I wonder how the investment merits of these chinese SOEs would stack up against the smallish net-net HK developers such as Tai Cheung (8.3% yield, net cash) and Miramar (6% yield, net cash), also similarly trading at deep discounts to their book. Perhaps they are an apple-orange comparisons, but with limited resource, i do wonder which offer more bang for the buck. Any strong view here?
I personally don’t dabble in net net small developers because they’re too small for my personal tastes I personally only like investing in large blue chip developers with a long track record of having solid credit since the real estate business can be quite volatile.
The reason why I covered only the State owned developers in China is because the stake has an active role to play in these companies hence the chances of them going bankrupt are basically zero. Plus these companies are very conservatively run and aren’t prone to the whims of private entrepreneurs who will undertake any investment no matter how risky to maximise their chance of profits.
You can have the smaller developers as part of your net net basket no problem but I’d personally sleep better at night holding the large state owned developers.
The only thing to be careful about when digging into China RE plays is companies often have off-balance sheet liabilities that are several times the size of the on-balance sheet liabilities reported in the public financial documents. Therefore, it is also important to look at how the bonds are trading to get a sense of the level of distress each developer is facing.
I don’t really care much about the off balance sheet liabilities with the State owned developers because of two reasons:-
- The State owned developers can make these creditors wait for years before they finally pay up because well they are owned by the literal State and whether it’s the U.S., Europe, China or even Burundi good luck winning litigation against the State for payment of their dues it never works out
- The State owned developers are very conservatively run as evident by China Overseas’s A grade rating and have long track records of excellent execution and operation.
With the real estate industry industry in China shifting to almost a complete state owned and operated model I expect that to continue.
Very good read - I already bought First Service and Automated System from your net net articles and some exposure to Chinese real estate looks fantastic at this price point as well :)
Thank you so much for your kind words. That’s precisely why I covered this sector as well. I hope part 2 can provide you with more value. Both First Service and Automated Systems are so undervalued it’s crazy
I wonder how the investment merits of these chinese SOEs would stack up against the smallish net-net HK developers such as Tai Cheung (8.3% yield, net cash) and Miramar (6% yield, net cash), also similarly trading at deep discounts to their book. Perhaps they are an apple-orange comparisons, but with limited resource, i do wonder which offer more bang for the buck. Any strong view here?
Thanks for the write-up. A great read.
I personally don’t dabble in net net small developers because they’re too small for my personal tastes I personally only like investing in large blue chip developers with a long track record of having solid credit since the real estate business can be quite volatile.
The reason why I covered only the State owned developers in China is because the stake has an active role to play in these companies hence the chances of them going bankrupt are basically zero. Plus these companies are very conservatively run and aren’t prone to the whims of private entrepreneurs who will undertake any investment no matter how risky to maximise their chance of profits.
You can have the smaller developers as part of your net net basket no problem but I’d personally sleep better at night holding the large state owned developers.
Provides much needed historical context. Great read as usual. Excited for Part 2, thanks!
Thank you for your kind words Andreas
Very nice read.
Thank so much Chris, it means a lot to me. I hope I can make part 2 even better
The only thing to be careful about when digging into China RE plays is companies often have off-balance sheet liabilities that are several times the size of the on-balance sheet liabilities reported in the public financial documents. Therefore, it is also important to look at how the bonds are trading to get a sense of the level of distress each developer is facing.
I don’t really care much about the off balance sheet liabilities with the State owned developers because of two reasons:-
- The State owned developers can make these creditors wait for years before they finally pay up because well they are owned by the literal State and whether it’s the U.S., Europe, China or even Burundi good luck winning litigation against the State for payment of their dues it never works out
- The State owned developers are very conservatively run as evident by China Overseas’s A grade rating and have long track records of excellent execution and operation.
With the real estate industry industry in China shifting to almost a complete state owned and operated model I expect that to continue.
Thanks for yet another interesting article. Do you have any analysis of the listed China Overseas subsidiaries with their own listings, 2669 and 81?
That’s coming in the next part haha. Give me a few days this took me almost an entire day to write
Excellent analysis and an enjoyable read, appreciate your hard work.
Hi Jackson thank you so much
Hui Ka Yan is Xu Jiayin in Cantonese
Oh fair enough
Very good read - I already bought First Service and Automated System from your net net articles and some exposure to Chinese real estate looks fantastic at this price point as well :)
Thank you so much for your kind words. That’s precisely why I covered this sector as well. I hope part 2 can provide you with more value. Both First Service and Automated Systems are so undervalued it’s crazy