China Vanke-H Shares (2202 HK)


Company description


Founded in 1984, China Vanke (CV) is the largest property developer in China in terms of sales. CV had an attributable landbank of more than 70mn sqm Gross floor area (GFA) as of the end of 2017 that are spread out in most of the key economic regions in China. From a product positioning perspective, the company is mainly focused on residential development, with a primary focus on mass-market segment, and has been gradually upgrading to the high-end segment. Based in Shenzhen, CV listed its A shares in 1991 and is currently dual-listed on both Shenzhen Stock Exchange and Hong Kong Stock Exchange.




Investment summary

  • FY18 core profit rose 30% y/y to RMB34.7bn.Gross marginsurgedto37%but could have peaked. Dividend per share increased 19% y/y to RMB1.1, implying a pullback in payout ratio from 37% to 35% and offering 4% yield. Unbooked sales amounting to RMB530bn was a key highlight as it could support 20% CAGR in completion into 2020e and offer high earnings visibility. Thanks to its fast asset-turn model, CV maintained a relatively high level of Return-on-equity (ROE) at 24%.

  • Solid balance sheet–Net gearing edged down 1.8ppt h/h to 31% as of end-18. Cash level of RMB188bn was at record high. CV’s disciplined land acquisition strategy also enabled it to acquire 25mn sqm attributable land bank in FY18 of which,80% are located in tier 1 and 2 cities.

  • Stable growth outlook–We believe it is one of the few Chinese developers that offers relatively high earnings visibility, stable growth and solid balance sheet.

  • Stronger and faster-than-expected easing in property regulatory policies and stronger growth in China's domestic real estate market are tailwinds that will help CV's share price appreciate.


Conclusion


China Vanke -H (CV) is the largest property developer in China. With its rapid asset-turn business model and strong balance sheet,we think CV is well positioned in a tougher physical market to benefit from an ongoing industry consolidation.


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