News

China Vanke announced that it officially obtained approval from CSRC on March 3 to move its Shenzhen-listed B shares into a new H share listing on the Hong Kong Stock Exchange. This approval came 13 months after the initial proposal was filed on Jan 18, 2013. We view this as the key milestone in the company’s plan to move the listing of its B shares. The company also announced the offer of a cash option to B shares shareholders at HK$12.91 per share (ex-dividend).

Analysis

Approval from the HK Stock Exchange will be the last approval it needs and management targets approval and completion of the listing move before end 1H14. We see the following long-term strategic benefits: 1) the new listing would broaden Vanke’s financing alternatives going forward, potentially reducing future financing costs, leveling the field vs. its Hong Kong-listed peers; 2) reduced funding costs would also provide more flexibility for Vanke to optimize its capital structure and thus further enhance its ROE and growth outlook against peers.

Implications

We view the valuation of Vanke’s A/B shares as attractive given: 1) They are currently trading at the lower end of their 18-year valuation range: 66%/54% discount to our end-2014E NAV, 3.6X/5.0X 2014E P/E and 0.8X/1.0X 2014E P/B vs. our on-shore coverage averages of 62%, 4.7X, and 0.8X, respectively, as of the Mar 3 close; 2) Valuations are at a deep discount to their closest listed off-shore peer, COLI (0688.HK, Neutral, Mar 3 close HK$20.1, at 34% discount to end-2014E NAV, 7.5X 2014E P/E and 1.3X 2014E P/B). We reiterate our Buy ratings on both Vanke A and B and our 12-month target prices of Rmb11.8 and HK$17.2, based on respective discounts of 40% and 30% to 2014E NAV. Key risk: macro hard landing.