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.