Bank of America Securities has released a report expressing a positive outlook on China's real estate sector, anticipating a phased and differentiated recovery. The firm notes potential upside in the industry's fundamentals, primarily driven by pricing power in luxury projects within first-tier cities and signs of bottoming in more second-tier city markets. It maintains a favorable view of the sector, particularly towards the high-end residential market. The bank has raised the target price for CHINA OVERSEAS (00688) from HK$17 to HK$19, reflecting an upward revision in earnings per share forecasts for 2028, and reiterates a "Buy" rating. This adjustment is based on increased profit margin projections for the company and a roll-forward of valuations to 2028 estimates. The report suggests that high-quality state-owned enterprises are currently trading at around 8.5 times estimated 2028 price-to-earnings, slightly above historical averages, and retain potential for valuation upside if the recovery materializes. Among domestic real estate stocks, the firm's top picks are CHINA OVERSEAS, China Resources Land (01109), and C&D International (01908). Bank of America Securities expects the recovery to be gradual and occur in stages over the coming year. It forecasts a 6% to 7% decline in national new home sales volume and an 8% to 9% drop in value for 2026, with stabilization anticipated in 2027. The report also indicates that CHINA OVERSEAS achieved single-digit year-on-year growth in contracted sales during the May Day Golden Week, though the pace moderated post-holiday. The company plans to launch more major new projects in June but faces higher comparative bases from May to June. Overall pricing remains stable, with slight increases observed in some projects.
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