by investar » Thu May 14, 2015 5:00 pm
Found this while looking for the most interesting new MSCI China reshuffle advantage play
Dalian Wanda, China Vanke To Partner Up: Win-Win Situation. By Shuli Ren
Chinese media reported that China’s two real estate titans will team up.
Residential and office real estate developer China Vanke (2202.Hong Kong) and commercial developer Dalian Wanda (3699.Hong Kong) will form a partnership, likely to co-develop mixed-used projects, with Wanda focusing on the investment properties portion, mainly its flagship malls, and Vanke focusing on development projects, mainly housing and offices.
We can expect a fair amount of synergies. The pair has a lot of geographical overlap – not surprising because they are the biggest names in China. 48 cities in China, 20 in the lower-tier cities, have both Wanda and Vanke’s projects.
This partnership is a win-win situation and addresses investors’ key concerns on both stocks, according to Credit Suisse analysts Jinsong Du and Kelvin Tam.
Investors are worried about Vanke’s low margin and large size, i.e., lower revenue growth – and Wanda could help. For example, one of Vanke’s key disadvantages was high land cost. Wanda, on the other hand, can get land cheap because of its cozy relationship with local governments. ” Vanke’s potential JV with Wanda may obtain a development property gross margin up to 20 percentage points higher than Vanke’s current average of 26%,” wrote the Credit Suisse analysts. Wow.
Meanwhile, investors are worried about Wanda’s inventory in lower-tier oversupplied cities. Vanke can help: “If a significant number of those projects introduce Vanke as the JV partner to develop and sell the DP portions, we expect it to alleviate the concern.”
Once this partnership forms, Wanda. trading at 30% discount to its net asset value, is looking really cheap. As such, Credit Suisse raised their price target from 60 Hong Kong dollars to HK$81.
Also, don’t forget MSCI yesterday included Wanda in its family of indexes.
This morning, Vanke jumped 5.9%, Dalian Wanda rose 1.9% trading at HK$68.30.
Source: Barron's Asia