Chinese property developers’ stocks could gain as much as 40 per cent this year, Nomura says
Increased profitability and market share are behind the possible gains for companies like China Vanke and Evergrande, even though overall sales could fall, the investment bank says
Shares in Chinese property developers listed in Hong Kong, including major players China Vanke and Evergrande, have room to rise as much as 40 per cent this year, driven by better profitability and increased market share, even though overall sales are likely to decline, according to investment bank Nomura.
National sales volume is expected to fall 5 per cent this year, but big developers can weather sales falls more easily because they can tap bank loans and capital market, meaning they can beat and acquire weaker peers more easily.
“The big ones have advantages in all fronts, financing, land acquisition and talent. The market consolidation since 2016 will only be furthered this year,” said Elly Chen, Nomura’s chief China property analyst, in a Monday conference call.
“When we look at the Hong Kong-listed Chinese developers rated by us, we see a 40 per cent growth prospect for their earnings per share, which means at least a 40 per cent stock price rise if no change in price earnings ratios and no big volatility in the overall stock market,” she said.
Aside from Vanke and Evergrande, companies in Nomura’s coverage include Cifi Holdings, China Resources Land, Country Garden Holdings and Sunac China Holdings.
The comments came after the Hang Seng Mainland Properties Index retreated in the past week from a historic high last Monday. It nearly doubled in 2017 because of a strong recovery in P/E ratios as well as rises in earnings per share and as money from mainland Chinese investors flooded in.