Result first take: Disappointing FY21 results, but higher payout and buyback plan may help to cushion downside

  • FY21 results came in below expectations, with core earnings fell by 47% alongside a faster than expected drop in GPM and halved contribution from JV/associate projects
  • Final DPS was declared at RMB0.97/sh, down 22% and translates to a 15ppt increase in dividend payout on net profit to 50%. This translates to a dividend yield of c.6.4%/5% for 2202 HK/000002 CH.
  • Balance sheet largely held up and remained in the “Green Camp” of the “Three Red Lines” policy
  • A share buyback plan was announced with a total consideration of Rmb2-2.5bn at a price of no more than Rmb18.27/share
  • Apart from disappointing residential business, growth in its new business remains solid.
  • More to follow after the company’s online result briefing at 9:30am on Thurs (31 Mar)
  • Our rating and TP of the counter are currently under review

What’s new?

China Vanke (2202 HK/000002 CH, BUY) announced a set of below expected FY21 results after market close

Our view

FY21 results below upon a steeper than expected drop in recognized GPM and weaker than expected JV/associate contribution

  • FY21 revenue grew 8% y-o-y, which came in-line with market expectations.
  • FY21 recognised GPM fell sharp by 7.7ppt to c.21%, below expectations
  • SG&A as % of revenue was held flat y-o-y at 6.0%, but came in 0.7ppt higher to 4.3% as % of presales
  • Contribution from JV and association fell 50% y-o-y in FY21, which came in below expectations
  • Effective tax rate rose 3ppt to 46%
  • Core net profit margin fell c.4.7ppt y-o-y to 4.5%, which translates to a 47% decline in attributable core net profit. This came in meaningfully below market expectations
  • Final DPS was declared at RMB0.97/sh, down 22% y-o-y. This translates to a 15ppt increase in dividend payout ratio on net profit to 50%.

Balance sheet held up and remains within the “Green Camp”

  • Cash and cash equivalent (with total cash) as at Dec-21 fell 23% from Jun-21. Restricted cash as % of total cash rose 2ppt to 6%
  • ST debt as total debt improved from 32% as at Jun-21 to 23% as at Dec-21
  • Gearing ratio rose 10ppt from Jun-21 to 30%. Cash to short-term debt declined slightly but remain held up at 1.5x (vs 1.67x as at Jun-21), while adjusted liability to asset ratio stood at 68.4% (vs 69.7% as at Jun-21).
  • Vanke remains in the “Green Camp” of the “Three Red Lines” policy.

Share buyback plan to help cushion downside risk

  • A share buyback plan was announced with a total consideration of Rmb2-2.5bn at a price of no more than Rmb18.27/share

More to follow after the company’s online result briefing to be held at 9:30am on Thurs (31 Mar).

Key things to watch

  • Land acquisition strategy in 2022 and view towards land opportunities via M&As – what are the requirements for the company to consider such potential opportunities? Will the company consider consolidating project interests from its cooperating partners?
  • What is the off-balance sheet status like for the company? 
  • Presales growth/decline expectations for 2022
  • Timeline/plans relating the company’s spin-off of its property management business; will the company consider rewarding shareholders when the spin-off takes place?
  • Profit margin outlook – Expected profit margins on its land acquisitions in 2021 and 2H21 presales. Will there be further downside risk on profit margins?
  • Will the company consider monetising its malls and warehouse businesses? Any thoughts to spin-off its assets via offshore REIT or C-REIT (for warehouse)? What are the key considerations for the company relating the matter?
  • Any synergies with Shenzhen Metro that are expected to take place?
  • Dividend policy
  • Guidance/clarifications on new businesses – particularly those that are currently operated under a fund structure – such as retail malls, among others