Summary of Key Points from the Conference Call on China Property Industry Industry Overview - The China property industry has shown an 11% year-to-date performance, outperforming the MSCI China index which is at 7% [1] - The current sentiment-driven rally is viewed as likely unsustainable due to a fragile housing market and high sector valuations [1] Core Insights - The rally is attributed to improved investor sentiment from positive policy news and a recent uptick in housing sales, influenced by a later Chinese New Year and mild policy easing [9] - However, there are multiple near-term headwinds anticipated, including: - Over-optimism regarding the physical market recovery [3] - Potential earnings misses for key developers in 2025, with profit warnings expected from Greentown, Longfor, and Vanke [4] - A decline in contracted sales in Q1 due to reduced saleable resources and a high base effect [4] - High valuations across the sector [4] Company-Specific Insights - Companies expected to face challenges include: - **Greentown**, **Jinmao**, **Longfor**, and **Vanke A/H** due to potential earnings misses and high valuations [4] - In contrast, companies favored for their fundamentals include: - **CR Land** and **Seazen A/H**, which are robust mall operators benefiting from consumption-boosting initiatives [5] - **C&D**, recognized as residential market consolidators with optimized landbanks supporting margins and positive earnings growth [5] Market Outlook - A potential sector pullback is anticipated as the results season approaches, with cautious guidance expected from developers regarding property sales, development margins, and earnings recovery [9] - The likelihood of further policy stimulus is seen as diminishing, especially before the Chinese New Year, given the recent improvement in home sales volume in tier 1 cities [9] - Analysts maintain a cautious outlook, predicting continued home price declines in top-tier cities over the next two years [9] Stock Ratings and Price Targets - The report includes a summary of stock ratings and price targets for various companies in the sector: - **C&D International** (OW, PT: HKD 20.62) - **CR Land** (OW, PT: HKD 39.20) - **Seazen A** (OW, PT: RMB 19.70) - **Greentown** (UW, PT: HKD 7.86) - **Vanke A** (UW, PT: RMB 2.70) [6] Additional Considerations - The report emphasizes the importance of considering the broader market context and potential conflicts of interest in investment decisions [7][8] - Analysts express skepticism about the sustainability of fund flows into the sector, given the bearish outlook for the China housing market [9] This summary encapsulates the key insights and outlook for the China property industry as discussed in the conference call, highlighting both risks and opportunities within the sector.

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.

Investment Rating - Industry view is rated as In-Line [9] Core Insights - Property sales and home prices are expected to continue declining in the third quarter due to high secondary inventory and weakening resident sentiment [1] - Quality state-owned enterprises (SOEs) with good visibility are recommended for investment, with CR Land identified as a top pick [1][2] Monthly Property Sales - Home sales in 65 cities saw a year-on-year decrease of 11% in primary sales volume and a 5% decrease in secondary sales volume [3] - Year-to-date growth for primary sales is now at 0.1% and 13% for secondary sales as of May 2025 [3] Property Prices - Primary home prices in 70 cities dropped by 4.1% year-on-year and 0.2% month-on-month, while secondary home prices fell by 6.3% year-on-year and 0.5% month-on-month [4] - In top-10 cities, secondary prices decreased by 5.4% year-on-year, and in top-100 cities, they fell by 7.2% year-on-year [4] Secondary Market - Listing volume for secondary properties increased, with new listings up by 6% year-on-year but down 11% month-on-month [5] - Client visits to properties increased by 20% year-on-year and 3% month-on-month [5] Inventory - Primary inventory levels in tracked cities remained stable at 23.4 months, with tier 1 cities decreasing slightly to 14.2 months [6] Land Market - Land sales in 300 cities decreased by 13.8% year-on-year in gross floor area (GFA) but increased by 17.8% in value [7] - The year-to-date decline in land sales is now at 6.4% in GFA [7]

