Vanke's valuation has been downgraded

（Source: Real Estate Whale Falls）

Morningstar will, on April 2, 2026, cut the fair value valuation of Vanke A shares from RMB 4.50 per share to RMB 4.00 per share, and at the same time lower the estimated fair value of Vanke H shares from HK$5.0 to HK$4.4. This adjustment reflects international rating agencies’ concerns that Vanke’s fundamentals have continued to deteriorate, mainly based on multiple factors, including the company’s massive net loss in 2025 performance, pronounced debt pressure, and significant uncertainty regarding its continuing operations.

I. Core reasons for the valuation downgrade

1. Historic massive losses

Vanke’s 2025 financial report shows that the company achieved operating revenue of RMB 233.43B, down 31.98% year over year; the net loss attributable to shareholders of listed companies reached RMB 56.28B, with the loss amount expanding 79% year over year. This is Vanke’s most bleak set of results since it was listed, setting a new record for losses among A-share real estate enterprises.

Loss structure analysis:

• Asset impairment and credit impairment losses: total RMB 52.15B (excluding the impact of reversals and write-offs), resulting in a decrease of RMB 33.97B in net profit attributable to the parent company

• Inventory write-down provision: added RMB 20.8266 billion, up 195% year over year, mainly due to increased difficulty in sales and an expanded risk exposure in the development business

• Credit impairment provision: accrued RMB 33.65B, up 28.68% year over year, including RMB 230k for impairment of other receivables

• Losses from financial investments unrelated to the main business: some operating business records losses after deducting depreciation and amortization expenses

2. Ongoing deterioration of operating fundamentals

A sharp drop in sales performance:

• In 2025, the company achieved a contracted sales area of 10.25 million square meters and sales proceeds of RMB 134.06 billion, down 43.4% and 45.5% year over year, respectively

• Sales proceeds are only 19% of the 2020 peak period (RMB 704.15 billion)

Gross margin continues to decline:

• The gross margin of real estate development and related asset operation business was 8.6%, down 0.9 percentage points from 2024

• The settlement gross margin of the development business was only 8.1%, down 1.4 percentage points year over year

3. Debt pressure and a liquidity crisis

Large debt scale:

• As of the end of 2025, the company’s interest-bearing liabilities totaled RMB 358.48 billion

• Interest-bearing liabilities due within one year were RMB 160.56 billion, accounting for as much as 44.8%

Near-term debt repayment pressure concentrated:

• In 2026, total maturities of public bonds were RMB 14.68 billion, of which RMB 11.27 billion were concentrated from April to July, making repayment pressure particularly acute

• On April 3, 2026, Vanke also advanced the extension process for a RMB 2.0 billion tranche of medium-term notes (“23 Vanke MTN001”)

Tight liquidity:

• At the end of 2025, cash and cash equivalents were RMB 67.24 billion, down 23.73% year over year

• Operating cash flow turned negative for the first time in nearly 17 years, at -RMB 0.9888 billion, down 126% year over year

II. Morningstar’s evaluation logic and expectations

1. Expectation of continued losses

Morningstar expects Vanke to continue recording losses through 2028 in its report. This conclusion is based on:

• Real estate sales are still under immense pressure

• Real estate development profit margins have fallen significantly

• Increased asset impairment and continued losses from financial investments

2. Assessment of valuation reasonableness

Even though fair value valuations were lowered, Morningstar believes the valuations of both A shares and H shares of Vanke remain reasonable. This reflects the view of institutions that Vanke’s current share price has already fully priced in the negative factors.

III. Vanke’s response measures and challenges

1. Efforts to resolve debt

Completed debt disposals:

• In 2025, the company actively carried out self-rescue efforts and completed repayment of RMB 33.21 billion of publicly issued bond debt

• Starting from November 2025, it gradually completed the extension of two tranches of medium-term notes, “22 Vanke MTN004” and “22 Vanke MTN005,” as well as the corporate bond “H1 Vanke 02”

Shareholder support:

• The major shareholder Shenzhen Metro cumulatively provided shareholder loans of RMB 33.52 billion

• The latest RMB 2.36 billion loan carries an interest rate of only 2.34%, earmarked specifically for a bond repayment webpage

2. Adjustment of operating strategy

In 2026, the company will focus on two major directions:

• Mitigation: continue to push business and city focus, improve cost efficiency, and revitalize existing stock assets

• Development: business innovation, providing full-cycle, full-chain real estate operation services for consumers

Results of asset revitalization:

• In 2025, the company revitalized total developable value of RMB 33.85 billion; most of this came from government-enterprise cooperation projects

