China Vanke, Dalian Wanda shares soar in HK after cooperation deal

Mainland property giants China Vanke Co Ltd and Dalian Wanda Commercial Properties Co Ltd (DWCP) put up a spectacular performance in Hong Kong on Thursday as their share prices soared on the back of a strategic cooperation pact between the two companies to boost their land banks and project development.

The share price of DWCP - the commercial-property arm of the Dalian Wanda Group controlled by Asia's richest man Wang Jianlin - surged as much as 6.4 percent at one stage before slipping back slightly to close at HK$68.2 - up 1.79 percent from Wednesday's close - while China Vanke climbed 1.63 percent to HK$19.92.

The partnership between the two conglomerates may have taken a long time to forge, but was described as one with "significant synergies" by global financial services group Credit Suisse.

Credit Suisse reaffirmed its "outperform" rating for China Vanke, projecting that its share price will go up by a further 15.5 percent to HK$23 in the next few months. It also predicted that the builder's returns on equity rate will be greatly lifted.

The leaders of the two industry titans hailed their accord as one that would propel their performance to new highs.

Yu Liang, president and chief executive officer of Shenzhen-based China Vanke, said:"The pact (with Wanda Commercial Properties) would help Vanke broaden its customer base and secure more development opportunities in commercial real estate."

Wang, of the Beijing-based Wanda Group, said:"Ever since the mainland's property market entered a phase where demand and supply has reached equilibrium, developers have become aware of the need for a new line of thinking and a new model. The partnership (with Vanke) will help Wanda accelerate its strategy that calls for reducing its property portfolio."

Ben Kwong Man-bun, head of research at KGI Asia Ltd, said the partnership could combine the respective strengths of the two companies operating in different segments of the market.

China Vanke is the mainland's largest residential property developer by sales, while DWCP focuses on building super malls around the country.

Kwong said the agreement would allow both developers to leverage each other's strengths in future projects.

"I believe Vanke and Wanda Commercial are setting their sights beyond the domestic market," he said. The pact would give both companies the confidence to compete with international developers in overseas markets, he added.

John So Shun-tak, vice-president of equities research at China Merchants Securities (HK) Co Ltd, however, expressed concern that the two conglomerates may not be able to cooperate smoothly as each of them may want to take the lead in various projects.

"Such cooperation shows that major developers recognize that the current competitive market environment is eroding their profitability," he said.

Hanna Li Wai-han, a strategist at UOB Kay Hian (Hong Kong) Ltd, said she expected the partnership to make both developers more aggressive in land acquisitions.

She predicted that more commercial-property developers will establish platforms allowing them to work together against increasingly stiff competition.

But, not all partnerships might work and turn out to be productive.

"Only if a partnership can produce strong synergistic effects will it be worthwhile to the participants. It's hard to find partners sharing the same goals," Kwong said.

celia@chinadailyhk.com

A strategic cooperation deal between mainland conglomerates China Vanke Co Ltd and Dalian Wanda Commercial Properties Co Ltd has evoked investor interest as the accord is expected to give added strength to their future projects. Brent Lewin / Bloomberg

(HK Edition 05/15/2015 page9)