China Vanke (A):Vanke management conference call key takeaways

What's changed

We invited Ms. Shirley Xiao, Executive Vice President, Mr. Jiusheng Zhu,Vice President and IR manager Mr. Jinming Wu of China Vanke toparticipate in a conference call with investors earlier today.

Implications

Key takeaways: (1) Management has observed rising inventory in major citiessince Sept. on the back of a supply increase. They expect the trend to continuetill 1H14 or at least 1Q14, which should help ease property price appreciation.

That said, prices in Tier-1 cities might continue to rise due to tight supply. Forthe overall industry, management sees uncertainty around yoy sales trend in2014 but expects yoy growth of new starts to be slightly higher than 2013. It alsoexpects divergent land price growth trend in different cities but overall it’sunlikely to fall from current levels; (2) Management thinks China’s newleadership aims to build a longer-term market oriented mechanism instead ofadmin. tightening to promote healthy industry development. It expects propertytaxes to be rolled out in more cities with versions more likely to followShanghai’s. (3) It detailed its recent investment in Huishang bank (page 2); (4)Management indicated that CSRC is still reviewing its B-to-H share conversionapplication and there is no timetable for the process at this moment.

Valuation

While it’s difficult for us to assess/quantify the impact on Vanke from its investmentin Huishang Bank at this juncture, we note that mgmt has proven to be adoptive/proactiveof industry structural and cyclical trends and has been transforming it intosolid company growth in the past 2 decades. It has taken the industry lead indeveloping green architecture and promoting industrialization. Reiterate Buy-ratingon Vanke (A)/(B), trading at 52%/43% disc. to end-2013E NAV and 6.3X/7.4X 2013 P/Evs. onshore /offshore coverage avg of 46%/50% and 8.3X/7.7X respectively. Our 12m NAV–based TP is Rmb 13.60/HK$17.0 for Vanke (A)/(B).

Key risks

Weaker-than-expected sales performance, macro hard landing.