• Completed transactions for 31 bulk projects, with transaction value of RMB 11.3 billion

3. Performance of the second growth-curve business

Operating services business becoming the “stabilizer”:

• In 2025, operating services business revenue across all relevant scopes was RMB 58.0 billion

• Property services revenue was RMB 35.52 billion, up 7.22% year over year, but gross margin declined to 12.35%

• AllThings Cloud (02602.HK) had 2025 revenue of about RMB 35.0 billion, and attributable net profit of about RMB 2.2 billion

IV. Audit opinions and continuing-operation risks

1. Warning from the audit firm

Vanke’s financial report audit firm, Deloitte Huayong, issued a “unqualified opinion with a paragraph indicating material uncertainty related to going concern.” Key audit matters focus on:

• Expected credit losses related to other receivables involve material management judgments

• These other receivables have uncertainties

2. Company’s own recognition of risks

In its announcement, Vanke admitted that the cumulative unremedied loss amount exceeds one-third of the total paid-in share capital. If operations fail to improve, the cumulative unremedied amount will continue to exist and will affect the company’s future cash dividends. Since 2023, Vanke has not distributed dividends for three consecutive years.

V. Market impact and share price performance

1. Shares fall sharply

• As of the close on March 31, 2026, Vanke A shares fell to RMB 3.96 per share

• Total market value was left at only RMB 47.6 billion, down 90% from the market value of more than RMB 450 billion at its peak

• On April 1, Vanke A closed at RMB 4.04 per share, with total market value of RMB 48.2 billion

2. Pressure in the bond market

• Starting January 30, 2026, six outstanding corporate bonds of Vanke were suspended, and they have still not been restored to date

• Investment analysis software DM displays that in 2026, Vanke still has RMB 220k in domestic bonds with total principal and interest outstanding due to be repaid

VI. Industry background and deeper reasons

1. Historic investment mistakes

Vanke’s management, in an analysts’ meeting, acknowledged that the massive losses were “caused by the combined effect of multiple factors, such as historic investment missteps, operating and management problems, and deep industry adjustments.” Specifically including:

• Irrational land acquisition: from 2018 to 2021, it maintained high levels of land acquisition; average land price rose from RMB 5,427 per square meter to RMB 6,942 per square meter

• Cyclical industry adjustments: when projects with high land prices entered the market, it coincided with a downturn cycle in the real estate market, leaving only the strategy of cutting prices to move volume

• Over-diversified investment layout and excessive expansion into multiple tracks: failed to break away in time from the expansion inertia of high liabilities, fast turnover, and high leverage

2. Risks in off-balance-sheet investment and financing systems

Vanke’s massive off-balance-sheet investment and financing system has become a high-incidence area for impairment:

• Among the top five companies in the balance of funds within other receivables, four have made large-scale bad-debt provisions

• After equity look-through, these companies are all related to Vanke’s massive off-balance-sheet investment and financing system

• Fengjia Asset Management’s historical shareholders were Shenzhen Vanke Enterprise Asset Management Center

• Boshang Shuntai Industrial holds 100% equity of Boshang Asset Management Co., Ltd.; the latter is viewed as an important financial platform outside the listed-company system of Vanke

VII. Outlook and key challenges

1. Short-term survival test

The debt repayment peak from April to July 2026 is the most direct challenge Vanke faces. If sales cannot rebound (requiring monthly average cash collections of RMB 20.0 billion), the risk of cash flow exhaustion will still remain.

2. Exploring a transformation path

Vanke is transitioning from a “high-turnover developer” to a “light-asset urban integrated operator,” with a focus on developing operating businesses such as property services, long-term rental apartments, and logistics real estate. Innovative attempts, such as the promotion of AllThings Cloud REITs and the “rail + leasing” model through cooperation between Boathome and Shenzhen Metro Railway, may become the company’s future value support point.

3. Performance forecasts

Some analysts predict that in 2026 Vanke’s development business segment revenue may be between RMB 170.0 and RMB 190.0 billion, gross margin will recover to 8%-12%, and the segment’s net losses will narrow to RMB 30.0-100.0 billion, reducing losses by more than 85% versus 2025. But Morningstar is more pessimistic and expects losses to continue through 2028.

In summary, Morningstar’s downgrade of Vanke’s valuation is based on the objective reality that the company’s fundamentals have deteriorated. Vanke currently faces multiple challenges, including historic losses, massive debt pressure, and tight liquidity. Although it has obtained support from its major shareholder and improvements in the policy environment, fully resolving the risks still requires time. Whether the company can successfully transform during the deep adjustment of the industry will determine the direction of its long-term value.

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