DBS tipped investors should re-enter selected China property stocks pointing to three “compelling” factors.
1. Preliminary pre-sales data
The preliminary pre-sales data from CRIC, or China Real Estate Information Corp., should alleviate concerns about a slowdown, DBS said in a note dated Thursday.
The data showed that top developers still posted 45 percent on-year growth with price increases despite a high base from the first two months of 2017, and amid market concerns about onshore liquidity, DBS said.
“We believe the market will regain confidence in the sector after share price fluctuations during the past few months,” it said, noting the sector was trading at an “undemanding” 7.5 times 2018 price-to-earnings ratio, compared with a peak level of 8.7 times.
2. Strong results to kick in
DBS said that while strong earnings were expected from developers, share prices were still likely to response strongly to positive results and guidance.
“We are expecting greater than 40 percent core earnings growth for the whole sector with some companies doubling their earnings,” DBS said. “Along with positive guidance on 2018 earnings and dividends, we believe these will create real trading opportunities.”
3. Better valuations
Sector shares are now at a good entry point after the recent “softening,” DBS said.
It pointed to companies with good execution that were trading at low price-to-earnings ratios, such as Country Garden, Logan, CIFI, China SCE and Yuzhou.