Summary. Driven by the growth of delivery GFA and ASP, net profit advanced by 29.8% to RMB11.8bn in 1H19. We estimate end-20 NAV to be HK$44.87. As a result, we raise TP from HK$35.48 to HK$35.90. Maintain BUY recommendation.
- Net profit surged 30% in 1H19. Driven by 20.7% growth in delivery GFA and 10.7% growth in ASP, revenue increased by 32.9% to RMB139.3bn in 1H19. GM improved from 33.7% in 1H18 to 36.2% in 1H19. SG&A expenses to revenue ratio stayed flat at 8.0%. So net profit increased by 29.8% to RMB11.8bn in 1H19. As at Jun 2019, properties pre-sold and unbooked amounted to RMB621.6bn.
- Contracted sales grew by 10% in 1H19. Contracted sales amount and area surged by 9.6% to RMB334bn and 5.6% to 21.50mn sq m in 1H19, respectively. In terms of geographical breakdown, sales amount in Shanghai Region and Central & Western Region accounted for 35.9% and 22.1% of total contracted sales in 1H19. Meanwhile, small and medium flats under 144 sq m accounted for 91% of residential sold in 1H19. Majority buyers were first time buyers or first time upgraders. In 1H19, 10.6mn sq m of properties were completed, up 15.6% YoY, and represented about 34.5% of full year plan.
- Acquired 13.73mn sq m land bank in 1H19. In 1H19, Vanke acquired 54 plots of land with total GFA of 13.73mn sq m (or attributable GFA of 9.42mn sq m) in 1H19. As at Jun 2019, total and attributable land bank amounted to 153mn sq m and 92.93mn sq m, respectively. Moreover, Vanke participated in several urban redevelopment projects with aggregate attributable GFA of 3.41mn sq m. Current land bank is sufficient for next three years’ development.
- Robust growth in rental and property management. Rental income and revenue for property management increased by 82.1% to RMB2.09bn and 28.4% to RMB5.28bn in 1H19, respectively. As at Jun 2019, 82,000 leasing apartments in 35 cities were in operation. Furthermore, more than 13.5mn sq m of retail property were under Vanke’s management, of which 9.15mn sq m of retail projects (6.43mn sq m in operation) were under SCPG management.
- Raise TP to HK$35.9. Net gearing ratio was 35.0% as at Jun 2019. The balance sheet was healthy. We fine tune our earnings forecast and adjust upwards slightly. In addition, we estimate end-20 NAV forecast to be HK$44.87. As a result, we raise TP from HK$35.48 to HK$35.90, representing a 20% discount to NAV. Upside potential is 28.9%. Reiterate BUY recommendation.
