Vi e w p o i n t | 29 Jan 2026 01:59:47 ET │ 13 pages China Property Three Red Lines to Ease but Unlikely to Leverage Up for Investment in ST CITI'S TAKE Policies pacing up: talk of easing "three red lines" — Property firms are no longer required to report "three red lines" indicators to authorities (Bloomberg, 29 Jan). We note the "three red lines" were implemented since Aug'2020 in an aim to limit debt and encourage sector deleveraging. Indeed, after the Qiushi Journal article (link) that set a supportive ...

Summary of China Property FY25E Preview Industry Overview - The report focuses on the **China Property** sector, particularly the financial outlook for FY25E and the implications for FY26-30E. Key Points and Arguments Financial Performance Expectations - **Kitchen Sinking**: Anticipated write-offs and lower gross profit margins (GPM) in FY25E are expected to create a lower base for a fresh start in 2026-30E, with most companies likely to report profits rather than losses, especially state-owned enterprises (SOEs) [1] - **Sales Targets Ambiguity**: There is uncertainty regarding sales targets for FY26E due to challenges in the second half of FY25 and a high base in Q1 2025, leading to expected declines in Q1 2026 [1] - **De-stocking and Inventory Management**: De-stocking efforts are on track, but lower sales are expected due to new product offerings (version 4.0) that provide better quality [1] - **Restructuring Outcomes**: Companies that have completed restructuring are projected to post significant net profits following debt reductions or debt-to-equity swaps, with questions raised about potential second restructuring plans [1] Earnings Downgrades and Misses - **Core Profit Decline**: A 34% decline in core profits is expected across 15 companies with no credit issues, with GPM dropping to 13.9% from 15.5% in 2024 [2] - **Specific Company Performance**: - **CRL**: Expected to miss expectations with a 17% year-over-year decline, reporting RMB 21.2 billion, primarily due to the absence of REIT disposal gains [2] - **Longfor**: Anticipated loss of RMB 2 billion, with stable recurring profits but no dividends [2] - **Poly Development**: Announced an 85% profit decline [2] - **Yuexiu**: Expected to report minimal profit due to write-offs [2] - **Greentown**: Similar challenges noted [2] Land Investment Trends - **Land Acquisition Growth**: Listed companies are expected to increase land investments by 15% year-over-year, with 58% of acquisitions occurring in the first half of FY25 [4] - **Top Buyers**: The top five companies accounted for 71% of the sector's land acquisitions, with notable growth from COGO (+96% year-over-year) and Jinmao (+78%) [4] Balance Sheet and Cash Flow - **Cash Flow Pressure**: Expected to alleviate in FY26E as capital expenditures for pre-sales delivery peak in FY25 [5] - **Debt Management**: Companies are likely to focus on extending debt tenures at low costs while maintaining positive cash flow [5] Market Reactions and Policy Implications - **Short-lived Rebound**: The sector saw a positive reaction to policy easing expectations, but any rebound is expected to be short-lived due to anticipated sales declines and earnings cuts [6] - **Luxury Retail Performance**: Positive same-store sales growth in luxury malls was noted, but December showed a deceleration, missing expectations [6] Strategic Recommendations - **Top Picks**: Recommended stocks include Jinmao, CRL, and COLI based on their performance outlook [6] Additional Insights - **Dividend Payout Ratios**: Companies like Midea Real Estate are expected to maintain high payout ratios, while others like Longfor and Greentown are likely to cut dividends [12] - **Valuation Metrics**: The report includes various valuation metrics for companies within the sector, indicating significant NAV discounts and varying P/E ratios [18] This summary encapsulates the critical insights and projections for the China Property sector as outlined in the conference call, highlighting both challenges and potential opportunities for investors.

