China Property Sector Analysis: Vanke and Peer Companies’ Performance

Broker Name: UOB Kay Hian

Date of Report: Thursday, 13 February 2025

The Chinese property sector has found itself in the spotlight once again, with a detailed sector update released by UOB Kay Hian. This report dives into the ongoing challenges and opportunities within the market, focusing on Vanke and its peers. With policy implementations and market dynamics evolving, the report offers actionable insights for investors.

Will Special Bonds Be a Lifeline for Vanke?

As per reports, the Chinese government is rumored to allocate a special bond quota of RMB20 billion to aid Vanke. This allocation aims to purchase unsold properties and idle lands, helping the company plug a funding gap of RMB50 billion in 2025. The plan also allows Vanke and its affiliates to utilize other financing sources like new bond sales and bank loans for debt payments.

Interestingly, the issuance of special bonds for idle land repurchase has gained momentum. In February 2025, at least seven cities in Guangdong Province announced plans for land acquisition, with total considerations nearing RMB17 billion. This move primarily targets local state-owned enterprises (SOEs) and local government financial vehicles (LGFVs).

Vanke’s Resource Pool

Vanke holds an extensive inventory of undeveloped land and completed properties. As of June 2024, the company had RMB91.3 billion in undeveloped land and RMB104.7 billion in completed inventory. A key industrial redevelopment project in Shenzhen, valued at RMB13.8 billion, could potentially be included in the government’s idle land acquisition list. With a 25% discount rate, Vanke could recycle RMB10 billion from this project alone, positioning itself as a major participant in the government’s destocking program.

Peer Analysis: A Comparative View

China Resources Land Ltd (Ticker: 1109 HK)

China Resources Land (CR Land) stands out as a top pick in the sector. UOB Kay Hian maintains a “BUY” recommendation with a target price of HK\$32.40, offering an upside of 30.1% from the current share price of HK\$24.90. With a market capitalization of HK\$177.56 billion, CR Land demonstrates robust financials:

• Price-to-Earnings (PE) Ratio: 6.4x for 2024F and 5.6x for 2025F.
• Price-to-Book (P/B) Ratio: 0.6x for 2024F and 0.5x for 2025F.
• Dividend Yield: 5.5% in 2024F, rising to 6.2% in 2025F.

CR Land’s strong metrics and favorable valuation make it a compelling investment opportunity.

Sunac China Holdings Limited (Ticker: 1918 HK)

Sunac China Holdings, on the other hand, faces significant challenges. The report assigns a “SELL” recommendation with a target price of HK\$1.06, representing a downside of 47.8% from its current share price of HK\$2.03. The company’s financial health remains precarious:

• Market Capitalization: HK\$18.89 billion.
• PE Ratio: Not meaningful (nm) for both 2024F and 2025F.
• Dividend Yield: No dividends expected.

The lack of meaningful earnings and dividend returns highlights the risks associated with Sunac China Holdings.

China Overseas Land (Ticker: 688 HK)

China Overseas Land is another “BUY” recommendation with a target price of HK\$16.30, reflecting a potential upside of 24.2% from its current share price of HK\$13.12. The company boasts a market capitalization of HK\$143.59 billion and solid financial metrics:

• PE Ratio: 6.9x for 2024F and 6.6x for 2025F.
• P/B Ratio: 0.3x for both 2024F and 2025F.
• Dividend Yield: 5.0% in 2024F, rising to 5.2% in 2025F.

China Overseas Land’s healthy balance sheet and attractive valuation make it a notable player in the sector.

Longfor Properties (Ticker: 960 HK)

Longfor Properties also secures a “BUY” recommendation with a target price of HK\$11.99, indicating an upside of 14.2% from its current share price of HK\$10.50. With a market capitalization of HK\$72.33 billion, the company’s financial highlights include:

• PE Ratio: 6.4x for both 2024F and 2025F.
• P/B Ratio: 0.4x for both 2024F and 2025F.
• Dividend Yield: 4.4% for both 2024F and 2025F.

Longfor Properties’ consistent metrics and moderate valuation make it a steady investment option.

Sector Outlook: OVERWEIGHT Recommendation

The Chinese property sector remains under scrutiny, with policy implementation being a critical catalyst. While uncertainty persists regarding Vanke’s ability to secure required funding under the destocking and idle land repurchase program, the acceleration of such initiatives signals improved policy execution. The ongoing repurchase of idle lands and the expected sales recovery in February 2025 provide positive momentum for the sector.

UOB Kay Hian maintains an “OVERWEIGHT” recommendation for China’s property sector, with CR Land as the top pick. Investors are encouraged to monitor policy developments and market dynamics closely, as they could shape the future of this volatile yet promising sector.