Guosen: The basic fundamentals of the real estate sector did not show improvement in August, and the opportunities for strategic gaming still need to be observed.

Guosen released a research report stating that the fundamentals of the real estate industry did not show improvement in August, and the decline in house prices continued to expand. As the last selling window period of the year, the "Golden September and Silver October" may repeat the trend of trading volume for price seen in the first quarter. The bank believes that from the perspective of real estate enterprise value, the fundamentals cannot support a bullish trend in the real estate sector until house prices stop falling. From a policy game perspective, the current policy of city investment in land acquisition and reserves still controls acquisition costs based on the idea of "market-oriented operation," making it difficult to support house prices. The slight reduction in taxes and interest rates and other minor policies are unlikely to support the theme of real estate sector investment. Opportunities for gaming still need to be observed. In October, it is recommended to pay attention to CH OVS G OCEANS (00081) and CHINA RES LAND (01109). Main viewpoints of Guosen are as follows: Industry: Volume and price under pressure, recovery slowing down. 1) The decline in sales volume has narrowed, but is still low compared to the same period in 2019: In August, the sales area of commercial housing decreased by 12.6% year-on-year, a decrease of 2.8 percentage points from July. The cumulative year-on-year decline in sales has narrowed due to lower base figures. Relative to historical sales volumes during the same period, the sales area and sales volume of commercial housing in August were only 52% and 49% respectively compared to the same period in 2019, indicating a low level. 2) The price decline for new houses is expanding, while the pressure on second-hand houses continues: In August 2024, the sales price of new commercial housing in 70 large and medium-sized cities decreased by 5.7% year-on-year, an increase of 0.4 percentage points from July; the sales price of second-hand houses in 70 large and medium-sized cities decreased by 8.6% year-on-year, an increase of 0.4 percentage points from July. Considering the impact of price reductions in second-hand houses on potential buyers' decisions, new house prices will continue to face significant pressure. Interim report summary: Sector records losses for the first time. In the first half of 2024, 103 companies in the real estate sector achieved total operating income of 811.7 billion yuan, a year-on-year decrease of 22%; the net profit attributable to the parent company was -11.4 billion yuan, a year-on-year decrease of 128%, marking the first occurrence of losses in the sector. The main reason for the sector's losses was the pressure on gross profit margins and the recognition of asset impairment losses. In the first half of 2024, the overall gross profit margin of the real estate sector was 25.9%, the same as the same period in 2023; total asset impairment losses were 9.3 billion yuan, a 175% increase year-on-year. Sector: Outperforms the Shanghai and Shenzhen 300 Index by 11.3 percentage points this month. Since the release of the previous strategy report, the real estate sector has risen by 9.6%, outperforming the Shanghai and Shenzhen 300 Index by 11.8 percentage points, ranking first out of 31 industries. According to Wind's consensus expectations, as of the latest closing date, the sector's dynamic PE ratio in 2024 was 19.4 times, which is 95.3% higher than the bottom valuation level in 2021 (10.0 times dynamic PE). Risk warning: Policy implementation does not meet expectations, industry fundamentals decline beyond expectations, and unexpected events in real estate companies' credit risks.