China Vanke (SZSE:200002, SZSE:000002) is another long-term investment within our portfolio and it has just completed its transfer from B-share listing to Hong Kong Stock Exchange by the end of June. The stock has rebounded over 10% but we remain invested as our conviction in the company has been built over the past decade through its excellent execution, large China market share and fast asset turn property development business model. The relisting not only helps offer greater liquidity for the company’s shares, but also allows them to diversify their funding sources through tapping the much cheaper offshore markets.
While the property sector has been cast under the spotlight on weaker sales and prices, China Vanke has performed strongly through its flexible pricing strategies. In the first six months of 2014, China Vanke has achieved 50% of its sales target, reporting 21% year-on-year growth in sales even though average sales price was in fact rising. From a valuation perspective, China Vanke is trading at over 30% discount to NAV and 6.7 times price-to-earnings ratio.
China Vanke is China’s largest developer of residential properties in terms of contract sales. They have over 300 projects that are located in over 60 cities in mainland China. Given its strong brand recognition and seasoned management, China Vanke is well positioned to benefit from China’s long-term secular growth of housing demand, which is supported by sustainable household income growth and a rapid pace of urbanization. We see China Vanke’s land bank as one of the most diversified among its peers. Coupled with its excellent project execution and development ability, we believe they may continue to deliver faster sales growth over its peers. With solid balance sheet and ample cash on hand, the company carried out more land acquisitions than its peers during 2013, which will allow them to further solidify its leadership in the coming two years. The successful conversion of China Vanke’s B shares to H shares has acted as an immediate catalyst to share price and may help the company further narrow the valuation gap with its Hong Kong-listed peers.
From Value Partners (Trades, Portfolio)’ Classic Fund Second Quarter 2014 Commentary.
