The Zhitong Finance App learned that China Galaxy Securities released a research report saying that as the industry as a whole faces downward pressure on transaction scale, industry concentration is expected to increase. Excellent central state-owned enterprises may have characteristics such as a good credit background, steady operating style, and relatively low financing costs, etc., and have advantages in the early stages of land acquisition and sales. With the further development of the industry, the bank believes that central state-owned enterprises are expected to further enhance their position in the industry, and the industry is expected to continue to concentrate at the top. As policy support for the industry from the top down gradually increases, the valuations of leading housing enterprises are expected to increase.

The main views of China Galaxy Securities are as follows:

The industry as a whole has established its base, and policies continue to gain strength

As of October 2024, the sales area of commercial housing nationwide was 0.779 billion square meters, the sales amount was 7.69 trillion yuan, and the cumulative value of real estate development investment was 8.63 trillion yuan, which was 84.18%, 79.10%, and 89.98% for the same period last year, respectively. Both sales and investment have bottomed out. In terms of policy, starting in September 2024, various departments will introduce support policies for the real estate industry's needs, financing, inventory, etc., to strongly support the industry to stop falling and stabilize

The number of central state-owned enterprises among leading housing enterprises has increased

According to Kerry statistics, the bank already has 15 central state-owned enterprises among the top 30 housing enterprises in terms of equity sales in 2023. Of these, 4 of the top 5 housing enterprises are central state-owned enterprises. Judging from the year-on-year growth rate of equity sales, the year-on-year growth rate of central state-owned enterprises in the TOP30 in 2023 was 7.30%, which outperformed the performance of the TOP30 housing enterprises (-14.72%). Against the backdrop of the overall pressure on the industry, leading central state-owned enterprises performed brilliantly. At the bottom of the industry, housing enterprises tend to acquire land at the core. Due to relatively high land prices in the core area, the threshold for land acquisition is relatively high. Among the top 30 housing enterprises in the first 10 months of 2024, state-owned enterprises and non-state-owned enterprises accounted for 76.25% and 23.75% of land acquisition amounts in the core 22 cities. Looking at the number of housing enterprises, out of the top 30 housing enterprises with land acquisition amounts in the 22 core cities, only 4 are non-central state-owned enterprises.

Increased concentration may be a trend in the industry

After sorting through the bank, it was discovered that the concentration of the property markets in Hong Kong, China and the US is relatively high.

1) After many cycles, the real estate market in Hong Kong, China is mature. By the end of 2022, the real estate development/real estate leasing industry was relatively high in Hong Kong, China. CR10, CR20, and CR50 were 0.45, 0.62, and 0.84 respectively, and the overall concentration exceeded CR50 by 0.17 over the past ten years.

2) The housing market in the US is mainly existing housing, and the competitive pattern for developers is relatively stable. Judging from the turnover of newly built single-family homes, the market share of TOP10 developers in 2022 was 43.5%; in terms of housing productivity, TOP10 developers accounted for 28.1%, and the industry concentration is relatively high.

The development advantages of central and state-owned enterprises are obvious

In the downward real estate cycle, central state-owned enterprises may use financing advantages to cross the cycle and compare the additional financing costs of the top 20 housing enterprises in 2024. After excluding housing enterprises that did not disclose average financing costs, by the end of the first half of 2024, the average financing cost of central state-owned housing enterprises in the TOP20 was 3.41%, and the average average financing cost of non-central state-owned housing enterprises was 4.64%.

Investment advice: optimistic about representative central state-owned enterprises

Key recommendations: Poly Development (600048.SH), China Merchants Shekou (001979.SZ), Investment Savings (001914.SZ);

Recommended attention: China Resources Land (01109), China Overseas Development (00688), Yuexiu Real Estate (00123), Huafa Co., Ltd. (600325.SH), C&D International (01908), China Jinmao (00871.SZ) and other central state-owned enterprises

Risk warning: the risk of macroeconomics falling short of expectations; the risk of policy promotion and implementation falling short of expectations; the risk of large fluctuations in housing prices; the risk of industry development falling short of expectations; risk of housing sales falling short of expectations; risk of industry sales falling short of expectations.