Finally something to crow about :: Macquarie Research,

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Finally something to crow about
Event
 The Asia real estate sector outperformed the broader market and within global
real estate in July, giving us ‗something to crow about‘. We provide an update
of our view on the outlook for the Asia-Pacific Real Estate sector and use our
theoretical portfolio to demonstrate our preferences across the region. The
key themes for this Turnkey: Putting a toe back in India waters, playing
developers with strong contract sales and earnings potential in China,
switching out of Hysan Development and into Wharf Holdings, reducing
exposure to the Australian consumer and deploying cash in an attractively
priced market.
Impact
 Toe in the water in India: Prestige, Sobha and HDIL. We have selectively
invested back in India. We like Bangalore residential, IT commercial and retail
property over Mumbai, and NCR residential. We prefer players in relatively
‗sane‘ markets such as Bangalore (Sobha and Prestige) and price warriors
focusing on asset turnover (HDIL). We would avoid Omaxe, Unitech and
IBREL, given news flow risk and our view that record-breaking residential
prices (coinciding with falling volumes) and volumes (driven by speculation)
are unsustainable.
 Portfolio changes: Increase weight: Wharf Holdings, KWG, China Overseas
Land and Investment, Mapletree Industrial Trust, Prestige, Sobha, HDIL and
Mitsui Fudosan. Decrease weight: Colonial First State Retail Fund, Westfield
Retail Trust, Hysan Development, Capitaland, Capitamall Asia,
CapitaCommercial Trust, Guangzhou R&F, Mitsubishi Estate and Cash.
 Regional portfolio:
 Overweight: China, Hong Kong Landlords, Singapore Landlords, the
Philippines, Indonesia and India.
 Underweight: Hong Kong Developers, Singapore Developers, Japan,
Australia and New Zealand.
 Singapore only market to record net upgrades. The earnings revision ratio
remained weak with net downgrades at 0.60x. Singapore was the only market
to record net upgrades in July. Hong Kong, China, Japan and Australia saw
significant net downgrades. FY11 earnings growth forecasts moderated
slightly in July to 10.8% from 11.0% in June.
 Trading multiples below long-run average. July was a better month for
the MSCI Asia Ex. Japan Real Estate Index, which was up +2.33%, and
outperformed the broader market. The cumulative underperformance of real
estate within the MSCI Asia ex Japan is now ~565bps CYTD. The 12-month
forward PER for MSCI Asia ex Japan real estate increased in July to ~12.16x,
but remains well below the long-run average of ~14.76x. The sector is
currently trading at a P/BV of 1.09x, marginally below the long-run average of
1.12x. The sector P/CF ratio continued to improve in July to 12.86x, but
remains down from 16.50x in January and is well below the long-run average
of 15.92x.