2021 results shortfall. Vanke-H’s 2021 revenue came in at RMB452.8 bn, up by 8.0% YoY. However, its 2021 underlying shareholders’ profit declined by 44.4% YoY to RMB22.4 bn, which was 40% below market consensus estimate. The earnings miss was mainly due to: 1) lower gross profit margin; 2) lower profit contribution from JVs and associates; and 3) sufficient inventory provisions. The management has confidence that earnings can stabilize or rebound in 2022.
　　Market share gainer amid a challenging environment. Despite sales decline in 2021 (-10.8% YoY), we expect Vanke-H to maintain a solid sales scale in the next few years (likely flat in 2022 and low single-digit growth in 2023-2024), with still leading market position. Considering that some high-leverage developers have continuously suffered liquidity problems in 2022, we believe low-geared Vanke-H is going to keep the leading position in contracted sales with continuous gains in market share.
　　Advanced efforts in business diversification is going to pay off. Vanke-H has made the most advanced progress in business diversification, including property management, rental housing, retail operations, logistics and warehousing services, hotels, education, and so on. Currently, the Company has proposed the spin-off of Onewo with assured entitlement of new shares to Vanke-H shareholders, which should further boost the Company’s valuation
　　Initiate with "Buy" at TP of HK$24.90. We like Vanke-H for its stronger financing capability, leading market position and concrete progress in diversifying its non-development business. Our target price is based on a 20% discount applied to our 2022F NAV of HK$31.1/share, representing 9.2x 2022F underlying PER and 0.9x 2022F PBR. Key downside risks include: 1) worse-than-expected margin squeeze; 2) value disruption from unsatisfactory M&As; and 3) slower value-unlocking process for the diversified business.