Overview of China’s Property Sector

The Chinese property sector is witnessing significant developments, particularly with the government’s intervention to address challenges faced by major players like Vanke. Recent policies, such as local government special bonds for idle land repurchase, have emerged as a lifeline for developers. This report delves into the implications of these policies and provides a detailed analysis of notable companies in the sector.

China Vanke Co: A Glimmer of Hope Amidst Challenges

According to Bloomberg reports, a proposal is under consideration by Chinese authorities to allocate a special local government bond quota of RMB 20 billion to support Vanke. This funding would help Vanke address a potential RMB 50 billion funding gap in 2025 by allowing the purchase of unsold properties and idle lands. Additionally, Vanke and its affiliates may access alternative financing options, including new bond issuances and bank loans, to meet debt requirements.

Vanke’s substantial resources position it well to benefit from these government measures. The company holds RMB 91.3 billion worth of undeveloped land and RMB 104.7 billion worth of completed inventory. A prime example is its industrial redevelopment project in Shenzhen’s Futian region, valued at RMB 13.8 billion. If the government includes this project in its acquisition list, Vanke could recycle RMB 10 billion, assuming a 25% discount rate. The company is expected to play a significant role in the government’s destocking program.

Recommendation: The report maintains an OVERWEIGHT recommendation for Vanke, emphasizing the importance of policy implementation as a key catalyst.

China Resources Land Ltd (CR Land): The Top Pick

CR Land remains the top pick within the Chinese property sector. As of February 12, 2025, its share price stood at HK\$24.90, with a target price of HK\$32.40, indicating a potential upside of 30.1%. The company boasts a market capitalization of HK\$177,560.4 million and a strong valuation with a price-to-earnings (PE) ratio of 6.4x for 2024F and 5.6x for 2025F.

CR Land’s price-to-book (P/B) ratio is projected at 0.6x for 2024F and 0.5x for 2025F, while its dividend yield is estimated at 5.5% for 2024F and 6.2% for 2025F. These metrics underscore its robust financial health and appeal as a long-term investment.

Recommendation: BUY

Sunac China Holdings Limited: Facing Significant Headwinds

Sunac China Holdings is grappling with severe challenges, reflected in its SELL recommendation. The company’s share price was HK\$2.03 as of February 12, 2025, with a target price of HK\$1.06, marking a steep downside of 47.8%. Its market capitalization stands at HK\$18,891.7 million.

Notably, Sunac’s financial metrics are concerning, with no positive PE or dividend yield projections for 2024F or 2025F. This highlights the precarious nature of its financial position and the uncertainties surrounding its recovery.

Recommendation: SELL

China Overseas Land & Investment Ltd: A Strong Performer

China Overseas Land presents a compelling investment case with a BUY recommendation. As of February 12, 2025, its share price was HK\$13.12, with a target price of HK\$16.30, indicating a potential upside of 24.2%. The company has a market capitalization of HK\$143,596.9 million.

The PE ratio stands at 6.9x for 2024F and 6.6x for 2025F, while the P/B ratio is 0.3x for both years. Dividend yields are forecasted at 5.0% for 2024F and 5.2% for 2025F, showcasing its financial stability and consistent returns to investors.

Recommendation: BUY

Longfor Properties: Moderate Growth Potential

Longfor Properties is another recommended BUY with its share price at HK\$10.50 as of February 12, 2025, and a target price of HK\$11.99, presenting a potential upside of 14.2%. The company’s market capitalization is HK\$72,325.7 million.

Its PE ratio is 6.4x for both 2024F and 2025F, while the P/B ratio is steady at 0.4x for both years. Dividend yields are estimated at 4.4% for 2024F and 2025F. These metrics position Longfor as a stable investment opportunity with moderate growth potential.

Recommendation: BUY

Sector-Wide Outlook

The acceleration in local governments’ repurchasing of idle lands is a positive signal for the Chinese property sector. With the resumption of special bonds for land reserving activities since November 2024, developers, especially local state-owned enterprises (SOEs) and local government financial vehicles (LGFVs), are expected to benefit. The anticipated sales recovery in February 2025 further reinforces the optimistic outlook for the sector.

Overall Recommendation: Maintain OVERWEIGHT on China’s property sector.