In-line results. Revenue and net profit grew by 25.2% to RMB297.1bn and20.4% to RMB33.8bn in 2018, respectively. Bottom line was 0.9% higher thanour estimate. Gross margin improved by 4.7ppts to 37.0% and gross profitsoared 43.3% to RMB110.0bn in the period. Delivered GFA and recognized ASPincreased by 10.7% to 21.91mn sq m and 11.7% to RMB12,845 per sq m,respectively. However, less capitalized interest expenses made financialexpenses surged 1x to RMB8.2bn. Deduction from minority interests alsosurged by 69.3% to RMB15.5bn. As a result, net profit margin declined by0.5ppts to 11.4%. As at Dec 2018, pre-sold but unbooked properties amountedto 37.1mn sq m and was equivalent to RMB530.7bn.
4% market share in terms of contracted sales. Contracted sales amount andarea increased by 14.5% to RMB607.0bn and 12.3% to 40.38mn sq m in 2018,respectively. Its market share further gained from 3.96% in 2017 to 4.05% in2018. Being one of the top three developers in China, Vanke can further capturemarket share. Vanke set the target for GFA completion at 30.77mn sq m in 2019,up 11.6% YoY.
Aggregate attributable land bank of 92.44mn sq m. In 2018, Vanke acquired227 property projects with 24.90mn sq m attributable GFA. About 72% of newacquisitions were located in the 1st and 2nd tier cities. As at Dec 2018,attributable GFA under construction and for future development were 54.02mnsq m and 35.80mn sq m, respectively. As at Dec 2018, 210 commercialproperties with 13mn sq m were in operation. SCPG, Vanke’s major platformfor commercial property, is operating more than 120 projects in over 50 citiesin China. Major brands under SCPG management includes MEGA Incity, Incity,Inreach, Inplace and Vanke Plaza. Furthermore, SCPG successfully acquired 20shopping malls of CapitalLand with other consortium members in 2018.
Two mature businesses may be spun-off. Through VX Logistic Properties,Vanke develops and operates logistic warehouse business. Currently, VXLogistic Properties owned 124 warehouses with 9.71mn sq m leasable GFA, ofwhich 62 projects were in operation. We believe the commercial propertiesbusiness and warehouse business will be combined in an entity and Vanke willseize the chance to spin off these commercial properties and warehousebusinesses. Secondly, property services business performed well in 2018. Itsrevenue rose by 36.1% to RMB9.8bn in 2018. We believe it will be one of thelargest in China and may have the chance of spin-off in the future.
Reiterate BUY. Although net gearing ratio jumped from 8.8% in 2017 to 30.9%in 2018, its gearing level is one of the lowest in the industry. We slightly raiseour earnings forecast by 3.7 % in 2019 and 5.2% in 2020. Furthermore, weadjust end-19 NAV forecast from HK$46.68 to HK$45.45. We adjust our TPfrom HK$37.34 to HK$36.36, representing a 20% discount to NAV. Maintain ourrecommendation as BUY.