Country Garden banks on September and October for strong sales

July sales could possibly be flat.

China-based Country Garden’s July project launches in Zhejiang Haining, Luoyang, and Nantong saw encouraging sell-through ratios at ~80%, while analysts believe that growth in July could be flat vs June (CNY9.1b), which is fine given this month is seasonally slower.

According to a research note from Maybank Kim Eng, the company expects strong sales in September and October.

Last month, management guided lower 2014 GPM similar to 2H2013 levels, meaning about 25% post-LAT or 28-29% pre-LAT.

This has made Maybank Kim Eng trim its 2014 core profit by 3% after margin tweak.

Here's more from Maybank Kim Eng:

The company’s “Three Elites” program has the right intensions to improve operations.

This includes sending its top sales teams to poor-performing projects, and replacing the bottom 30% of sales performers with new elite sales hired from competitors as well as other sectors like autos in the project local area.

We believe this could start to realize more impact next year.

Management’s goal of having a maximum 10% of assets exposed to overseas in five years has mitigated some operational risks, especially in light of this year’s poor sales in Malaysia.

In June, Ryde Garden in Australia achieved good ASP of over CNY40k/sq m, helping to lift June contract sales ASP, but we assume July’s ASP will go back to normal levels.

To better manage inventory, CG trimmed its full year new saleable resources from CNY150b to CNY130-140b, in line with our estimates of slightly slower starts in 1H.

Largest shareholder Yang’s higher stake via script dividend also signals her confidence in the company.

We expect costs of borrowing to edge down this year from 8.54% in 2013 due to refinancing activity.