China Vanke Earnings: Results Lackluster and High Uncertainty Lingering; Valuation Cut by 36%

We cut our fair value estimate for no-moat China Vanke to CNY 13.50 per A-share (HKD 15.00 per H-share) from CNY 21.00 (HKD 23.90) as it delivered disappointing 2023 results due to subdued bookings and margins for its property development business. Given sluggish home sales for the year to February 2024, we expect muted top-line growth for Vanke’s residential projects in 2024-25. As we also foresee slower home price upticks, we lower our gross margin forecasts through 2028, with our midcycle estimate down to 15.8% from 22.6%. As such, our five-year operating profit compound annual growth rate for Vanke drops to 5.9% from 8.4%. We also lift our weighted average cost of capital assumption to 10.4% from 9.6%.