Summary of China Property Market Conference Call Industry Overview - The conference call focused on the **China Property** market, highlighting significant declines in various metrics related to real estate investment and sales. Key Points Real Estate Investment (REI) Trends - **November REI** experienced a record drop of **30.3% YoY**, marking the sharpest decline on record, with a total of **RMB 0.5 trillion**, the lowest monthly figure since April 2012 [1][11] - **Completion rates** fell by **26% YoY** in November, slightly improved from **28%** in October [1] - **Starts** decreased by **28% YoY**, consistent with a **29%** decline in October [1] - **Residential sales** dropped by **28% YoY**, the largest single-month decline since May 2024 [1] - The **70-cities price index** for new homes decreased by **2.8% YoY** in November, while secondary homes saw a **5.7% YoY** decline [1] Market Dynamics - **Secondary market sales** in 18 key cities fell by **22% YoY** in November, with average weekly volume showing a **13% MoM** increase, driven by price cuts [2] - Listings in 39 cities remained stable, but cities like Shenzhen and Xi'an saw increased listings, putting pressure on prices [2] - A survey indicated only **9%** of depositors expect housing prices to rise in 2026, a historical low [2] Future Projections - The outlook for 2026 suggests a **structural decline** in the market unless liquidity improves, with expectations of: - **REI** down **13% YoY** - National sales down **11% YoY**, with residential sales projected at **RMB 6.8 trillion** [3] - New home average selling prices (ASP) expected to fall by **3% YoY** [3] - Starts anticipated to drop to levels last seen in 2003, with a **15% YoY** decline [3] Policy and Regulatory Environment - The **Central Economic Work Conference (CEWC)** indicated a more proactive policy tone, with potential demand-side easing measures expected in Q4 2025 [4] - Urban renewals and REIT approvals are likely to accelerate, but significant changes in home price expectations are not anticipated due to ample supply [4] - Monitoring for targeted monetary easing or pro-leverage initiatives is advised, though the likelihood remains low [4] Market Sentiment and Investment Recommendations - The sector's share prices corrected in early December amid debates over weak sales and expectations of policy-driven rebounds, particularly following Vanke's debt extension [5] - Anticipated earnings downgrades in December and January for well-known names in the sector [5] - Luxury mall retail sales are expected to maintain a positive trend in Q4 after outperforming in Q3 [5] - Recommended stocks include **Jinmao, C&D, and CRL** as top picks [5] Additional Insights - The **macro environment** shows mixed signals, with November exports beating expectations at **5.9% YoY**, while retail sales decelerated to **1.3% YoY** despite a higher CPI of **0.7%** [1] - Fixed Asset Investment (FAI) remains weak, down **12%** YoY, with a cumulative decline of **2.6%** for the first eleven months [1] This summary encapsulates the critical insights from the conference call regarding the current state and future outlook of the China property market, emphasizing the significant challenges and potential policy responses.

Investment Rating - The overall investment rating for the China property sector is mixed, with several companies rated as "Buy" (1) and others as "Hold" (2) or "Sell" (3) [13]. Core Insights - Sales in November are weak, with an estimated drop of approximately 40% year-over-year for listed companies, leading to a projected 25% decline for FY25, which is about 10% below original targets [1]. - High-end projects in key cities are outperforming, while secondary prices are experiencing accelerated declines, impacting market sentiment [1][2]. - Companies are becoming less proactive in new land investments due to slower sales and higher requirements for sell-through and margin visibility [2]. - Booking margins are expected to stabilize with better new land margins, projecting gross profit margins (GPM) of 15-20% for new land acquisitions [3]. - Profit outlook for FY25 is conservative across most companies, primarily due to pressure on booking margins and the timing of REIT disposal gains [4]. - Luxury retail sales are showing strong same-store sales growth (SSSG), with CR Mixc reporting 10-15% SSSG in 10M25 [5]. - Regulatory changes are being implemented to manage online property information, with little expectation for new monetary stimulus [6]. Summary by Sections Sales Performance - November sales are projected to decline by about 40% year-over-year, with FY25 expected to conclude at a 25% decrease [1]. - High-end projects are performing better than average, while secondary market prices are declining [1]. Land Investment - Companies are setting higher thresholds for new land acquisitions due to slower sales [2]. - COLI has allocated Rmb20 billion for land costs in 10M and is targeting Rmb30 billion for FY [2]. Margins and Profitability - New land margins are expected to improve, with GPM projected at 15-20% for certain companies [3]. - Profit outlook for FY25 remains conservative, with many companies facing margin pressures [4]. Rental and Retail Performance - Luxury retail SSSG is strong, with CR Mixc achieving 10-15% SSSG in 10M25 [5]. - Non-luxury malls are also showing positive growth, albeit at lower rates [5]. Regulatory Environment - New regulations are being introduced to manage online property information, with limited expectations for new stimulus measures [6].

