The real estate market is expected to continue. In case of shock or better layout during the performance period from February to March. From February to March, the performance period is about to enter. Due to the high price settlement obtained in 2017-2018 and the depreciation pressure caused by the decline of average sales prices in some cities, we expect the performance of most real estate enterprises to show a year-on-year negative growth. Given that it will take time for the policy relaxation to take effect, the cash flow of real estate enterprises will continue to be under pressure. At that time, it will be the darkest stage before dawn, and the real estate market may fluctuate. However, we expect the industry to continue the upward trend. If there is a shock or a better layout time point
Although the valuation of real estate stocks has rebounded to the historical average, we still have some room to judge the market.
\u3000\u30001. If the real estate industry is cleared in shock, the pressure for steady growth will increase sharply. The evolution order of real estate in 2021 is “gradually stricter policies – downward sales demand – affected new construction and land acquisition – affected enterprise cash flow, great contraction pressure and weak expansion”. Since the introduction of the “three red lines” policy at the end of 2020, in 2021, it has successively introduced the two centralization of bank housing loans, the control of pre financing funds (penetration management of land acquisition funds), the tightening of four restrictions (purchase, loan, sale and price), the adjustment of school district housing policy, the integration of three prices of second-hand housing, etc. In the initial stage, the financing funds of real estate enterprises were blocked, and the demand side gradually declined from May, resulting in the obstruction of cash flow at the operation side. In addition, after the thunderstorm of some real estate enterprises, the control of pre-sale funds has been tightened, and the blocked cash flow is more precarious, resulting in more and more real estate enterprises defaulting. Under the background of steady growth this year, the real estate industry needs regulation, but it can not accept shock clearing.
\u3000\u30002. Industry fundamentals are still at the bottom. The central bank’s statement in October 2021 represents a real policy shift. Then development loans, mortgage loans, new bonds issued by enterprises, relaxation of provident fund loans in some cities and loose regulatory policies for pre-sale funds in some cities continued to be promoted. According to the logic of “three levels of policy, industry fundamentals and enterprise fundamentals”, the fundamentals of the industry are still at the bottom. With reference to the previous regulatory cycle, the current policy intensity still needs to be increased. We still have some room to judge the market.
\u3000\u30003. The demand side has gone through a long-term inflection point. Maintaining the stability of the total amount of real estate may require policy efforts to continue to increase. The contribution of real estate to steady growth is mainly reflected in real estate development investment, that is, land investment, construction investment and the upstream and downstream industrial chain driven by real estate; To achieve the goal of steady growth, the total amount of real estate needs to remain stable without sharp decline. Compared with previous cycles, the current demand side may have passed the inflection point of a long cycle, superimposed with the “lying flat” of some real estate enterprises, the expected change of the demand side and the increase of real estate related unemployment rate, resulting in a slight decline in the total stable volume, which may require more policies
Therefore, we judge that this year’s industry logic is: the policy side continues to be good – the industry fundamentals are bottomed and are expected to rise later – the state-owned enterprises and high-quality private enterprises resume land acquisition, the gross profit margin of land acquisition is repaired, and the policies related to M & A loans open leverage space.
Future repair space for real estate stocks: we believe that the head real estate enterprises are expected to repair to 10xpe.
At the beginning of 2018, the market expected that under the superposition of the relaxation of purchase and loan restrictions, the PE of A-share real estate stocks reached 10xpe. In the stable period of US stock real estate, the enterprise valuation center is about 10xpe. The strength of this round of policies is expected to exceed that in early 2018. We believe that the valuation center of head real estate enterprises is expected to return to 10xpe. In terms of rhythm, in the first stage (policy correction and valuation repair), the valuation center will be repaired to 7-8xpe, and in the second stage (pattern establishment), it will continue to be repaired to 10xpe.
The main reasons for killing the valuation of real estate stocks in the past were 1 The total amount of industry shrinks; 2. The large number of competitive enterprises leads to the decline of gross profit margin and roe. From the perspective of long-term cycle, the shrinking of total sales is the general trend. However, from the perspective of small cycle, after the rapid decline, it will enter a short-term total repair stage. Secondly, due to the rapid clearing speed of the industry in this round, the original long competition process among enterprises has been shortened. After the establishment of the industry competition pattern, the state-owned enterprises and some high-quality private enterprises have resumed land acquisition, and the gross profit margin at the land acquisition end has also begun to be repaired. The remaining high-quality enterprises are expected to maintain the roe level at 10% and above. Therefore, we believe that there are two major factors in this round of market recovery: 1 Favorable policies; 2. Establishment of pattern.
Investment suggestion: the policy is favorable and the direction is clear, so as to maintain the “overweight” rating of the real estate development sector. We believe that according to the three-level logic of “policy – industry fundamentals – enterprise fundamentals”, we believe that the main logic leading the rise is in the enterprise fundamentals. The first-line targets are judged by their performance in 2021, potential performance release ability in 2022 and land acquisition enthusiasm. The second tier target also needs to consider the fundamentals, cash flow and financing security of the city. It is suggested to pay attention to real estate enterprises, including A-Shares Poly Developments And Holdings Group Co.Ltd(600048) , China Merchants Shekou Industrial Zone Holdings Co.Ltd(001979) , Gemdale Corporation(600383) , China Vanke Co.Ltd(000002) , Hangzhou Binjiang Real Estate Group Co.Ltd(002244) , Jinke Property Group Co.Ltd(000656) , Seazen Holdings Co.Ltd(601155) ; H-share China overseas development, China Resources Land, green city China, Longhu group, China Jinmao, Xuhui holding group, China Overseas Hongyang.
Risk tips: the impact of the epidemic is higher than expected, sales are lower than expected, the strength of real estate tax policy is higher than expected, and the credit default of real estate enterprises and its impact spread risk
