Real-estate Web portals Leju Holdings Ltd (樂居) and SouFun Holdings Ltd (搜房網) are standing out among US-traded Chinese stocks, rebounding as government stimulus and a recovering property market improves the outlook for growth.
Leju has surged 44 percent over the past month in the best performance on the Bloomberg China-US Equity Index, which gained 4.6 percent during the same period.
SouFun has rebounded 25 percent from this year’s low last month.
Both were among the 10 worst performers on the gauge this year through early last month, slumping at least 40 percent, while the benchmark slid 23 percent.
The turnaround comes amid monetary stimulus from the Chinese central bank and an easing of housing-market regulations.
The companies are also benefiting from government policies geared toward increasing the role of privately owned technology and service businesses in China’s economic development, Krane Funds Advisors managing director Brendan Ahern said.
“Companies like SouFun are going to orient toward those tier-one coastal cities where you see a fairly robust real-estate market rebound,” said Ahern, who invests in Chinese Internet companies, including SouFun.
“Within China, you have a massive adoption of Internet that plays into the real-estate market as well, particularly in major cities,” he added.
Slumping home prices in smaller cities as the economy expanded at the slowest pace in 25 years weighed on earnings last year.
SouFun, the nation’s largest property Web site, posted its first annual loss since at least 2008, data compiled by Bloomberg showed.
Leju, which ranks second, posted adjusted net income that dropped 37 percent to US$57.4 million.
The momentum behind the stock rallies picked up as data showed a recovery in China’s property market accelerated, led by gains in major cities.
Steps the government has taken to encourage home buying include a reduction of minimum down payments and cuts in deed and business taxes on home transactions.
Prices in Shenzhen, a southern business hub that borders Hong Kong, posted a 57 percent of jump last month from a year earlier, while those in Shanghai increased 21 percent, according to data from the Chinese National Bureau of Statistics.
Property-related services in China are “showing sustainable rates of growth,” which has led to “fierce competition among existing market leaders and new entrants, especially since 2014,” Nomura Holdings Inc analysts led by Jeffrey Gao wrote in a research report last month on the industry.
SouFun, which controls 56 percent of China’s online property advertising market, and Leju, which has 29 percent, are well-positioned to adapt to that environment, in which consolidation “is inevitable,” they wrote.
“An established platform, strong execution and adequate capital are key to win in the market consolidation, which will lead to profitability,” the analysts wrote.
SouFun entered the online-to-offline market in 2014. While its aggressive offline investment weighed on margins, Morgan Stanley analysts led by Amanda Chen said that the company is “heading in the right direction.”
They raised the stock to the equivalent of buy last week. A large user base, strong brand image and superior technology would support SouFun in its market expansion and operating efficiency improvements, the analysts said in the report.
Leju’s profitability is being hurt by “near-perfect” competition from new entrants in the market, Robert Cowell, a Shanghai-based analyst at 86Research Ltd, who rates Leju as neutral and SouFun as a buy, said in an e-mail.
On a scale from one to five, SouFun has a consensus recommendation of 4.6, compared with three for Leju and an average of four among 11 international peers, according to data compiled by Bloomberg.
Analysts covering SouFun forecast that the company is likely to post a 31 percent increase in sales this year, compared with an estimated 16 percent for Leju.
“Although the competition will increase in China’s online property portal industry, the strong rebound of the property market in core cities will help maintain growth rates of the portals,” China International Capital Corp (中金公司) analysts led by Beijing-based Eric Zhang wrote in a report this month.
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