Sales remained in the top three, gross margin settlement was under pressure, financing actions continued to be implemented, maintaining the “increase in holdings” rating, and Vanke released its 2024 mid-year report. The company's performance in the first half of the year was affected by multiple factors. Sales declined and land acquisition contracted, but the debt structure improved, and financing channels were unobstructed. Affected by the decline in the scale of carry-over and the expansion of depreciation, we lowered our profit forecast. We expect the company's net profit to be -6.05, 0.75, and 2.76 billion yuan (original values were 10.26, 11.61, 12.13 billion yuan), EPS was -0.51, 0.01, and 0.23 yuan respectively. The current stock price corresponds to PE valuations of -13.3, 1069.2, and 29.3 times, respectively. We believe that the company's profitability is expected to bottom out after the low price carry-over is over. Maintain an “Overweight” rating.

Loss of performance in the first half of the year, and project carry-over dragged down gross profit margins

The company achieved revenue of 142.78 billion yuan in the first half of 2024, -28.9%; realized net profit to mother of 9.85 billion yuan, or -199.8% YoY; and net operating cash flow of 5.176 billion yuan. The main performance losses of the company (1) declined in the scale of carry-over, and the gross margin of the real estate development business fell 13.5 pct to 6.8% in the first half of the year; (2) in order to ensure cash flow and increase inventory price concessions, inventory depreciation was 2.1 billion yuan, and credit impairment losses of 2.1 billion yuan were accrued for some accounts receivable; (3) losses on financial investments in some non-main businesses; (4) the prices of some major asset transactions and equity transactions were lower than book value.

Sales scale declined, industry rankings remained stable

The company achieved a cumulative sales area of 9.395 million square meters in the first half of 2024, with a sales amount of 127.33 billion yuan, a year-on-year decrease of 27.6% and 37.6% respectively. It still maintained the top three sales rankings of Kerry; the average sales price was 13,553 yuan/square meter, a year-on-year decrease of 13.8%. In the first half of the year, the company acquired a total of 3 projects, with a total land price of 1.02 billion yuan and an equity land price of 0.78 billion yuan. By the end of the first half of the year, the company had sold an outstanding amount of 327.2 billion yuan, -9.2% compared to the beginning of the year.

Smooth financing channels, public repayment of all debts

Since 2024, corporate loan guarantee activities have been frequent. In the first half of the year, a total of 61.2 billion yuan was added in financing, adding 3.66% of the comprehensive financing cost; operating property loans reached 21.9 billion yuan, of which 15 billion was added to the table; 175 “white list” projects were declared, and 20 billion yuan syndicated loan led by CMB were obtained, and 6.5 billion yuan of fixed asset package financing was implemented. By the end of the first half of the year, the company had paid 7.3 billion yuan of domestic debt and foreign debt equivalent to about RMB 10.4 billion.

Risk warning: Industry recovery falls short of expectations, policy relaxation falls short of expectations, and company sales recovery falls short of expectations.