Hong Kong Stock Market Review: Inner Property Market Restless

Real Estate Market Stirring

With Japan keeping interest rates unchanged and the yen depreciating again, the Chinese yuan is also moving in the same direction, with news of a possible interest rate cut next week, causing a stir in the real estate market today.

Supported by various policies, there may be hope for stabilization in the first and second-tier cities, but destocking in lower-tier cities still poses significant challenges. Currently, the remaining strong players are mainly state-owned enterprises, which are either continuing to acquire land or have capable shareholders who are increasing their holdings.

For example, Yuexiu Property announced earlier this month that its sister company, Yuexiu Capital, will increase its holdings through its subsidiary Guangzhou Assets by no more than 2% of the shares and a total amount not exceeding 556 million yuan, implying a maximum purchase price of HKD 7.4 per share. After the completion of the increase, the controlling shareholder Yuexiu Group's shareholding will increase to a maximum of 45.39%.

Currently, Yuexiu Property's financial situation is relatively stable, with interest-bearing debt of 104.4 billion yuan, a net debt ratio of 57.0%, a cash-to-short-term debt ratio of 2 times, mainly due to the company's rights issue fundraising of 8.36 billion yuan last year and bond financing.

Although the fundraising situation is not ideal, on the bright side, the second largest shareholder, Guangzhou Metro, has participated in the rights issue proportionally, and the equity of the major shareholder has increased by over 3%, benefiting more. The major shareholder's plan to increase its holdings also indicates confidence in the company's value.

In terms of sales, Yuexiu Property's cumulative sales from January to May this year were approximately 40.092 billion yuan, a year-on-year decrease of about 42.3%, accounting for only 27.3% of the annual target, which may put pressure on achieving the target. However, the company's inventory is concentrated in first and second-tier cities, where demand remains relatively strong. Guangzhou accounts for over 40% of the available resources, with 15-20% in Beijing, Shanghai, and Shenzhen. If first-tier cities see a recovery, the company will be among the first to benefit.

In terms of land reserves, the company had a land bank of approximately 25.67 million square meters at the end of 2023, with first-tier, second-tier, and third-fourth-tier cities accounting for 44%, 51%, and 5% respectively, with Guangzhou accounting for 38.2%. Additionally, the company has continued to acquire land this year, acquiring 5 plots in the first 4 months, totaling 7.42 billion yuan in Shanghai, Guangzhou, and Hefei. With good land acquisitions, there should be no problem selling.

Furthermore, Guangzhou Assets focuses on non-performing asset management, which may lead to potential cooperation with Yuexiu Property.

From January to May this year, Guangzhou's new home sales totaled 2.28 million square meters, a 37.2% year-on-year decrease, with 560,000 square meters sold in May, a 28.7% year-on-year decrease. In the first 4 months of this year, second-hand home sales totaled 4.04 million square meters, a 23.4% year-on-year decrease, with 1.16 million square meters sold in April, a 5.7% year-on-year decrease.

According to the Zhuge Data Research Center, only Chengdu, Wuhan, and Guangzhou had better new home sales performance than last year. If Guangzhou stabilizes, Yuexiu Property's foundation will also be stabilized