China developers favored over Hong Kong peers amid upcoming results season

Partly because of very low expectations.

The Hong Kong property companies’ 1H 2014 results season will kick off next Thursday 31 July 2014, and in relation to this, it has been stated that analysts prefer China developers over the Hong Kong property companies, due to their cheaper valuations and lower earnings expectations.

According to a research note from Barclays, as discussed in its 4 June 2014 report “Deja Vu – China property poised for a catch up?” it believes the current China-HK NAV discount gap suggest that the market is either being too bearish on China or too bullish on Hong Kong.

On balance, Barclays believes the China property companies are better positioned going into the reporting season.

This is due to the reasons that they not only benefit from cheaper valuations but also very low earnings expectations, the report said.

With China’s 1H 2014 housing sales down 6.7% y/y, the report believes investors are already expecting lower margins and higher gearing for the China developers. Among the China developers, Barclays’ top picks are COLI, Shimao and KWG and among the Hong Kong property stocks, Cheung Kong and Hang Lung Properties are its only OWs.