Guangzhou R&F - Strong January/February sales. Guangzhou R&F (2777 HK - HK$7.25 - SELL) reported strong sales in January at Rmb1.28bn, up 39% YoY. But we note the number includes sales of strata title offices in Guangzhou and not just residential units. February started equally strong with first week sales at Rmb250m. The company believes government supportive policies, combined with friendlier mortgage approval at the banks, were the key reasons for the strength. Questions from the audience on this point include whether recent trends are sustainable as opposed to being related to delayed purchases.
On leverage and hotel properties. R&F plans to reduce net gearing to below 80% by end of 2009. But the reduction could well be non-cash and driven by revaluation gains of its rental properties, as the company expects net debt in dollar terms to drop to Rmb15-17bn (and not so much a reduction compared to the Rmb18.6bn in 1H08). Other questions surrounded occupancy of hotel properties, which are most running at around 50-55%. E-House - Business still bad. E-House China (EJ US - US$7.28 - N-R) saw business as bad, falling apart in 4Q08. Total transaction volume plunged 40% in 2008 YoY, with prices flat. The company guided for downward pressure on prices in 2009. Among its clients (developers), 50% are willing to take price cuts this year against just 20% in 2008.
Where challenges and opportunities lie. The audience asked what cities are the most challenging and which have the most upside opportunities. The cities with bubbles are challenging, says E-House. The smaller the bubble, the better support for a rebound (Shanghai was the best example). The inner cities are an exception because no one provides support at lower prices (no market depth).
CC Land - Upbeat on Chongqing. CC Land (1224 HK - HK$1.83 - N-R) started its presentation giving an upbeat guidance on the outlook of Chongqing, and believes the debated income-tax rebate on home purchase will go ahead. However, the company also mentioned that it could take Chongqing three to four years to digest the 80m m² that is under construction. And despite its low gearing (net gearing of just 7.3%), the company is not prepared to make any major new acquisitions and will be cautious in assessing how much it should build depending on demand. We believe the latter statements might be more telling of the company’s outlook on the market.
Soho China – Eyeing Shanghai. Soho China (410 HK - HK$2.95 - N-R) nearly doubled its total presales from Rmb4bn in 2007 to Rmb7bn in 2008, despite the challenging market. Gross floor area sold grew to 159,000m² from 112,000m² in 2007, but average selling prices dropped only in the residential segment last year. However, the company was not bullish on the China property sector or the economy in 2009. He believes the property market has not hit bottom. In fact, in the past six months, Soho has seen an astounding 25-35% vacancy rate and a 15-20% drop in rents in Beijing. It also has a strong balance sheet, with Rmb10.7bn in cash reserves and is one of the few developers with negative net debt to equity. For 2009-10, it plans to expand its landbank using its large cash position, eyeing the Shanghai market, where it has seen a significant increase in offers. So far, the company has not seen many contract cancellations.
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