Analysts’ Perfect Stock Plunges as China Property Risks Grow

(Bloomberg) -- For a perfect stock, China Resources Land Ltd. is taking a beating.

Shares of the property developer have plummeted 17 percent from this year’s high on Sept. 9, the fastest pace on the city’s benchmark equity gauge. All 33 analysts tracked by Bloomberg have a buy rating on the company, giving a consensus score of 5 out of 5. That’s the highest of any constituent of the Hang Seng Index.

While Mizuho Securities Asia Ltd. says the company’s earnings outlook remains buoyant, investor sentiment toward the Hong Kong-based developer and its peers has soured as China rolls out measures to cool the nation’s real estate market. Barings Asset Management (Asia) Ltd. says the shares, which are valued at $17 billion, will probably extend their rout.

“This is a very volatile sector,” said Khiem Do, Hong Kong-based head of multi-asset strategy at Barings, which oversees $275 billion globally. If history is any guide, “the correction could continue and could be quite severe,” he said.

In the past three years, the stock has experienced two extended slumps of more than 35 percent. The shares managed to eked out a 0.7 percent gain on Wednesday to end a record nine-day declines. Officials in the company’s Hong Kong and Shenzhen offices weren’t immediately available to comment.

The disparity is an illustration of how quickly investor sentiment has turned against Chinese real estate companies amid growing concern of a bubble. Just a month ago the stock was trading at its highest level in almost a year as home prices jumped by the most in six years, fueling optimism that developer earnings would be boosted.

In recent weeks authorities in at least 21 cities have introduced home-buying curbs, ranging from raising down-payments for first and second homes, to ruling some potential buyers ineligible. China’s financial regulators also plan to further tighten control on funds flowing into the property market in violation of current rules, according to people familiar with the matter.

Analysts are keeping their faith. Their 12-month consensus target price rose to HK$28.34 on Tuesday, the highest in more than a year and implying a 45 percent return.

Alan Jin, a Hong Kong-based strategist at Mizuho Securities, is sticking with his buy rating and forecast of HK$24.50, saying investors are just locking in gains after the stock was one of the top performers earlier and the profit outlook remains positive.

Profit Growth

China Resources reported net income of HK$7.68 billion in the first half, compared with a profit of HK$6.45 billion a year earlier. Earnings per share are forecast to grow 24 percent this year after a 14 percent jump in 2015, according to data compiled by Bloomberg.

"The company is doing very well in terms of margins, expansion and earnings growth," said Jin.

Still, the gap between China Resources shares and analyst targets keeps widening, while growing pressure on policy makers to avert a property bubble is increasing investor caution.

"People are being careful and no one wants to get caught," said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. "The price of property continues to rise, despite various measures to control the market, and with each rise, the central government introduces more measures.”

To contact the reporter on this story: Kyoungwha Kim in Hong Kong at kkim19@bloomberg.net. To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Sarah McDonald, Robin Ganguly