China’s real estate stimulus could boost this stock, analysts say

While China’s property development giants find their footing amid the ongoing real estate slump, several analysts have their sights on housing transaction and services platform KE Holdings . Listed in the U.S. under the ticker “BEKE,” the company is known in Mandarin Chinese as Beike and operates the Lianjia platform popular with apartment renters in major Chinese cities. The stock also trades in Hong Kong. KE Holdings’ U.S.-traded shares are up 38% in 2024. In contrast, an index of Chinese property stocks in Hong Kong has gained just under 3% for the year after a volatile three weeks. “We expect BEKE’s existing and new homes transactions to benefit from recent government support measures in 2025,” Jefferies analysts said in an Oct. 7 note. They also noted how the company has tapped business opportunities in renovations, home rentals and connecting consumers to home contractors. Jefferies rates the stock a buy, with a price target of $30. That suggests upside of nearly 34% from Friday’s close of $22.41. “We expect BEKE to capture the long-term value in brokerage services on existing and new homes in China,” the Jefferies report said. Chinese President Xi Jinping in late September led a meeting that pledged to ” halt the real estate market decline and spur a stable recovery,” the readout said in Chinese, translated by CNBC. The high-level announcement came two days after the People’s Bank of China promised to cut rates for existing mortgage holders and extend prior real estate support policies. Four major Chinese cities, including Beijing, eased home purchase restrictions late last month, just as the country was headed into a week-long holiday. Industry data indicate real estate transactions in major cities surged during the holiday versus a year ago, and will likely keep up a similar pace in coming weeks. But China’s giant property developers now face a market that’s very different from the one they saw in their heyday. It’s a shift from relying on pre-sales of unfinished apartments , to tackling a market with existing, older inventory — and an aging population. “While the holiday data suggests some improvement in new home sales, we believe the recovery of China’s property market will be prolonged, even with potential fiscal support,” Richard Tang, China strategist and head of research Hong Kong, Julius Baer, said in an email. “As such, we recommend investors take advantage of market strength to reduce exposure to property and related stocks,” Tang said. He did not name specific stocks. Bank of America Securities analysts said in an Oct. 9 note they hosted a call with an “expert from a large property agency chain” who predicted home prices would fall by another 10% before stabilizing. The expert also cautioned that he doesn’t see a fundamental change in home buyers’ expectations, meaning it remains to be seen whether high transaction volumes would persist, the report said. About half of the expert’s stores are connected to KE Holdings’ platform, and he noted the company has “very high market share” in most existing and new home brokerage channels in China, the Bank of America report said. BofA Securities raised its price target to $24, up from $21, while maintaining a neutral rating over concerns about sustainable growth. In the near term, a stock market change could also be a catalyst for the stock. Goldman Sachs analysts said in an Oct. 1 note that KE’s Hong Kong-listed shares could soon become eligible for inclusion in the connect program that allows investors in mainland China to buy stocks listed in Hong Kong. They also “see Beike as a clear beneficiary of recent policy easing, especially considering that the 4 tier-1 cities combined contribute to 40-50% of Beike’s existing home [gross transaction volume] by our estimate.” Even before the latest policy easing, the Goldman analysts pointed out that the average transaction price for existing homes on Beike fell by only 1% in September from the prior month, less than the 3% month-on-month drop between July and August. “The company held US$10.5bn net cash as of Jun 2024 and is committed to 6-7% shareholder return yield p.a. via share buybacks and dividend,” the analysts said. “We see risk-reward as skewed to the upside and are Buy-rated with attractive valuation relative to historical levels and its profit growth outlook.” Goldman has a price target of 54 Hong Kong dollars ($6.95) and $21 for the company’s U.S.-listed shares. — CNBC’s Michael Bloom contributed to this report.