Haitong: Concentration in the real estate industry hits bottom and rebounds, net debt ratio falls.

Haitong released a research report stating that in the first half of 2024, the concentration of the real estate industry has reached a bottom and is rebounding. In terms of market share, in the first half of 2024, the market share of the top 20 real estate companies in terms of sales amount was 28.02%. With the continuous warming of policies, the market share of industry blue chips will continue to rise. By the end of the first half of 2024, the cash flow indicators of some leading A-share listed companies remained stable. In the first half of 2024, the net debt ratio of A-share real estate companies was 154.9%, lower than the net debt ratio in the first quarter of 2024. In addition, in the first half of 2024, the year-on-year growth rate of housing prices in first-tier, second-tier, and third-tier cities in China continued to decline. Haitong believes that in general, the market environment for stable growth has not changed, and the advantages and value of high-quality companies relative to other real estate companies will become more prominent. In the first half of 2024, the concentration of the industry hit a bottom and rebounded. In terms of market share, in the first half of 2024, the market share of the top 20 real estate companies in terms of sales amount was 28.02%. Haitong believes that with the continuous warming of policies, the market share of industry blue chips will continue to rise. By the end of the first half of 2024, the cash flow indicators (net cash flow from operating activities, net cash flow from financing activities, defined as cash-to-short-term debt ratio) of some leading A-share listed companies remained stable. In the first half of 2024, the cumulative growth rate of real estate development investment fell again, while the cumulative growth rates of new construction and sales area rebounded. The industry's leverage ratio hit a new high. In the first half of 2024, the year-on-year growth rates of housing prices in first-tier, second-tier, and third-tier cities in China continued to decline, with rates of -3.7%, -4.5%, and -5.4% respectively. Current settlement and expense rate situation. In the first half of 2024, the operating total revenue growth rate of A-share real estate companies continued to decline, and the sales gross profit margin also declined. The operating total revenue growth rate was -24.0% year-on-year, and the sales gross profit margin was -0.37%. In the first half of 2024, the period expense rate of A-share real estate companies rose to 10.14%. Current asset impairment losses and minority shareholders' profit and loss situation. In the first half of 2024, the asset impairment losses of A-share listed real estate companies amounted to -10.32 billion RMB, accounting for -60.4% of the operating profit before deducting asset impairment losses, a decrease compared to the first quarter of 2024. In the first half of 2024, the minority shareholders' profit and loss of A-share real estate companies amounted to 6.0 billion RMB, with a year-on-year growth rate of -59.45%. Current sales and net cash flow. In the first half of 2024, the year-on-year growth rate of cash received from sales of goods and services by A-share real estate companies was -38.3%, with a slightly higher growth rate compared to the first quarter of 2024. In the first half of 2024, the net debt ratio of A-share real estate companies was 154.9%, lower than the net debt ratio in the first quarter of 2024. Inventory and advances received (including contract liabilities). In the first half of 2024, the cumulative year-on-year growth rate of inventory for A-share real estate companies was -19.76%. In the first half of 2024, the cumulative advances received (including contract liabilities) for A-share real estate companies amounted to 2.03 trillion RMB, with a year-on-year growth rate of -31.16%, continuing to decline compared to the first quarter of 2024. Investment recommendations. Maintain an "outperform the market" rating. As of August 30, 2024, the dynamic PE (TTM) of the A-share Shanghai and Shenzhen 300 Index was 11.26 times, and the dynamic PE (TTM) of the real estate sector was 15.93 times. Haitong believes that the market environment for stable growth has not changed, and the advantages and value of high-quality companies relative to other real estate companies will become more prominent. Recommendations include: 1) Development companies: A-share-Poly Developments and Holdings Group (600048.SH), China Merchants Shekou Industrial Zone Holdings (001979.SZ), Gemdale Corporation (600383.SH); H-share-CHINA OVERSEAS (00688); 2) Residential and commercial companies: CHINA RES LAND (01109), LONGFOR GROUP (00960), Seazen Holdings (601155.SH); 3) Property management companies: ONEWO (02602), CHINA RES MIXC (01209), CHINA OVS PPT (02669), POLY PPT SER (06049), China Merchants Property Operation & Service (001914.SZ), New DaZheng Property Group (002968.SZ); 4) Cultural and tourism companies: Shenzhen Overseas Chinese Town (000069.SZ). Risk warning. Risks include intensified control measures and a downturn in the industry's fundamentals.