Vanke Earnings: Property Development Weakness Lingered, but Liquidity Pressure Further Eased

China Vanke’s first-half 2024 results were in line with its prior profit warning, as the CNY 8.5 billion net loss was within the guided range. Excluding noncash write-offs on properties booked, the biggest impact came from a deterioration in gross margin, which slumped to 6.8% versus 18.9% a year ago. Management attributed this to higher land costs and heavier discounts for completed projects, and expects newly sold units to post better profitability. Hence, we foresee an improvement in Vanke’s gross margin to 11.6% in 2028 from 7.5% in 2024. That said, we lower our 2024-28 revenue estimates by 13%-23% amid subdued contracted sales (mostly presale) starting in 2022. This is largely offset by our rosier outlook for Vanke’s midcycle inventory days to 456 from 509, given the acceleration in absorption. Our fair value estimate of CNY 7.50 (HKD 8.30) per share is therefore unchanged, and we think Vanke’s shares are fairly priced.