Date
20 July 2017
Entertainment plays like Huayi Brothers Media currently enjoy huge popularity and thus high valuation in China's stock market. Photo: China Daily
Entertainment plays like Huayi Brothers Media currently enjoy huge popularity and thus high valuation in China's stock market. Photo: China Daily

China equities: Property less appealing than entertainment plays

China’s property conglomerate Dalian Wanda Group has been actively pursuing a transformation of its business model in recent years.

In its latest deal, Wanda agreed to offload 76 hotels and a 91 percent stake in 13 cultural and tourism projects to Sunac China Holdings (01918.HK) for 63.17 billion yuan (US$9.31 billion).

It’s rumored that the deal is aimed at paving the way for the domestic listing of Wanda as a non-property firm.

China housing market’s two-decades-long boom has created many billionaires. Wanda’s founder Wang Jianlin is one of those who have benefited tremendously from the property uptrend.

However, things are beginning to change.

Amid skyrocketing home prices, the authorities in many cities have imposed property purchase restrictions. Also, soaring land prices could erode the profit margin of property developers.

Demographic changes are also putting pressure on housing prices. The aging population and the falling number of new babies mean less housing demand in the future.

It’s estimated that the home ownership ratio in China has already reached 95.4 percent.  As such, another explosive growth in housing demand is unlikely in the medium to long term.

Some analysts believe that the golden decade for the property market is already over.

In fact, mainland investors view property stocks with much caution. (In Hong Kong, however, investors seem very excited about the sector.)

In the A-share market, China Vanke Co. Ltd. (000002.CN) and Poly Real Estate Group (600048.CN) posted a rally of less than 20 percent year-to-date.

By contrast, Hong Kong-listed mainland property stocks outperformed. China Evergrande Group (03333.HK) more than tripled while Country Garden Holdings (02007.HK) more than doubled.

Wanda is seeking a listing in the A-share market to get a better valuation; it would be in its best interest to portray itself as a non-property play.

Cultural and entertainment firms can fetch valuations as high as 40 or 50 P/E multiples in the mainland market.

For example, industry leader Huayi Brothers Media Co. Ltd. (300027.CN) now has a P/E ratio of 48 times, while Vanke is valued at below 13 times.

Wang has been actively reshaping his business empire into a cultural and entertainment business in recent years.

Shedding more property assets is not at all a surprising move as the firm prepares for its initial public offering in China.

This article appeared in the Hong Kong Economic Journal on July 11

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

HKEJ columnist

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