CHINA VANKE(000002)：DEFENDING CREDITWORTHINESS MATTERS MORE THAN OVERTAKING PEERS

Vanke is a leading enterprise that started early to deal with problems in the real estate sector. The Company’s corporate headquarters has a streamlined organizational structure, and the strategy to invest early into new businesses reduces its capex requirement in the current period.
Having de-stocked a large number of resource reserves with poor sales prospects at the development level, Vanke now has relatively few projects with floor space flaws in its planning, and boasts stable financing and operating cash flows. We believe that moderate land acquisition backed by solid access to funding at the current stage can help increase the Company’s future market share. For Vanke, however, maintaining stable creditworthiness matters more than overtaking peers at this point. We expect that land prices may lack momentum to rise in the spring of 2023, which means developers will have opportunities to increase their land banks in 2023.
More settlement of accounts to ensure positive earnings growth.
In 1-3Q22, Vanke achieved operating revenue of Rmb337.7bn (+24.4% YoY) and attributable net profit (ANP) of Rmb17.1bn (+2.2% YoY). The Company’s gross profit margin (GPM) from the development business decreased to 20.7% from 23.9% in 3Q21. Thanks to active settlement efforts, Vanke’s settled gross floor area (GFA) increased by 21.7% YoY, thus ensuring positive ANP growth amid temporarily downward profitability. By the end of 3Q22, there were Rmb612.6bn (contract amount) sold but unsettled resources in its consolidated statements.
Gradually improving sales; active settlement to guarantee delivery.
In 1-3Q22, Vanke achieved 19.37mn sqm of GFA and sales revenue of Rmb314.7bn, both down by 34.3% YoY. However, policies for cutting mortgage interest rates and relaxing housing purchase restrictions have achieved good results. Against such a backdrop, the Company’s sales decline narrowed further. In Sep 2022, Vanke’s monthly sales revenue only dropped by 3.8%. Despite a harsh market environment, the Company’s newly started housing area stood at 12.77mn sqm, which corresponds to goods value of over Rmb200bn based on the average selling price in the same period.
Prudence in land acquisition and focus on higher-tier cities.
In 1-3Q22, Vanke acquired 27 new development projects with a planned GFA of 4.86mn sqm, accounting for 25.1% of its sales GFA in the same period and 21.7% of land acquisitions in 1-3Q21. Summing up the Company’s month-by-month land acquisition efforts, we estimate that the average price of Vanke’s attributable land acquisition has risen to about Rmb16,000/sqm from about Rmb7,500/sqm in 3Q21. This means the Company’s land acquisition focus has been shifted to higher-tier cities, and the quality of its marketable resources will rise in the future. We believe that such prudence is necessary under the current market conditions. Prudence has created a new low in Vanke’s to-be-developed GFA. The GFA in its equity planning has declined to 23.35mn sqm, which is only enough to sustain newly started projects for about one year in the past. Vanke’s under-construction GFA attributable to its equity holdings now stands at 58.43mn sqm, indicating that the Company’s marketable resources will sustain in 2023.
All-round credit guarantee.
At present, Vanke’s cash and cash equivalents significantly exceeds its liabilities due in one year, and its current financing cost is only 4.06%, lower than that at the end of 2021. According to its cash flow statement, the Company received loan-based cash of Rmb18.2bn in 3Q22, basically flat YoY. There was no significant decline in this account item, as is the case with other real estate developers with credit crunch, indicating that Vanke still enjoys smooth financing channels. Domestic and overseas bond markets are in turmoil, but Vanke suffers little impact. On the one hand, the Company’s overseas debt takes only a small proportion. On the other hand, commercial banks are actively lending to high-creditworthiness real estate developers with stable operations while maintaining stable aggregate amount of loans to developers. Therefore, we believe that Vanke still enjoys all-round credit access.
Potential risks: Impact of Covid-19 resurgences on property sales; and low earnings growth rate due to temporary restrictions on the Company’s goods value.
Investment recommendation: Vanke is a leading enterprise that started early to deal with problems in the real estate sector. The Company’s corporate headquarters has a streamlined organizational structure, and the strategy to invest early into new businesses reduces its capex requirement in the current period. Having de-stocked a large number of resource reserves with poor sales prospects at the development level, Vanke now has relatively few projects with floor space flaws in its planning, and boasts stable financing and operating cash flows. We believe that moderate land acquisition backed by solid access to funding at the current stage can certainly increase the Company’s future market share. For Vanke, however, maintaining stable creditworthiness matters more than overtaking peers at this point. We expect that land prices may lack momentum to rise in the spring of 2023, which means developers will have opportunities to increase their land banks in 2023. We maintain our 2022E/23E/24E EPS forecasts of Rmb2.10/2.26/2.54 for the Company. Based on the 6x-14x 2022E PE of peers with high credit ratings, such as Poly Development (600048.SH) and China Merchant Shekou (001979.SZ), we apply 10x 2022E PE to derive a target price of Rmb21/HK$22.7 for China Vanke’s A-/H-shares, and reiterate our “BUY” rating.
【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。

   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。