20151120-法国巴黎银行-Invigorated_by_innovative_strategies_100页_5mb

China Real Estate Research Summary

Core Content

The document provides an analysis of the Chinese residential real estate market, highlighting the challenges and opportunities for developers in a lower growth era. It emphasizes the importance of innovative product repositioning and effective sales strategies in improving sales growth, gross margins, and asset turnover. Two companies, Sunshine 100 (S100) and Sunac, are identified as leaders in these strategies.

Main Points

Product Repositioning

• Innovative product repositioning is critical in accelerating de-stocking and improving gross margins in the current lower growth market.
• Sunshine 100 differentiates itself by offering niche developments such as commercial streets, clubhouses, and social networking areas.
• These innovations help protect ASPs (Average Selling Prices) and drive margin growth by reducing the need for price cuts.
• Sunac focuses on high-end markets with specialized internal channel teams, which help in building brand value and increasing market share.
• The Phoenix Community by Sunshine 100 is a customized product for young entrepreneurs, which is expected to protect ASPs and accelerate inventory destocking.

Sales Strategies

• Sunshine 100 uses an incentive-based sales strategy that decentralizes pricing power to sales teams, which is expected to drive 33% sales growth pa in 2015-17.
• Sunac employs internal channel teams to enhance brand value and customer loyalty, resulting in the lowest completed inventory rate among peers at the end of 2014.
• The market is currently under-appreciating the value of these strategies, leading to discounted valuations compared to NAV.

Key Information

Financial Forecasts

• Sunshine 100: Expected to achieve 33% sales and core profit growth pa in 2015-17, with a target price of HKD3.46 at a 50% discount to NAV.
• Sunac: Expected to improve gross margins from 17.3% in 2015 to 21.2% in 2017, with a target price of HKD6.92 at a 60% discount to NAV.
• The sector's average earnings growth is 10-20%, while the average NAV discount is 60%.

Market Trends

• The Chinese residential market is in a lower growth era, with tier-1 cities seeing strong recovery and tier-2 and tier-3 cities experiencing weak growth.
• Inventory levels remain high, especially in tier-3 and tier-4 cities, with completed inventory levels at three times the national average.
• Land sales have declined, but land costs continue to rise, particularly in over-supplied tier-2 cities.

Strategic Initiatives

• Sunshine 100 collaborates with UR Work to create shared workspaces and community areas, which helps in destocking inventory and increasing customer traffic.
• The UR Work model involves using under-utilized spaces to generate high rent per sqm, with projects planned for expansion to 25 locations in 12 cities by end-2016.

Investment Recommendations

• BNP Paribas Equities Research initiates BUY ratings on Sunshine 100 (2608 HK) and Sunac (1918 HK).
• The current discounts to NAV are 60% for S100 and 70% for Sunac, indicating undervaluation relative to the sector.

Risk Factors

• Repositioning may not align with new demand.
• High turnover of sales and channel members could affect performance.
• Delays in project launches may hinder inventory destocking.
• Tightening macro policies could impact the market.

Conclusion

The research highlights that innovative product repositioning and sales strategies are key to outperforming the market in the current environment. Sunshine 100 and Sunac are positioned to benefit from these strategies, with positive growth forecasts and lower inventory levels compared to peers. The BUY ratings reflect the belief that these companies are undervalued and have strong potential for future growth.