China Vanke Earnings: Top-Line Growth Disappointed but Inventory Improved; Shares Undervalued

No-moat China Vanke reported an underwhelming 32% year-on-year revenue drop for the third quarter of 2023, mostly due to a 37% decline in real estate development income. We think slower-than-expected delivery progress, coupled with deteriorating housing sales, led to the slump in Vanke’s bookings. Gross margins for the development business also dipped to 18.5% year-to-September from 20.7% for the same period last year, which we largely ascribe to subdued home prices. That said, strong inventory correction continued in the third quarter, and we credit Vanke for effectively offloading unsold units. As such, we reduce our top-line growth and margin forecasts but expect a faster inventory turnover for 2023, translating to an unchanged fair value estimate of CNY 21.00, or HKD 23.90, per share. We continue to like Vanke’s resilient landbank reserve and sufficient liquidity. The company’s current 0.3 times price/book ratio remains the lowest since 2019, which presents buying opportunities for investors looking beyond the downcycle, in our view.