Vanke A (000002) released its 2024 interim report. 2024H1 achieved operating income of 142.78 billion yuan, -28.9% year-on-year; net profit loss to mother of 9.85 billion yuan, or -199.8% year-on-year.

2024H1 revenue fell about 29% year over year, with net profit loss of 9.85 billion yuan. In 2024H1, the company achieved operating income of 142.78 billion yuan, -28.9%; realized net profit loss of 9.85 billion yuan, -199.8% year over year; net profit loss of 7.613 billion yuan after deducting non-attributable net profit, -187.48% year over year. The performance loss was mainly due to: 1) The significant decline in the settlement scale and gross margin of real estate development projects. 1H24 development business revenue was 111.68 billion yuan, or -34.6% year-on-year. The gross settlement margin was only 6.8%, a year-on-year decrease of 13.5 pcts.

The decline in the company's gross margin was affected by a combination of factors. First, the exchange of price for volume led to loss of profits; second, the land price of projects obtained before 2022 was high and the settlement period is currently in progress, putting pressure on current profits.

2) Accumulate impairment. Reserve 2.1 billion yuan (including 0.17 billion yuan for non-consolidated items) for inventory price reductions for some projects in the medium term, and accrue 2.1 billion yuan of credit impairment losses. 3) Some non-main financial investments lost money, and the investment in professional investment real estate was adjusted from the fair value method to the cost method, resulting in a book loss of about 0.1 billion yuan. 4) Losses on some bulk asset transactions and equity transactions. In order to return funds more quickly, the company has taken more firm action on asset transactions and equity disposal, and some transaction prices are lower than book value.

Sales fell 37% year over year in the first half of the year. 2024H1 achieved sales volume of 127.33 billion yuan, -37% year over year; current sales area is 9.395 million square meters, down 27.6% year on year; achieved repayment of 118.6 billion yuan, and completed housing delivery of 0.074 million units. The decline in sales is similar to the average decline of the top 100 real estate companies. Meanwhile, the sales scale remains the number one in the industry. As of the end of June, 22.13 million square meters of sold resources had not been settled in the statement. The total contract amount was about 327.2 billion yuan, down 5.4% and 9.2%, respectively, from the end of the previous year.

Degradation of existing debt continued, and there were no overseas public debts during the year. Vanke's net operating cash flow in the first half of the year was 5.176 billion yuan, of which Q2 net operating cash flow was corrected to 4.2 billion yuan. Vanke continued to reduce its existing debt, with a cumulative debt repayment of 52.4 billion yuan in the first half of the year. All overseas public bonds were repaid during the year, and only 1 domestic public debt was 2 billion yuan left. At the same time, the financing side achieved a major breakthrough in the first half of the year, achieving additional financing and refinancing of 61.2 billion yuan, with an average financing cost of 3.66%. The transformation of the financing model has also made great progress, and the white list is being actively promoted; in May, a 20 billion yuan syndicated loan led by China Merchants Bank was obtained, and operating property loans reached 21.9 billion yuan in the first half of the year. As of the end of June, the amount of monetary funds on the account was 92.4 billion yuan.

Summary and investment suggestions: Overall, the company is affected by the downturn and deleveraging of the real estate market, and 2024H1 performance is under pressure. By implementing a package plan to improve management efficiency and sales efficiency, and actively reduce leverage, reform and transformation, the company will be able to move forward lightly again. As real estate optimization policies continue to gain strength, the real estate market will gradually bottom up in the future, and the company will gradually complete the degradation of existing debt. It is expected that its profits will recover after the end of the industry cycle. The net profit attributable to the company in 2024-2026 is estimated to be -8.731 billion/0.626 billion/11.667 billion, respectively, maintaining the “holding” rating.

Risk warning: Property market sales continued to be sluggish; implementation and results of property market optimization policies fell short of expectations; company sales declined beyond expectations, and performance and funding deteriorated.