Translated by Andrew Vanburen from a Chinese-language piece in Sinafinance
DESPITE THE sluggish economy, weakening real estate prices and persistent worries about growth in the EU and US, PRC-listed property developers have actually been doing alright for themselves, at least as far as share prices are concerned.
On January 4 of this year, the average P/E ratio for members of the Property Sub-index tracking PRC-listed developers stood at a mere 12.36 times.
Now flash forward a few months.
Following interest rate action, aggressive urban development campaigns, economic stimuli and a weakening confidence in traditional industries... we now have an average P/E of 22.51 times for the sub-index, a near doubling in average values.
In fact, while most shares in China have been languishing of late, listed real estate developers have been the exception, rising by an average of nearly 20% so far this year.
According to financial data play Hexin Flush Info (SZA: 300033), using May 23 as a baseline measure, real estate firms listed in Mainland China rose an average of 19.68% over the past 120 trading days, a feat which ranks atop all the listed industry sectors in the PRC during the time period.
Looking more closely behind the nearly 20% jump we can see there are two distinct upward treks for developer counters.
The first is comprised of established blue chip property plays attracting money due to their fundamental strengths.
However, the other nearly parallel upward trajectory is made up mostly of speculative capital chasing themes rather than concrete performance – or expectations thereof.
Looking at the first ascent – the blue chips – funds generally gravitate toward the stellar financial performers among them over the past few reporting periods.
As of May 24, China Vanke (SZA: 000002) – the country’s top residential developer – has seen its share price rise 19.41% so far in calendar year 2012.
Other blue-chip bulldozing behemoths have done even better.
China Merchants Property (SZA: 000024), Poly Real Estate (SHA: 600048) and Gemdale Corp (SHA: 600383) have jumped 33.9%, 34.5% and 35.5%, respectively, so far this year.
In fact, the rate of these real estate giants’ rise in the first five months has far outperformed the Shanghai Composite, the benchmark index that tracks A- and B-shares listed in Shanghai and Shenzhen.
According to data provided by IFind, investment capital flow volumes over the past 20 days into China Vanke, Poly and Gemdale stand at 1.01 billion yuan, 666 million and 596 million.
Using the most recent earnings statement as a barometer of health, these three developers are in rather good shape, exhibiting stable and steady growth and returns.
However, looking at the second category of rising property developers – those attracting more speculative attention – we see that there is a somewhat murkier picture taking shape.
The following construction and property counters have been less courted for their recent performance than for other less tangible charms, and have attracted what can be considered more speculative interest from investors.
Zhejiang Dongri (SHA: 600113), Shanghai Jinfeng (SHA: 600606) and other lesser-known names in property circles have of late been repeatedly hitting their daily upper limits and halted from trade.
Among them, Zhejiang Dongri is the most astounding, having seen its share price rise over 200% these past 16 trading days.
One common thread linking the big boys to the smaller but fast-rising rivals is that nearly all are concentrated in the traditional real estate powerhouses of the Pearl River Delta, the Yangtze River Delta or the Bohai Bay region.
Other than that, other than engaging in the same industry sector, participating counters in the two upward trajectories of late have little else in common, and investors should take conscious note of this.
That being said, there is little out there at present to suggest that either upward trek will peter out anytime soon.
But it would be wise of investors to begin to look more deeply into this latter batch of upwardly mobile stocks, especially into their fundamental strengths, before getting involved too deeply or too late.
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