Event: on January 20, 2022, the people’s Bank of China authorized the national interbank lending center to announce the quoted interest rate of the loan market: the one-year LPR was 3.7%, a decrease of 10bp compared with the previous period, and the LPR over five years was 4.6%, a decrease of 5bp compared with the previous period.
Key investment points
The central bank cut reserve requirements and interest rates one after another to hedge the downside risks of the industry: 1) on December 15, 2021, the central bank announced a comprehensive reduction of reserve requirements by 0.5pct, releasing long-term funds of RMB 1.2 trillion, and the one-year LPR was reduced by 5bp on December 20; 2) On January 17, 2022, the MLF and reverse repo rates were cut by 10bp more than expected, leading to the simultaneous reduction of 10bp and 5bp in one-year and five-year LPR on January 20. We believe that the policy combination of this round of reserve requirement reduction and interest rate reduction highlights the initiative requirements of “adequacy”, “accuracy” and “ahead” of monetary policy. Under the background of pressure on both ends of market supply and demand and tight funds in place in the industry, it can effectively stabilize market expectations, hedge the downward risk of the industry and prevent the slowdown of sales.
After the historical reduction of reserve requirements and interest rates, real estate sales recovered and the stock price of the sector realized excess returns: according to the historical data, the four comprehensive reduction of reserve requirements and interest rates in October 2008, November 2011, February 2015 and January 2020 effectively stimulated the recovery of real estate sales, and the year-on-year growth rate of commercial housing sales area recorded a significant increase, and the duration was relatively long. The impact of RRR and interest rate cuts on the secondary real estate market is also positive. After several RRR cuts, the real estate sector index rebounded significantly, and the income performance is better than the overall market.
The mortgage interest rate continued to decrease and promote the repair of the market demand side: since the central government corrected the policy deviation in September 2021, the mortgage interest rate in key cities began to decrease: according to the statistics of the shell Research Institute, as of January 22, the first mortgage interest rate and the second mortgage interest rate in key cities were 5.56% and 5.84%, both significantly lower than the 21-year high, and the lending cycle was shortened. We believe that the decline of LPR over 5 years directly linked to the mortgage interest rate is expected to guide the continued reduction of the mortgage interest rate, and the industry fundamentals are expected to accelerate the bottom under the improvement of the credit environment.
The interest rate cut reduces the cost of corporate financing and residents’ liabilities, which is conducive to stimulating the recovery of consumption: we believe that the decline of comprehensive financing cost of enterprises can improve the profitability of enterprises, so as to increase the disposable income of residents, while the decline of house purchase cost is conducive to releasing the purchasing power of residents and stimulating the recovery of consumption. We believe that the interest rate cut is conducive to improving the business indicators of business management enterprises (such as daily average passenger flow and sales).
Investment suggestion: with the continuous statement of the central bank and the substantial decline of financing costs, we believe that it is a foregone conclusion that the industry’s capital level will continue to improve, and it is worth looking forward to the accelerated bottom building of fundamentals. The beta market will continue, and the industry’s valuation will be repaired and upgraded step by step. It is recommended to pay attention to:
1) subject matter after valuation and repair rotation: A shares – Seazen Holdings Co.Ltd(601155) , Jinke Property Group Co.Ltd(000656) ; H shares – Xuhui holdings and Baolong real estate, undervalued value + confidence repair = elasticity.
2) in addition, the valuation repair of comprehensive high credit real estate enterprises continues: A shares – Poly Developments And Holdings Group Co.Ltd(600048) , China Vanke Co.Ltd(000002) , Gemdale Corporation(600383) ; H shares – China overseas development, China Resources Land and Longhu group. With the gradual resolution of the risks of real estate enterprises and the subsequent recovery of consumption, the valuation of business management standard is expected to be repaired. It is suggested to pay attention to China Resources Vientiane life and Baolong business.
Risk tip: the demand for repair is less than expected, and the decontamination and payment collection of real estate enterprises are weak.
