Morgan Stanley on Vanke A (000002): 1H26 Results Show Liquidity Under Greater Strain; Operational Improvement Unlikely
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Morgan Stanley reiterates Underweight on Vanke A (000002.SZ) after 1H26 results, with a RMB2.15 target price implying about 31% downside to the August 27 close of RMB3.11. Liquidity tightened further: cash-to-short-term-debt coverage fell to 0.29x (1H25: 0.44x), net gearing rose from 86% to 121%, and total interest-bearing debt remains RMB321bn. The asset base keeps shrinking—land bank down to 53 million sqm and investment properties to RMB133bn (-6% QoQ)—weakening the capacity to repay debt through asset sales. Completed inventory of RMB107bn equals 31% of total inventory and 1.3x projected 2026 presales; slow absorption signals potentially deeper losses. Core net loss widened 19% YoY to RMB13.84bn (core net margin -19.7% versus -11.0%), as gross margin fell to 7.0% (development 5.1% versus 8.1% in 2025) and unbooked sales dropped 19% QoQ to RMB92bn, still dragging on completion cash flows. A lower average funding cost of 2.86% only eases interest pressure. ModelWare net losses are seen at RMB33.58bn (2026e), RMB20.90bn (2027e) and RMB13.68bn (2028e). Morgan Stanley expects Vanke to muddle through for years with project delivery the priority; regulatory-supported refinancing, decisive asset disposals and faster destocking are the keys, with the H-shares (2202.HK) rated Equal-weight at HK$2.43.