Recent situation of the industry

Hang Seng real estate construction industry bucked the trend this week by 3.62%, significantly outperforming the Hang Seng Index (- 5.43%), and the industry's relative income was close to 9%.

Judging from the 35 stocks in the weighting index such as Futu Real Estate (see schedule 1 for details), the top three stocks that have risen this week are Shimao Group (+ 13%), China Resources Land (+ 12%) and Hejing Pacific Group (+ 11%). The top three decliners were Yongsheng Life Services (- 18 per cent), ESR Cayman Limited (- 12 per cent) and Evergrande Property Services (- 9 per cent).

If analyzed by industry segments, real estate development and real estate trust funds have performed well this week, with the exception of China Evergrande Group, other real estate development head companies have basically achieved positive returns. In contrast, property management, building materials, heavy infrastructure, real estate agents and so on all performed poorly.

In addition, from the perspective of important developments in the industry, two major things have happened this week:

• First: the land supply market is about to usher in great changes. According to Sina.com, 22 key cities, including Beijing, Shanghai, Guangzhou and Shenzhen, will implement new "two-focus" regulations on residential land supply, that is, residential land transfer announcements will be issued and activities will be organized in three batches throughout the year.

• Second: property management leader Country Garden Services Holdings set off a new acquisition case. On February 23, Country Garden Services Holdings and Blu-ray Garbo Service both issued announcements that the company's shares would be temporarily suspended, saying that they planned to carry out inside information on the transaction that might constitute a need to be announced. In the evening of February 25th, Blu-ray Development and Country Garden Services Holdings successively issued announcements that the specific transaction plan was for Country Garden Services Holdings to acquire 64.62% of Blu-ray Garbo Services shares in cash of 4.846 billion yuan, that is, to acquire Blu-ray Garbo Services at about 42.1yuan per share.

The following are mainly comments on these two important events.

This week's point of view

• This change in land supply policy is essentially a supply-side reform, which can optimize the competition pattern of the industry, benefit the housing enterprises at the head of the industry, and further improve the concentration of the industry.

The specific transmission logic is as follows: before, small and medium-sized housing enterprises generally used the radical land acquisition strategy, which led to a direct increase in land premium, resulting in low industry-wide profit margins, and led to tight capital chain and high financial leverage.

After the implementation of the new policy of centralized land supply, higher requirements have been put forward for the capital, financing, operation and land acquisition capacity of housing enterprises, while the head housing enterprises, such as Vanke, Poly, China overseas and China Resources, have extremely strong comprehensive strength, especially in terms of financing capacity, so it is expected to gain a greater competitive advantage in the competition for residential land with a lower land premium rate than in the past, and improve sales profit margins.

In contrast, small and medium-sized housing enterprises not only "bend overtaking" strategy will fail, but also may face a more serious survival crisis, after all, residential land for most development-oriented housing enterprises is the production of "raw materials", indispensable.

• If property management leader Country Garden Services Holdings successfully acquires Blu-ray Garbo service, it will further consolidate its absolute position as the plate leader.

At present, there are more and more listed companies in the property management sector, and there is a serious differentiation between the head companies and small and medium-sized property enterprises, which generally suffer from low valuation and liquidity, as is the case with Blu-ray Garbo service. And this acquisition is also the first merger between listed property enterprises.

After the completion of this acquisition, Country Garden Services Holdings will manage an area of more than 500m square meters, with a sharp increase of 30%. At that time, no matter in terms of revenue scale, management-contract area, regional layout, market capitalization, etc., it will be greatly different from other companies in the industry. therefore, it can be called a great boon.

Investment suggestion

Looking forward to the whole year of 2021, from the perspective of sub-plate, it is suggested to increase the allocation of high-growth and deterministic property management plate.

Risk hint

The macroeconomic boom has declined, the sales data of housing enterprises have been lower than expected, and the regulatory policy of the industry has continued to be stricter.

Appendix

Table 1: 35 constituent stocks of Fu Tu Real Estate Equal weight Index

Table 2: performance and valuation of each segment leader of Dazhou plate this week