20210303-招银国际-Central_China_–_Bond_price_may_stay_subdued_for_now_3页_471kb

CMBI Credit Commentary Summary

Core Content

The document provides a credit analysis of Central China's bond performance and financial outlook, highlighting key factors that may influence its credit profile and bond prices.

Main Points

• Bond Price Outlook: The recent sell-off in CENCHI bonds is attributed to its poor contracted sales performance in 2M2021 (-37% yoy), compared to its peers. However, the analysis suggests that bond prices may remain subdued for now due to the company's financial challenges.

• Credit Profile: Central China is classified as a high single B credit, primarily due to its heavy reliance on USD bond financing and its 100% concentration in Henan Province, which is not a net population inflow area. The company's transition to lower-tier cities like Luoyang and Zhoukou may lead to a gradual deterioration in its credit profile.

• Financial Position: Despite the challenges, Central China maintains a strong financial cushion with high unrecognized revenue (~RMB 90 bn at end-FY20) and a high cash balance of RMB 31.8 bn (RMB 25.6 bn free cash). Its cash to short-term debt ratio is 1.6x, indicating a relatively stable near-term credit profile.

• Red Lines Compliance: As of June 2020, Central China only breached one of the three red lines (Liability-to-asset ratio excluding advance receipts), suggesting it is currently within acceptable limits.

• Bond Maturity and Structure: The document outlines the maturity schedule of several CENCHI bonds, including those due in 2023 and 2024. It also notes that the company has RMB 20 bn in offshore USD bonds outstanding, representing ~60% of its total debt.

• Spin-Off Impact: The separate listing of Central China's high-margin project management business is expected to lower its EBITDA by 10%-15%, which is viewed as a credit negative.

• Investment Considerations: The analysis suggests that CENCHI bonds may offer value when their yield to maturity (YTM) exceeds 10%, despite the challenges in sales and profitability.

Key Information

• Contracted Sales:

  • 2M2021: RMB 2.6 bn (-37% yoy)
  • FY20: RMB 102.6 bn (1.5% yoy growth)
  • Heavy asset contracted sales: RMB 68.3 bn in FY20 (down from RMB 71.8 bn in FY19)

• Revenue and Gross Margin:

  • Company guided for 20%-30% revenue growth in FY20
  • Gross margin remained similar to 1H20 at 22%-25%

• Sell-Through Rate:

  • FY18: ~70%
  • FY19 and FY20: ~60%

• Bond Details:

  • CENCHI 7.65% Aug'23: RMB 2,600 (USD 400)
  • CENCHI 7.25% Jul'24: RMB 1,300 (USD 200)
  • Total Bond Maturity before 2021/12/31: RMB 13,166 (USD 2,026)
  • Total Bond Maturity from 2022 onward: RMB 16,190 (USD 2,491)

• Offshore Financing:

  • RMB 20 bn in offshore USD bonds
  • Represents ~60% of total debt

• JV Model Impact:

  • High usage of joint venture model increases external guarantees
  • External guarantees stood at RMB 9.0 bn as of 1H20 (25% of total debt)

• Listing Impact:

  • Spin-off of project management business via distribution in specie
  • Expected to reduce EBITDA by 10%-15%

Contact Information

• Polly Ng 吴宝玲: (852) 3657 6234 | pollyng@cmbi.com.hk
• Wilson Lu 路伟同: (852) 3761 8918 | wilsonlu@cmbi.com.hk
• James Wen 温展俊: (852) 3757 6291 | jameswen@cmbi.com.hk
• Fixed Income Department: Tel: 852 3761 8867 / 852 3657 6291 | fis@cmbi.com.hk

Important Disclosures

• Risk Disclaimer: There are risks involved in trading any securities, and the information in this report is not suitable for all investors.
• No Investment Advice: CMBIS does not provide individually tailored investment advice.
• Liability Disclaimer: CMBIS and its affiliates are not liable for any losses incurred from relying on the information in this report.
• Conflicts of Interest: CMBIS may have investment banking relationships with the companies discussed, which could affect the objectivity of the report.
• Distribution Restrictions: The report is intended for specific investors and may not be distributed to others without prior written consent.
• Legal Responsibility: In Singapore, CMBISG accepts legal responsibility for the contents of the report to non-accredited investors only to the extent required by law.

Notes

• USDRMB Exchange Rate Assumed: 6.50
• CENCHI in Millions:
  • Free Cash: RMB 25,555 (USD 3,932)
  • Total Liquidity: RMB 25,555 (USD 3,932)