Key points of investment:

The company is expected to lose money in the first half of the year. On July 9, the company released the 2024 semi-annual performance forecast. The company expects to achieve a net loss of 7 billion yuan to 9 billion yuan in the first half of 2024, a year-on-year decrease of 171% to 191%, deducting non-net loss of 5 billion yuan to 6.5 billion yuan, a year-on-year decrease of 157% to 175%, and basic earnings per share of -0.59 yuan/share to -0.76 yuan/share.

Slimming down, fitness, steady management, and steadfastly reducing debt to fight risks. The company expects losses due mainly to the following reasons. 1) The settlement scale and gross margin of real estate development projects have declined significantly. The company's carry-over projects for the first half of 2024 correspond to sales projects in 2022 and 2023 and existing and quasi-existing housing inventory digested in the first half of 2024. Most of these projects were acquired before 2022. Land price acquisition costs were high, and the continued decline in the market led to lower sales and gross margins than expected. 2) Depreciation is calculated for some items. 3) Some non-main business financial investments lost money. 4) Some bulk asset transactions and equity transaction prices are lower than book value.

The net financing structure was improved, and payment arrangements were appropriate during the year. In the first half of 2024, the company added more than 60 billion yuan in total financing and refinancing, corresponding to repayment of more than 50 billion yuan. The debt structure was optimized to reduce short-term repayment pressure. In the first half of 2024, the company completed the repayment of 3 foreign bonds, totaling about 10.5 billion yuan. There were no maturing overseas open market debts during the year; it completed the repayment of 3 domestic corporate bonds and winning notes, totaling 5 billion yuan.

In the second half of 2024, the remaining 2 domestic public bonds, totaling 4.3 billion yuan, have corresponding repayment arrangements through channels such as operating cash flow and transition syndicates.

The transformation of the financing model is progressing. Most of the company's projects under construction have already submitted project whitelist declarations to the dependent cities. In the first half of the year, the company added 14.98 billion yuan of operating property loans. The company obtained a 20 billion yuan syndicated loan led by China Merchants Bank in May, and landed the bank's solid finance asset package financing in June.

Safeguard shareholders' interests and maintain industry confidence. 1,862 of Vanke's key management personnel plan to raise 0.2 billion yuan of their own capital. Within 6 months from July 9, 2024, they will entrust a third party to voluntarily increase their holdings of the company's A shares through a trust plan. The additional shares will be locked in for 2 years from the date the plan is completed and disclosed.

Investment advice: Maintain an “better than the market” rating. We believe that many of the company's businesses still have potential for development, actively deal with debt issues, and receive support from various parties. The company's net assets are estimated at $20.62 and $21.27 per share in 2024 and 2025. Considering the company's leading position, we maintain a “superior to the market” rating according to the 2024 0.4-0.5XPB level, corresponding to a reasonable value range of 8.25-10.31 yuan.

Risk warning: The industry faces a total downside risk, and the actual implementation of the company's debt conversion plan requires follow-up.