2023.04.24 20,500 points to be the resistance

According to China’s National Bureau of Statistics, GDP grew 4.5% in 1Q23, showing a economic rebound. The GDP YoY growth rose from 2.9% in 4Q22 to 4.5% in 1Q23, and the QoQ growth increased from 2.4% to 9.1%. The rebound in consumption, a narrower decline in real estate activities and exports were the main drivers. The contribution of consumption to economic growth in 1Q23 reached 66.6%. The total sales of consumer goods in 1Q23 increased 5.8% YoY, while it fell by 2.7% in 4Q22, indicating that consumption in the first quarter is picking up and improving. In 1Q23, the consumer price index (CPI) rose 1.3% YoY; the core CPI excluding food and energy rose 0.8% YoY; the CPI in Mar rose 1.5% YoY, which was generally within a healthy range. The market expects the recovery of China’s economic activity to continue, but the growth rate is estimated to slow.

In terms of the real estate industry, the fixed asset investment in 1Q23 increased by 9.3% YoY; infrastructure investment increased by 8.5% YoY; real estate development investment increased by 0.7% YoY. The growth rate of infrastructure investment slowed slightly but remained stable. Residential investment was CNY1.98 tn, -4.1% YoY. In 1Q23, the sales of commercial housing was 299 mn s.qm, -1.8% YoY, of which the GFA of residential buildings increased 1.4% YoY. The sales of commercial housing were CNY3.05 tn, +4.1% YoY, and the sales value of residential buildings increased 7.1% YoY. The sales of commercial real estate in Mar continued the recovery trend in Feb, and the growth rate of residential real estate continued. Investors are concerned about the sustainability of the pent-up demand and more capital fund-raising activities from developers. Investors cannot be too optimistic about Chinese properties in the near term. Regarding the Hong Kong market, although HSI is above 20,000 points, it lacks upward momentum. We expect HSI to trade between 19,500-20,500 points.

Sales of real estate in Hong Kong improved significantly in March, and the market expects that more sales to Chinese buyers during the “1/5” holiday. Moreover, the shopping mall business is also expected to benefit from consumption vouchers and Chinese tourist consumption. Hong Kong developers are worth paying attention to in the near term.

Kerry Properties (683) mainly engaged in property investment and development in HK and China. In 2022, the company’s revenue was HK$14.59 bn, +4.8% YoY. Among that, rental income which accounted for 34% of revenue was -6.6% YoY to HK$4.99 bn, while property development, which accounted for 59% of total turnover, was +2.1% YoY to HK$8.543 bn. The core profit for the period was HK$4.52 bn, down 28% YoY.

The company has robust a development property pipeline in HK and China, in 2023, the company is going to launch THE SOUTHSIDE Package 4 in HK and the project in Wuhan and Shanghai Pudong in China. Going forward (after 2023), Kerry is expected to launch the project in Yuen Long, the LOHAS Park Package 13 project, and the project in To Kwa Wan. Meanwhile, Kerry also has attributable GFA of ~6.8m s.qft to launch in China. So, Kerry also has a high revenue visibility. The unbooked revenue as of end of Dec 22 amounted to HK$13.1bn, In which HK$11.6bn can be recognized in 23E. GFA of Investment property is expected to increase 55% in the next five years and can help in supporting the rental income. As Kerry focuses on luxury projects with a strong investment pipeline, it is recommended to buy at HK$19.4, target at HK$22.0, stop loss at HK$18.2. Risk: Gearing ratio up from 15.1% in FY21 to 33.6% in FY22.

SINO LAND (83) mainly engaged in property investment and development in HK and China. In FY1H23, Sino recorded revenue of HK$6.383 bn, -41.8% YoY. Among them, revenue from property development was HK$3.947 bn, -54.6% YoY and accounted for 62% of revenue. The revenue from investment property was HK$1.356 bn, -2% YoY and accounted for 21% of revenue. The core net profit was HK$2.802 bn, -36% YoY.

Sino recorded strong sales YTD, with contracted sales of more than HK$3bn. Sino has scheduled the MTR projects of Grand Mayfair III, Villa Garda III, Wong Chuk Hang Station Phase 4 and Yau Tong Development (792 units) to launch in 23E. It is expected that the demand for MTR projects is strong. The revenue visibility is also high. Sino has unbooked revenue amounting to HK$ 18.2 bn. Moreover, Sino has net cash of ~HK$41.2bn and is expected to benefit from the increase in interest rate. As Sino is focusing on MTR projects with diversified locations while also having a net cash position. It is recommended to buy at HK$10.5, target at HK$11.8, stop loss at HK$9.8. Risk: Rental income from office facing continual headwinds.