Summary of China Property Market Conference Call Industry Overview - The conference call focused on the **China Property** market, highlighting significant declines in investment, completion rates, and home prices as reported by the National Bureau of Statistics (NBS) for October 2025. Key Points and Arguments Investment and Sales Trends - **Real Estate Investment (REI)** dropped by **22.5% year-over-year** in October, worsening from a **21.6% decline** in September, marking the sharpest decline since November 2022 [1] - **Completion rates** fell by **28% year-over-year**, a significant drop from a **1.5% increase** in September [1] - **New construction starts** decreased by **29% year-over-year**, compared to a **14% decline** in September [1] - **Residential sales** saw a **25% decline**, with the gross floor area (GFA) sold down **20%**, both representing the largest retreats since May 2024 [1] - The **70-cities price index** showed a widening decline, with new home prices down **0.5% month-over-month** and secondary home prices down **0.7% month-over-month** [1] Macro Economic Context - October exports experienced a **1.1% decline**, the first drop in eight months, while fixed asset investment (FAI) missed expectations with a **12% decline** [1] - Credit data remained soft, with new loans and total social financing (TSF) at **RMB 0.2 trillion** and **RMB 0.8 trillion**, respectively, below consensus estimates [1] - Retail sales showed stability with a **2.9% increase**, while the Consumer Price Index (CPI) and Producer Price Index (PPI) exceeded expectations [1] Local Government Initiatives - Local governments are promoting high-quality property development under the **15th Five-Year Plan**, with new rules linking completed home sales to new land sales [2] - For instance, Pingjiang County in Hunan requires completed home sales for new land acquisitions, with completed homes accounting for **62%** of local sales [2] - Fujian's Fuzhou is linking pre-sales approvals to property firms' credit profiles, and Guangzhou mandates **100% pre-fabrication** for new residential lands starting in 2026 [2] Market Dynamics - Secondary sales in **18 key cities** dropped by **29% year-over-year** in October, with average weekly volumes at **21,000 units**, the second-lowest year-to-date [3] - Listings in **39 cities** remained flat month-over-month, but Tier-1 cities saw a **1.5% increase** [3] - The flexibility in secondary price cuts may lead to continued price weakness and shift demand from new homes to the secondary market [3] Sector Outlook - The property sector is expected to experience range-bound trading, with limited new property policies anticipated apart from execution urgencies [4] - Property sales are likely to remain soft in **Q4 2025** due to high bases and limited support from easing measures in low-tier cities [4] - However, top-10 cities are showing mild growth, with **82%** of listed companies' land acquisitions occurring in these areas, and luxury home sales are outperforming with improved margins [4] - Preferred investment targets include companies with luxury and quality products, such as Jinmao, C&D, CRL, and COLI, which has shown strong sales in Tier-1 cities [4] Additional Insights - The **National Residential Inventory** reached **396 million sqm** by October 2025, indicating a significant amount of unsold inventory [24] - The **transaction amount** for overall real estate in October was **RMB 598 billion**, reflecting a **25.5% decline** year-over-year [9] - The **average weekly primary transaction volume** in October was down **35.4% year-over-year**, indicating a significant slowdown in market activity [27] Conclusion The China property market is facing substantial challenges with declining investment, sales, and prices. Local government initiatives aim to stimulate high-quality development, but the overall outlook remains cautious, particularly for the remainder of 2025. Investors are advised to focus on companies with strong fundamentals and luxury offerings amidst the ongoing market volatility.

Summary of China Property Conference Call Industry Overview - **Industry**: China Property - **Event**: CPC Forth Plenary Session (20-23 Oct) Key Points and Arguments 1. **Development Model and Economic Focus**: The Plenary emphasized promoting high-quality development and advancing people-centric urbanization, indicating a shift in focus from real estate to manufacturing and technology sectors. The property sector is expected to account for an estimated 13% of GDP by 2025, down from a peak of 32% [1][1][1] 2. **Economic Stabilization**: The limited mention of property and absence of new stimulus measures suggest a focus on stabilization rather than stimulus. The decline in real estate investment (REI) was offset by growth in other sectors, contributing to a resilient GDP growth of 4.8% in Q3 2025 [1][1][1] 3. **Impact on Household Confidence**: With property assets constituting 66% of household assets, the decline in home prices is negatively affecting household confidence and consumption, particularly among the working class. Measures to support home prices in core cities are anticipated by 2026 [1][1][1] 4. **New Development Model**: The new development model aims to transform the property industry by focusing on quality improvement rather than scale expansion. This shift is expected to benefit luxury-home builders and landlords of recurring profit [1][1][1] 5. **Three-Pronged Housing System**: The proposed housing system includes commodity housing for high-end buyers, rental housing for urban migrants, and social housing for low-income classes. It is expected that rental and social housing could account for approximately 45% of supply in the future [2][2][2] 6. **Optimization of Production Factors**: A linkage mechanism to optimize the allocation of production factors (people, housing, land, and capital) is proposed to coordinate land supply, property supply, and government budget in relation to population flow [2][2][2] 7. **Property Development Improvements**: Recommendations include improving property development, financing, sales systems, and supervision, as well as deepening urban renewal in key cities [2][2][2] 8. **Promotion of Good-Quality Homes**: The focus will be on renovating aged buildings, energy-saving measures, and adopting advanced construction technologies [2][2][2] Additional Important Content - **Analyst Ratings and Valuations**: The report includes various company valuations and ratings, indicating a significant NAV discount for many property companies as of October 23, 2025. The average NAV discount for H-share companies is noted to be -65% [5][8][8] - **Investment Recommendations**: The report provides investment ratings for various companies, with a mix of "Buy," "Neutral," and "Sell" ratings based on expected total returns and risk assessments [22][24][24] This summary encapsulates the critical insights from the conference call regarding the China property sector, highlighting the shift in focus towards stabilization and quality improvement in the industry.

