According to the Zhitong Finance APP, CITIC Securities released a research report stating that the newly acquired land by enterprises after 2024 will be the main source of profitability for current real estate companies' development businesses. The current oversupply of new homes and high housing prices have significantly eased, providing a foundation for the market to stabilize. In terms of development business, the bank is optimistic about companies that have sufficient new inventory, strong capabilities in building good houses, and whose new inventory is concentrated in regions such as Hangzhou, Shanghai, and Chengdu. In the field of operational real estate, the bank is optimistic about companies with outstanding operational capabilities and superior asset portfolios.
<h2>The main points of CITIC Securities are as follows:</h2>
The new inventory of real estate companies is a key factor determining the performance and future development flexibility of development enterprises.
Inventory is the main body of real estate companies' stock, and the newly added land reserves after 2022 are currently the more profitable inventory for real estate companies. Considering that the newly added land reserves between 2022 and 2024 are generally thoroughly digested (estimated average absorption rate is over 90%), the assets that development companies can truly discuss profitability, excluding investment properties, are the newly acquired land reserves after 2024. The quantity of this land reserve corresponds to the value of goods, determining the future quality and saleable value of the company.
Currently, there are significant differences in the profitability of new homes between cities, with a few cities contributing the majority of profits for companies, and high-profit cities are not necessarily the first-tier cities as generally perceived.
Due to different demographic inflows, age structures, land supply quality, and inventory digestion pressures in different cities, there are significant differences in the profitability of the new home market. The bank believes that even in the current weak market environment, the newly added land reserves in Hangzhou, Shanghai, and Chengdu after 2024 can generally achieve good returns, with estimated net profit margins around 8%. Shenzhen, Xi'an, and Hefei, although not as prosperous as Shanghai, Hangzhou, and Chengdu, still have popular projects with decent profitability. Other cities are more affected by market downturns, and the average potential net profit margin of newly transferred land is expected to be relatively lower, or the absorption speed slower.
The non-standard attributes of real estate company projects and increasingly complex planning conditions make it difficult to analyze the quality of new inventory in detail, but a simple analysis of the regions where companies acquire new land can help reveal the quality of new inventory.
The bank categorizes Shanghai, Hangzhou, and Chengdu as Class One regions, Shenzhen, Xi'an, and Hefei as Class Two regions, and other cities as Class Three regions. The bank believes that companies that are proactive in acquiring land in Class One regions after 2024 will have advantages in future sales absorption and profitability. In this statistic, Binjiang Group, Cmsk, and CHINA RES LAND rank at the top, with a significantly higher proportion of land acquisition in Class One regions compared to other large companies. If the bank compares the changes in land acquisition proportions in Class One regions after 2024 and after 2022, CHINA RES LAND (01109), Cmsk (001979.SZ), and CHINA JINMAO (00817) rank at the top, indicating that these companies are more resolute in regional focus after 2024. Including Class Two regions, Binjiang Group and Cmsk lead significantly in land acquisition proportions in both Class One and Class Two regions within the industry
There are shortcomings in the research methodology.
It must be stated that the research methodology of this bank has certain flaws. Firstly, it does not take into account the consideration of investment properties; secondly, a higher average land profitability quality in a single city does not mean that acquiring land in that city is always correct. In addition, there are indeed some less prominent cities where companies achieve high profits through product premiums; furthermore, this method does not evaluate the quality of existing land and assumes that the newly added existing land before 2021 generally has lower quality; finally, the classification of first-tier and second-tier areas may change dynamically. However, this method, while having subjectivity in regional selection, is completely objective in terms of data, and is significantly simpler compared to methods that assess the quality of each piece of land, and is also clearly more in line with the actual market situation than methods that measure land acquisition quality solely based on the proportion of first-tier and second-tier cities.
Risk Warning:
The risk of continuously increasing supply in the second-hand housing market. The risk of companies being burdened by existing assets and insufficient provisions for depreciation. The risk that some companies, although actively acquiring new inventory, have weak development capabilities

002244

02925

01109

001979

00817

CITIC Securities released a research report indicating that new land acquired after 2024 will become the main source of profit for real estate companies' development businesses. The current situation of excessive new housing supply and high housing prices has significantly eased, providing a foundation for the market to stabilize and stop declining. The firm is optimistic about companies with ample new inventory and outstanding operational capabilities in cities like Hangzhou, Shanghai, and Chengdu, believing that new inventory is the key factor determining the performance of development enterprises

Zhitong

Binjiang Group

WANJIAGROUP RTS

CHINA RES LAND

Cmsk

CHINA JINMAO

CITIC Securities: New land reserves are key to profitability, optimistic about "good houses" and companies with quality operations