Bottom line of RMB38.9bn was 4.8% and 5.9% below our forecast and consensus’ in 2019, respectively, mainly because of less profit contribution from JCE. We trim our earnings forecast by 6.7% in 2020 and 4.9% in 2021. TP is slightly raised to HK$36.69. Maintain BUY recommendation.
- Net profit growth slowed down to 15% in 2019. Revenue and net profit grew by 23.8% to RMB367.9bn and 15.1% to RMB38.9bn, respectively. The reported net profit was less than 4.8% of our forecast and 5.9% of street’s. Major discrepancy came from share profit from JCE which tumbled by 39.6% to RMB3.8bn. DPS was maintained as RMB1.045 per share that resulted in payout ratio decline from 34% in 2018 to 30% in 2019.
- Contracted sales grew by 4% in 2019. Contracted sales amount and area gained by 3.9% to RMB630.8bn and 1.8% to 41.12mn sq m in 2019, respectively. About 42.89mn sq m (worth RMB609.1bn) of property were presold but unbooked as at end-19, providing solid earnings visibility. We expect full year contracted sales to be RMB650bn, up 3% YoY.
- Prudent land acquisition strategy in 2019. In 2019, Vanke acquired 147 project with attributable GFA of 24.78mn sq m. Average land cost was RMB6,252 per sq m. As at end-19, attributable land bank under construction and for future planning were 61.70mn sq m and 33.6mn sq m, respectively. About 3% of land bank are located in Hubei. Sales suspension in Hubei has limited impact to its sales.
- Rental income and property management are shinning points. Rental income and revenue for property management increased by 55.6% to RMB4.77bn and 29.6% to RMB12.7bn in 2019, respectively. As at end-19, 108 retail property projects with 9.0mn sq m under management in over 50 cities were managed by SCPG. Vanke property management business had contracted and managed GFA of 640mn sq m and 450mn sq m respectively as at end-19. Vanke is one of the largest property management companies in China.
- Raise TP to HK$36.69. Net gearing ratio and cash/short term debt ratio were 34.3% and 1.75x, respectively, as at end-19. The balance sheet was healthy. We cut earnings forecast by 6.7% to RMB44.7bn in 2020 and 4.9% to RMB51.1bn in 2021. In addition, we raise end-20 NAV forecast from HK$44.87 to HK$52.42. As a result, our TP is HK$36.69, representing a 30% discount to NAV. Reiterate BUY.
