Thursday, May 20, 2010

Goldman, Credit Suisse cut calls on China property firms

Move follows govt curbs on speculation in bid to head off an asset bubble

Goldman Sachs Group Inc and Credit Suisse Group Inc have cut profit and share-price estimates for Chinese property companies, citing a government clampdown on speculation to avoid asset bubbles.

Goldman Sachs, ranked second for Asian property coverage by Institutional Investor magazine, lowered its 2010 net income estimates by an average of 13 per cent and reduced earnings forecasts for the next two years by 25 per cent, analysts led by Yi Wang said in a report yesterday. Credit Suisse pared earnings per share estimates by as much as 15 per cent for 2010 and 20 per cent for 2011.

The MSCI China Real Estate Index's 16 companies have slumped an average of 23 per cent this year as the central bank raised bank reserve requirements three times, while the government raised down payment requirements for second homes and banned loans for third homes.

The slump in property stocks outpaced the 9.5 per cent drop in the broader MSCI China Index that tracks mostly Hong Kong-traded stocks. The brokerages also slashed share-price targets by as much as 57 per cent.

'In view of the revised tightening measures since mid-April, we turn more cautious on the property sector, particularly on transaction volumes for the remainder of the year,' Credit Suisse analysts led by Jinsong Du said in a report yesterday.

Property transaction volumes will tumble by about 15 per cent on average this year from 2009, the brokerage estimated, keeping an earlier forecast that prices would slump 30 per cent from current levels. There are signs that the government may 'adopt a more cautious stance on tightening' amid the European sovereign-debt crisis, according to the report.

China's benchmark Shanghai Composite Index has slid 21 per cent this year, Asia's worst performer.

Goldman Sachs predicted that volumes would fall 40 per cent between May and December from a year ago, while home prices would fall as much as 30 per cent from current levels, according to a note yesterday.

'A number of developers with funding gaps may face refinancing issues if banks tighten credit to developers further,' the Goldman Sachs analysts said. 'We suggest investors avoid such secondary real estate brokers due to their high leverage to transaction volumes.'

Sales of new homes in Shanghai fell to a five-year low last week as tightening measures took effect, property consultant Shanghai UWin Real Estate Information Services Co said on Tuesday.

Sales from May 10 to May 16 fell 16 per cent to 60,000 square metres from the week before, the lowest level for the same period since 2005.

Goldman Sachs cut its ratings for Guangzhou R&F Properties Co, Shimao Property Holdings Ltd, Sino-Ocean Land Holdings Ltd and Yanlord Land Group Ltd to 'neutral' from 'buy'.

It downgraded IFM Investments Ltd, Shanghai Forte Land Co and Shenzhen Overseas Chinese Town Holdings Co to 'sell' from 'neutral', while upgrading China Resources Land Ltd to 'buy' from 'sell'.

Credit Suisse lowered its recommendation for Greentown China Holdings Ltd to 'underperform' from 'neutral' and downgraded Evergrande Real Estate Group Ltd and Hopson Development Holdings Ltd to 'neutral' from 'outperform'.

Standard Chartered Bank also downgraded Sun Hung Kai Properties Ltd and Sino Land Co yesterday to 'in-line' from 'outperform', citing a 'less visible outlook' for Hong Kong's residential prices, according to a note by analyst John Chan.

Guangzhou R&F, the largest developer in the southern Chinese city, fell 1.9 per cent in Hong Kong trading, pacing a retreat among property stocks. Shimao declined 1.2 per cent while Sino-Ocean Land lost 2.3 per cent. Greentown China fell 2.2 per cent while Hopson dropped 2.3 per cent. Evergrande, China's second-biggest developer by first-quarter sales, tumbled 6.6 per cent. -- Bloomberg

Source: Business Times, 20 May 2010

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