OREANDA-NEWS. Fitch Ratings says China Vanke Co., Ltd's (Vanke; BBB+/Stable) 2014 annual results demonstrate its superior cash management and asset turnover ability during a weak housing market in 2014.

Vanke delivered one of the highest contracted sales in the Chinese property development industry in 2014 at CNY215.13bn, an increase of 25.9% from a year earlier. Contracted sales by gross floor area rose 21.2% to 18.06m sqm, while the average selling price (ASP) for contracted sales increased 4% to CNY11,909 per sqm.

Vanke's cash (both unrestricted and restricted) jumped 41% to CNY62.7bn at end-2014. This resulted in net debt of just CNY6.3bn at end-2014 and leverage, as measured by net debt/adjusted inventory, falling to 3.0% at end-2014 from 14.2% at end-2013.

Vanke continues to deliver superior asset churn, with the ratio of contracted sales to total debt at 2.94x at end-2014 and 2.09x at end-2013. However, this came at the expense of lower EBITDA margins, which fell to 22.0% at end-2014 from 24.9% at end-2013. Fitch expects Vanke to continue its high turnover model, with the ratio of contracted sales to total debt continuing to be above 2x, and does not expect substantial improvement in the company's margins for the next 24 months.

The high asset turnover in 2014 has also reduced Vanke's inventory, though whether this impacts the stock of homes for sale in 2015 will depend on the company's acquisition strategy for the year. Vanke's adjusted inventory fell 4.5% to CNY314.9bn at end-2014 while the ratio of contracted sales to adjusted inventory increased to 0.96x at end-2014 from 0.71x at end-2013.

For a more detailed analysis of the rating drivers and sensitivities for Vanke, please refer to the rating action commentary "Fitch Rates China Vanke's USD Notes Final 'BBB+'", dated 6 June 2014, available at www.fitchratings.com.