The market has entered the “double drop range” in the four quadrants of Haitong. According to the previous judgment, once the industry enters this range, the policy begins to grow comprehensively and steadily. The current market trend is consistent with our expectations.
How to accurately force the policies in the later stage: the combination of supply and demand.
1) what is real estate demand side regulation. The policy directly reduces residents’ leverage, resulting in a decline in purchasing power, but does not limit developers’ leverage and sources of funds. Demand side regulation is easy in the later stage of the policy. Due to the excessive market inventory, the management passively gives up the early policy objectives. Once the demand is stimulated again, it is essentially encouraging enterprises to increase leverage against the cycle, and finally the game policy turns. The above process occurred repeatedly in the regulation and control over the past years, which also led to large market price fluctuations, higher and higher enterprise leverage, and it was difficult for the government to maintain its concentration in the regulation and control.
2) what is real estate supply side regulation. The policy side first compresses the enterprise leverage, resulting in the limitation of developers’ funds. In the initial stage of regulation and control, enterprises mainly reduce production capacity, but in the later stage, they take the initiative to reduce prices and reduce inventories. In the later stage, if the growth rate of real estate investment drops too fast, it will affect the economic growth and correspondingly reduce the residents’ income expectation and consumption ability, so as to further reduce the demand. The biggest difference between supply side reform and demand side reform is that the result of supply side reform will not bring high inventory.
Judgment of policy trend in the later stage: 1) first “strengthen the supply side and stabilize the demand side”. Considering that the effect of supply side reform is low inventory, if the demand side is directly and comprehensively stimulated in the short term, house prices will rise passively again due to insufficient market supply in the later stage. Therefore, we judge that the 1H market in 2022 will first stabilize the market purchasing power by optimizing credit means, and control the land price to ensure the stability of the 1H land primary signboard market in 2022.
At the same time, we will strengthen the promotion of M & a business to ensure that the projects shut down due to financial pressure in 2h in 2021 can return to work and production to a greater extent under the promotion of M & A. At the same time, due to the city’s implementation of policies to promote market sales and ensure that the operating cash flow of enterprises remains at a normal level. The overall debt of the industry remained optimized, and the risk events were further reduced.
2) after “strong supply side, strong demand side”. After the first stage has achieved some results, which can at least ensure that there will be no large inventory shortage in the 2H market in 2022, the policy will start to try to moderately increase the stimulation of the demand side and promote economic vitality. Its purpose is to stabilize the economy and ensure reasonable housing demand. At the same time, it is also more conducive to resolving the early debt problem in the real estate market.
Under the background of both supply and demand, the optimization of industry competition pattern is the trend. We start from 1) the change of land profit space; 2) Collect M & a market space; 3) Carry out quantitative and qualitative analysis on the industry in three aspects of long-term capacity clearing. We believe that as the “combination of supply and demand” model promotes the optimization of the industry competition pattern, high-quality real estate enterprises that can withstand the test of the market will gain more development space and profit margin improvement potential.
Valuation and investment advice. On February 24, 2022, the dynamic PE of A-share CSI 300 index in 2021 was 13.20 times, and that of real estate sector in 2021 was 10.21 times. We believe that according to the upward logical order of the industry [policy bottom > valuation bottom > fundamentals bottom], the policy bottom has been gradually clear in the second half of 2021.
We believe that this round of regulation adopts the mode of “combination of supply and demand”, which is essentially conducive to the improvement of industry competition pattern.
In the future, the brand and operation of real estate enterprises will become the key, and enterprises will seek balanced development. After this round of adjustment, the number of enterprises engaged, long-term leverage management of the market and operating dividends will be significantly improved. Maintain the rating of “better than the big market”.
Risk tip: the industry faces the risk that the policy is less than expected and the fundamental downside risk.
