2012 EPS hit Rmb1.14, 9.1% better than we expectedIn 2012, operating revenue soared 43.7% YoY to Rmb103.1bn, andnet profit rose 30.4% YoY to Rmb12.55bn or Rmb1.14/sh, 9.1%better than we had expected, mainly on faster sales recognition. A dividend of Rmb1.80 per ten shares (tax included) was announced.

Faster sales recognition. Sales increased 43.8% YoY to Rmb101.58bn, and GFA sold surged 60% YoY to 8.99mn sqm,15.1% better than we expect ed. But ASP was Rmb11,25/sqm,2.9% below what we expected, and gross margin narrowed2.9ppt YoY to 26.0%.

High revenue visibility. Consolidated sales made but not earned were Rmb143.65bn with ASP of Rmb10,602/sqm, slightly lower than in 2011.

Healthy financials. At end-2012 the company had net gearing of 23.5%, cash balance of Rmb52.29bn, current liabilities duewithin one year of Rmb35.56bn and accounts payable fro m land purchases of Rmb20.99bn.

Trends to watch

Land purchase costs have stayed at Rmb2,700/sqm in the past twoyears, but ASP of projects sold but not booked in 2012 fell 6% YoY to Rmb10,602/sqm, hindering gross margin recovery in 2013. Gross margin on GFA sold is expected to rebound along with ASP.Earnings growth in 2013 will be mainly from completed GFA (targeted rise of 32% YoY to 12.9mn sqm). Vanke plans 16.53mn sqm of new starts in 2013, or 16~17mn sqm of new salable resources. Adding in end-2012 inventory of 6mn sqm, we expec t such rich salable resources to ensure 15~20% sales growth in 2013.

Maintain BUY; still top pick

We lift 2013e EPS 14.8% to Rmb1.39 (+22% YoY) and set 2014e EPS at Rmb1.60 (+15%), or 8.6x/7.5x 2013/14e P/E and a 4% discount to 2013e NAV. The B-share is trading at 9.3x/8.1x 2013/14e PE. As Vanke completes its overseas listing and widens financing channels, it should present stable sales and earnings growth. Maintain BUY and top-pick status.

Risks

Policy risk; economic slowdown