Investment Rating - Industry view is rated as In-Line [9] Core Insights - Property sales and home prices are expected to continue declining in the third quarter due to high secondary inventory and weakening resident sentiment [1][2] - Quality state-owned enterprises (SOEs) with high visibility are recommended for investment, with CR Land identified as a top pick [1][2] Monthly Property Sales - Home sales weakened further, with primary sales volume in 65 cities down 11% year-on-year and secondary sales volume in 33 cities down 5% year-on-year [3] - Year-to-date growth for primary sales is now at +0.1% year-on-year, while secondary sales are at +13% year-on-year for the first five months of 2025 [3] Property Prices - Housing prices are declining at an accelerated rate, with primary home prices in 70 cities dropping 4.1% year-on-year and secondary home prices down 6.3% year-on-year [4] - The decline in secondary prices for the top 10 cities is 5.4% year-on-year, while for the top 100 cities, it is 7.2% year-on-year [4] Secondary Market - Listing volume continues to increase, with secondary listing prices down 8.1% year-on-year [5] - New secondary listings increased by 6% year-on-year but decreased by 11% month-on-month due to seasonality [5] Inventory - Primary inventory levels in tracked cities remained stable at 23.4 months, with tier 1 cities decreasing slightly to 14.2 months [6] Land Market - Land sales in 300 cities decreased by 13.8% year-on-year in gross floor area, while the value increased by 17.8% year-on-year [7] - The year-to-date land sales decline in gross floor area is now at -6.4% year-on-year [7]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Property - **Date**: June 3, 2025 - **Region**: Asia Pacific Core Insights and Arguments - **Primary Unit Sales**: Weekly primary unit sales in 50 cities decreased by **17% YoY** compared to a **5% YoY increase** the previous week [2] - **Tier 1 City Sales**: Sales in Tier 1 cities increased by **4% YoY**, down from **29% YoY** last week [2] - **Tier 2 City Sales**: Sales in Tier 2 cities fell by **25% YoY**, a significant drop from a **4% YoY increase** last week [2] - **Tier 3 City Sales**: Sales in Tier 3 cities rose by **2% YoY**, compared to a **10% YoY decline** last week [2] - **Secondary Unit Sales**: Weekly secondary unit sales in 10 cities increased by **2% YoY**, down from **9% YoY** last week [3] - **Tier 1 City Secondary Sales**: Increased by **13% YoY**, slightly down from **15% YoY** last week [3] - **Tier 2 City Secondary Sales**: Decreased by **3% YoY**, compared to a **7% YoY increase** last week [3] - **Sell-Through Rate**: The total sell-through rate was **73%**, up from **68%** last week [3] - **Tier 1 Cities Sell-Through Rate**: Recorded at **61%**, an increase from **55%** [3] - **Tier 2 Cities Sell-Through Rate**: Recorded at **78%**, down from **81%** [3] - **Asking Price Index**: The Centaline six-city secondary asking price tracking index was **20.9%**, down from **21.5%** last week [3] Additional Important Information - **Analyst View**: The industry view is rated as **In-Line** by Morgan Stanley [6] - **Analysts Involved**: Stephen Cheung, CFA and Cara Zhu are the equity analysts covering this sector [6] - **Investment Banking Relationships**: Morgan Stanley expects to receive or intends to seek compensation for investment banking services from several companies in the China property sector, including Country Garden Holdings Company Limited [15] This summary encapsulates the key data and insights from the conference call, highlighting the current trends and performance metrics within the China property market.

Investment Rating - The report maintains a cautious outlook on the China property sector, expecting further moderation in sales and prices, with a full-year forecast of a 7% year-over-year decline in residential sales value [1][3]. Core Insights - The latest data from NBS indicates a continued softening in the housing market, with residential sales value dropping 6.6% year-over-year in April, marking a significant decline compared to the previous month [3]. - The report highlights that primary and secondary home prices have also shown signs of moderation, with primary prices declining by 0.12% month-over-month and secondary prices dropping by 0.41% month-over-month in April [3]. - New construction starts have seen a significant year-over-year decline of 22% in April, with expectations of a 13% decline for the full year of 2025 [3]. - Completions have softened considerably, with a year-over-year decline widening from 12% in March to 29% in April, forecasting a 25% decline for the full year of 2025 [3]. Summary by Sections Sales Performance - National residential sales value decreased by 6.6% year-over-year in April, a notable drop from a decline of 0.4% in March, and a 47% decline compared to the 4-year average [3][21]. - The report anticipates a further decline of approximately 10% year-over-year in June due to a higher base from policy easing in mid-May 2024 [3]. Price Trends - The 70-city home price index indicates a marginal widening in primary prices' month-over-month decline from 0.08% in March to 0.12% in April, while secondary prices fell by 0.41% month-over-month [3][7]. - The year-over-year decline in secondary prices is noted as the worst since October 2024, with tier-1 cities also experiencing negative month-over-month changes [3][11]. Construction Activity - New starts in April dropped by 22% year-over-year, with a decline of 71% compared to the 4-year average, marking the worst performance since October 2024 [3][40]. - Completions have also softened, with a year-over-year decline of 29% in April, leading to a forecast of a 25% decline for the full year of 2025 [3][47]. Investment Outlook - The report suggests that if sales and prices deteriorate faster than expected, stronger government policy support may be rolled out, potentially leading to a market rally [1][3]. - The top picks for investment in the sector include CR Land and CR Mixc, with a tactical interest in turnaround stories such as Longfor, Jinmao, and COPH [1].