Financial health is the top priority
- Vanke’s 1H22 results were strong with core net profit up 19% yoy, 61% above our estimate on fast revenue growth and better-than-expected GPM.
- Management reiterated that it is more important for Vanke to maintain a healthy balance sheet to survive rather than expand its business.
- Maintain our Add rating with a lower PE-based TP of Rmb19.0.
1H22 core net profit is well above our estimate
Vanke reported a set of stronger-than-expected 1H22 results with core net profit up 19% yoy, 61% above than our estimates, mainly driven by 24% revenue growth (vs. our estimate of a 10% yoy decline) as a result of better project delivery in 1H22, and partly driven by better-than-expected GPM, which came in at 20.5%, 1.5% pts higher than our estimate. As usual, it did not declare interim dividend.
GPM still under pressure in near future
Vanke GPM came in at 16.4% in 1H22, down 1.8% pts from 1H21. Management said that GPM still faces some pressure in the near future given the weak property market but expects GPM to normalise in the medium- to long-term. We estimate GPM of 16.1%/16.3%/16.7% over FY22/23/24F, respectively.
Chairman: market has bottomed out but recovery could take time
During the analyst briefing, Vanke’s Chairman YU Liang reiterated his view that property has bottomed out but the sector recovery could take some time, dragged by worsening of market sentiment in Jul and Aug due to the mortgage boycott. He believes that genuine housing demand will still be there when market sentiment improves.
Financial health is the top priority at this juncture
Management shared Vanke’s prudent strategy of “Live within the means” that it has followed since inception of the property development business in 1980s. Vanke’s balance sheet remains healthy and stayed in the “Green category” of the Three Red Lines. Net gearing has remained below 40% over the past 21 years. Management stressed that it is key for Vanke to maintain a healthy balance sheet given uncertainties in the sector ahead.
IPO of its property management unit Onewo
Vanke’s property management (PM) unit “Onewo” – the largest property manager in terms of managed GFA, reported strong revenue growth of 38% to Rmb14.4bn in 1H22. The unit has been approved by mainland regulator to be listed in HKEX in Jul. Management said that the unit’s lower valuation, due to a sharp correction in the PM sector in the past 12 months, should not affect its IPO, which, if completed, should drive future growth.
Maintain Add with a lower PE-based TP of Rmb19.0
We cut our EPS estimates by 9-16% over FY22-24F due to 10-15% lower contracted sales assumptions. We subsequently cut our PE-based TP by 16% to Rmb19.0 as a result of a 16% cut in FY23F EPS, suggesting 14% upside. Maintain Add. Key risks to our call include slower-than-expected recovery in the property market in the next 6-12 months, while more supportive housing policies could be rerating catalysts for the share price.