JPMorgan-ChinaHK Property Developers delivery +14 YY in 2023 PS...-105695520.pdf

AsiaPacificEquityResearch03January2024China/HKPropertyDevelopers'delivery+14%Y/Yin2023/PSLrevived/investorfeedbackonLinkREIT,WharfREIC&SHKPChinaPropertyKarlChanAC(852)2800-8513karl.chan@jpmorgan.comBloombergJPMAKCHANJocelynGao(852)2800-8529jocelyn.gao@jpmorgan.comVenusChoi(852)2800-8599venus.choi@jpmorgan.comJ.P.MorganSecurities(AsiaPacific)Limited/J.P.MorganBroking(HongKong)LimitedSeepage20foranalystcertificationandimportantdisclosures,includingnon-USanalystdisclosures.J.P.Morgandoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.www.jpmorganmarkets.comAlthoughthetop100developers’Decembersaleswereweakerthanexpected(moreinourreport),inthepastfewdaysthereweretwomarginallypositivedevelopments:(1)Majordevelopers’homedeliveryin2023endeduptobe+14%Y/Y,andevendistresseddeveloperssawa16%Y/Ygrowth,showingtheimpactofrescuefundsonhomedeliveryisplayingout;and(2)therewasanuptickinthePSLbalanceinDecember2023(Rmb350billion).Whiletheexactusageisnotyetclear,theadditionalfundingcouldpartiallygotoeither“ensuringhomedelivery”(保交房),whichhelpsstabilizehomebuyers’confidence,orurbanvillagerenovation(城中村改造),whichhelpssupportrealestateinvestment(orsalesifcashcompensationisinvolved).Thatsaid,withoutameaningfulpick-upinsales,webelievetheMainlandChinapropertysectormaycontinuetounderperform.Meanwhile,wealsostaycautiousonHongKongpropertywithhomepricescontinuallydropping&nomeaningfulpick-upinoffice&retail.Wecontinuetorecommendthreepairtradeideas:(1)longLinkREIT&shortWharfREIC(link)–moreininvestorfeedback;(2)longCKA&shortNWD(link);(3)longCRLand&shortVanke-H(link).Someprogressin“ensuringhomedelivery”:AccordingtoestimatesfromEHConsulting(note:thedataisnotofficialandthebasismaybedifferentfromcompanies’reporting),majordevelopers’homedelivery(bynumberofunits)rose14%Y/Yonaverage(Table1).Bytype,SOEswere+14%Y/Yandnon-distressedPOEs+4%Y/Y.Interestingly,distresseddeveloperssawanoutperforming16%Y/Ygrowth(althoughthisislikelyduetoalowbase).ThepositiveY/Ygrowthshowstheprogressin“ensuringhomedelivery”,whichhasbeensupportedby(1)deploymentofrescuefundsthroughPSLfunding(Rmb632billionnewlycreatedfromSeptember2022toFebruary2023,althoughnotallwenttohomedelivery);(2)continualassetdisposalsbydistresseddevelopers;and(3)authoritiesimposingmuchstricterescrowaccountrequirements.Implied6%Y/YgrowthincompletionsinDecember2023:The14%Y/Ygrowthinhomedeliveryamongmajordevelopersisnottoofarofffromthe19%Y/Ygrowthinnationalresidentialcompletionsin11M2023asreportedbyNBS(note:Decemberdatahasnotyetbeenreleased).Ifweassumenationalcompletionstoseeasimilar14%Y/Ygrowthforthefullyearof2023,theimpliedY/YgrowthinDecemberwouldbe+6%,whichwouldbeadecelerationfrom+14%Y/YinbothOctoberandNovember.PSLisrevived:Thepledgedsupplementarylending(PSL)balancesawanetincreaseofRmb350billioninDecember2023,whichisthefirsttimesinc