万科A：Forerunner

Mild growth in 1H20. Revenue gained by 5.0% to RMB146.4bn in 1H20. Delivery GFA surged 24% to 10.5mn sq m. But a 19% decline of recognized ASP (RMB12,668 per sq m) dragged down growth for revenue of property development. On the other hand, other businesses grew robustly. Revenue of construction, property services, rental and other jumped 65%, 27%, 25% and 53% in 1H20, respectively. Gross margin retreated 4.4 ppts to 31.8% but declining reduction from minority interests pushed net profit to grow 5.6% to RMB12.5bn in 1H20.

Contracted sales down 4% in 1H20. Contracted sales amount and area tumbled by 4.0% to RMB320.5bn and 3.4% to 20.77mn sq m in 1H20, respectively. Shanghai Region is the largest contributor and accounted for 41.3% of contracted sales in 1H20. Contracted sales in Hangzhou, Shanghai, Ningbo, Suzhou and Nanjing exceeded RMB10bn in 1H20. Sales pace started to accelerate in Jul. Contracted sales increased by 22.5% YoY to RMB59.02bn in Jul 2020. We maintain our sales forecast of RMB650bn in 2020, up 3% YoY.

Attributable land bank of 94mn sq m as at Jun 2020. In 1H20, Vanke acquired 55 projects with attributable GFA of 5.05mn sq m. Average land cost was RMB6,368 per sq m. As at Jun 2020, attributable land bank under construction and for future planning were 65.95mn sq m and 28.03mn sq m, respectively. Vanke plans to have new start of 29.21mn sq m in 2020. Construction work was affected by COVID-19 but now returns to normal.

Ample property management space. Vanke services had 680mn sq m contracted GFA and 520mn sq m managed GFA as at Jun 2020. It signed 53mn sq m new contracted GFA in the period.

Trim TP to RMB31.36. Presold and unbooked properties amounted to RMB695.3bn as at Jun 2020. Completion GFA was 10.75mn sq m in 1H20 and expected to be 22.44mn sq m in 2H20. So earnings growth will be accelerated in 2H20. We maintain earnings forecast unchanged but cut end- 20 NAV forecast from HK$52.42 to HK$48.46. Based on 8x 20E P/E, we change TP from RMB31.6 to RMB31.36.