Summary of Key Points from the Conference Call Company and Industry - **Companies Involved**: NetEase, Bilibili, Kuaishou - **Industry**: China Digital Entertainment Core Insights and Arguments 1. **Stock Performance**: China digital entertainment stocks have seen significant YTD performance with Kuaishou, NetEase, and Bilibili rising by +75%, +57%, and +30% respectively, compared to HSI's +27% [1][11] 2. **Downgrade Ratings**: NetEase and Bilibili have been downgraded from Overweight (OW) to Neutral due to less attractive risk-reward profiles after recent stock rallies [1][11] 3. **NetEase Earnings Outlook**: Limited earnings upside for NetEase is anticipated due to rising game promotion expenses and a lack of blockbuster game launches in the second half of 2025. The estimated P/E ratio for 2025 is 16x, with a projected EPS CAGR of 6% for 2026-2027 [1][11][26] 4. **Bilibili Revenue Growth**: Bilibili's revenue growth is expected to decelerate from over 20% in the first half of 2025 to 5% in the second half, primarily due to a high comparison base from mobile games [1][11] 5. **Investment Recommendations**: The report suggests accumulating stocks with reasonable valuations (less than 20x P/E) and double-digit profit CAGR, favoring Kuaishou with a 14x P/E and 20% profit CAGR [1][11] Financial Forecasts and Changes 1. **NetEase Financials**: - Revenue forecast for 2025 is RMB 113.54 billion, with an adjusted net income of RMB 39.87 billion [22] - Expected net profit growth to slow to -1% in Q4 2025 and -9% in Q1 2026 [11][26] 2. **Bilibili Financial Revisions**: - Net revenue for 2025 revised down by 1% to RMB 30.20 billion, with mobile games revenue down by 6% [5] - Advertising revenue forecasted to decline by 3% [5] Other Important Insights 1. **Market Conditions**: The digital entertainment sector is influenced by themes such as AI and the experience economy, which are seen as safer investments compared to e-commerce and local services [1] 2. **Competition and Regulation**: Increased competition in the gaming market and potential regulatory changes in China pose risks to revenue growth for both NetEase and Bilibili [11][15] 3. **Valuation Metrics**: NetEase's valuation is at a 20% discount to its five-year average P/E, reflecting a cautious outlook on its future performance [14][17] Conclusion The conference call highlights a cautious outlook for NetEase and Bilibili amidst strong past performance, with concerns over rising costs and competition. The recommendation is to focus on companies with solid growth potential and reasonable valuations within the digital entertainment sector.

Investment Rating - The report rates the China Property sector as a "Buy" for a 2-year horizon, indicating a good time to accumulate due to improving return on equity (ROE) and expected strong sales in June [1][13]. Core Insights - The report highlights a two-year trend of improving ROE driven by asset turnover and pricing, with expectations for strong sales in June due to increased new launches in key cities [1][2]. - It notes that the top-10 cities are stabilizing with improved inventory months and less downside price risk, while earnings for 2025 are expected to be lackluster, marking the sector's peak valuation at distressed profit levels [1][4]. - The report emphasizes supportive government policies aimed at stabilizing the property market and boosting consumption, which are expected to positively impact asset prices [1][6]. Summary by Sections New Home Sales - New home sales in April showed a moderation due to supply shortages and trade dispute concerns, with a weekly average of 19.3k units sold across 34 key cities, reflecting a 24% month-over-month decline [2]. - Strong sales are anticipated in June, potentially showing positive year-over-year growth in the top 10 cities due to active replenishments [2]. Secondary Sales - Secondary sales remained robust in the top 10 cities, with an average weekly volume of approximately 30k units in mid-April, marking an 18% year-over-year increase [3]. - The National Bureau of Statistics (NBS) secondary price index showed a slight increase of 0.3% month-over-month in tier-1 cities, indicating a potential recovery in household confidence [3]. Land Purchases - Land acquisition by listed firms surged by 122% year-over-year in Q1 2025, with top-100 firms increasing land purchases by 42% [4][8]. - The competition for land has led to price hikes in tier-1 and key tier-2 cities, with major players like COLI and CR Land being the top purchasers [4]. Management Changes - The report notes significant management changes in mixed ownership firms since 2024, aimed at enhancing shareholder value and optimizing management efficiency [5]. Government Support - The State Council has expressed a supportive tone towards stabilizing the property market, with Premier Li emphasizing the need for stable employment and consumption [6].