve is becoming too crowded and offers less-than-optimal risk-reward relationship in our view. The credit curve remains s

38、teep and even steeper for single-B rated issuers, with as much as 50bp in yield pick-up for each year of duration extension. Given expectation of lower interest rates globally, we believe that onshore regulators would have more policy room to cushion downside risks for the sector, which has been sub

39、ject to price caps and other home purchase restrictions to cool off demand arising from top tier cities. As fundamentals remain sound, we remain comfortable, perhaps more so than before, to extend investment horizon to the longer 3-5 year bonds. We expect market technicals to remain marginally on th

40、e soft side in the near term as developers look to fully utilize their approved quota before the change in policy stance, which would effectively limit bond issuance for refinancing only, starts to moderate supply somewhat in the later part of the year. We view the primary market as one way for inve

41、stors to pick up some alpha given near-term trend of issuers offering new issue premium, and also to buy on dip in the secondary market for bonds that are initially priced on tight valuations.Prefer large or cluster playersExcept for their net leverage, the top HY property issuers have largely simil

42、ar EBITDA margins of 20% and short-term debt coverage of 1.7x. For selected issuers, risks of high net leverage are mitigated somewhat by their high liquidity buffers. Overall, we believe there are two major investment themes for the China HY property sector: 1) established developers such as Evergrande and Sunac would continue to perform well albeit at a slower growth pace, as they benefit from scale of operation as well as better access to credit; 2)