China will demolish its property curbs: Kim Eng

Drastic easing of policies foreseen in 2H12 as China tries to stop a housing meltdown.

With prices of new homes spiraling downward, Chinese government intervention could buoy the battered market. It could also benefit property firms like Ying Li.

What's so special about this Chinese developer? And what investment strategy does it share with CapitaLand and City Developments?

Here's more from Kim Eng:

Positioning ahead of policy relaxation. According to the National Bureau of Statistics, China's new home prices dropped 0.3% MoM in December 2011, a third consecutive month of decline. Further, new home prices contracted on a monthly basis in 52 of the 70 cities monitored. Against such a backdrop, we think the Chinese government may relax some property curbs, possibly as early as in the second half of the year to prevent a sudden collapse of the housing market. This will provide the much-awaited catalyst to trigger a re-rating of Ying Li.

Awarded second prime site. Ying Li recently said that it has won the tender for a strategic plot of land in Chongqing Financial Street (CQFS) for RMB50.35m (excluding resettlement cost). The 5,452-sq-m Wei Yuan site sits next to its existing Wu Yi Road landbank and the group is in advanced discussions with the authority to enlarge the combined land area of the project to about 17,000 sq m. The two plots of land will be developed together into a Grade A office-cum-retail mall (with a total planned area of 240,000 sq m) in an area demarcated as the CQFS.

Riding the Chongqing wave. We understand that demand for prime commercial spaces in Chongqing continues to remain steady as it benefits from the government’s “Go West” policies, which attracted many multinational corporations and financial institutions. The significant investment by major local real estate players, CapitaLand and City Developments also highlights the city’s huge potential.

Launch of IFC retail mall. Separately, Ying Li has had a soft opening of Yingli IFC retail mall late last month, where the committed occupancy rate to-date has already exceeded 80%. The mall showcases both internationally and domestically renowned brands, some of which have chosen to open their flagship stores there.

At a steep discount to RNAV. We maintain our Buy recommendation on Ying Li and our target price is unchanged at $0.50, still pegged at a 40% discount to the stock’s RNAV per share of $0.83.