PROPERTY ALERT：CCCPC SET POLICY TONE FOR 2013

CCCPC has 6 key points for 2013

    According to Xinhua, the Political Bureau of Central Committee of Communist Party of China (CCCPC) held a meeting yesterday under the leadership of General Secretary Xi Jinping, discussing the economic matters for 2013. The meeting concludes the followings: 1) Ensuring continuity and stability of macro policies, while at the same time will ensuring policy flexibility and adjusting according to circumstances; 2) Cont inuing China's path of urbanization gradually, facilitating a gradual shift of rural population to urban population, promoting a economical/efficient use of land; 3) Further implementation of the regional strategic development strategy; 4) Deepening the reform for openess of its economy, optimizing trade policie s and trade mix; 4) Maintaining stable overall pricing environment; 5) Promoting reforms in key areas including extending the pilot scheme for the change from business tax to value-added tax, improving the pricing mechanism of resource commodities; 6) Improving social security, stressing property contro l and social housing policies. Besides, PBCPC expects economic and social development targets could have a good completion in 2012, given a more balanced macro policy direction and gradually stabilizing inte

    al economy.

    Exisitng property policies to continue; yet no further tightening In our view, despite recent recovery in home prices, the magnitude of the price rebound remains mild (Soufun 100-city home price index has rebounded by only 1.23% since bottoming out in June). In our view, the CCCPC meeting indicates that central gove

    ment is only reiterating the existing property policies and that we do not expect any further new tighting policies targeting property industry in the near-term.

    More favaourable 2013; Add more beta

    In 2H09-10, new supply in the commodity residential market fell due to tight financing for Chinese developers. We ex pect this falling supply scenario to happen again in 2013, on the back of 1) lower inventory levels; 2) falling new construction starts in 2012; and 3) cont inually declining land sales (in top 300 cities) in 2011 and 2012. With the expected fall in new supply, we expect pricing power to retu

    for the developers and property prices to likely rise by 5-10% in 2013. In this scenario, we believe overlooked, quality small-cap developers should see stronger valuation re-ratings ahead. Our small-cap top picks are C C Land, Kaisa, Sunac, Mi nmetals Land and Central China Real Estates. For bid and mid-caps, our top picks for growth are COLI, CR Land and COGO, and, for value: Country Garden, R&F and KWG. We recommend selling Sino Ocean and Yanlord. We derive our target prices from NAV and DCF. Key risks: widespread financial distress; sharp deterioration in economy.