Goldman lowers China developers’ price estimates

It upgrades S’pore- listed Yanlord Land Group to ‘buy’ from ‘neutral’

China’s property developers had their share-price estimates lowered by as much as 32 per cent at Goldman Sachs Group Inc, which cited increased uncertainty from government tightening measures.

Goldman Sachs’ new target prices reflect a discount of as much as 40 per cent to the companies’ asset values, compared to a maximum 30 per cent previously, analysts led by Yi Wang wrote in a report yesterday. Still, a recent slump means that the shares are only 8 per cent higher on average than the estimated ‘bear-case’ net asset values (NAV) for end-2010, they said.

Real-estate stocks on the MSCI China Index have declined an average 7.9 per cent over the past six months, compared to a gain of 0.8 per cent for the broader gauge, according to data tracked by Bloomberg. China’s property prices surged the most in 21 months in January, prompting policymakers to tighten home lending and order banks to set aside larger reserves to slow credit growth.

‘Although we believe the purpose of this tightening is to slow, rather than reverse, China’s economic recovery, we believe it could affect the pace of developers selling properties or realising their land-bank value in the near term and could therefore weigh on share-price performance,’ the analysts wrote.

Goldman Sachs downgraded Greentown China Holdings Ltd and Shenzhen Investment Ltd to ’sell’ from ‘neutral’. They also upgraded Singapore-listed Yanlord Land Group Ltd to ‘buy’ from ‘neutral’ and raised their rating for Franshion Properties China Ltd to ‘neutral’ from ’sell’.

‘We like stocks that screen as having significant potential upside to our base-case valuations as well as limited downside to our bear-case NAV,’ the analysts wrote. ‘We view our bear-case NAV as attractive entry levels.’

Chinese property stocks, trading at the cheapest level among Asian peers, may be ‘worth another look’, Credit Suisse Group AG said last week.

Shares of the nation’s real-estate companies have underperformed the MSCI China by almost 30 per cent since July and are trading at a 7 per cent discount relative to the region based on a model that values companies’ net assets and return on equity, which may signal that risks of tightening are already factored into prices, Credit Suisse said.

Source: Business Times, 23 Feb 2010