20220401-招银国际-HPDLF__Concerns_on_auditor_change_largely_mitigated,_maintain_Buy_on_HPDLFs_4页_226kb

CMBI Credit Commentary Summary - HPDLF

Core Content

This document is a credit commentary issued by the Fixed Income Department of CMB International Securities Limited (CMBIS) on HPDLF (Hopson Development Limited). The commentary evaluates the creditworthiness of HPDLF, focusing on its financial performance, liquidity, debt maturity, and investment portfolio, while also addressing concerns regarding auditor changes.

Main Points

• Rating and Recommendation:
  CMBI maintains a Buy rating on HPDLF. The firm is particularly favoring the HPDLF 8% '23 (CB) with a higher coupon rate and trading at a YTM of 23.5%, making it an attractive short-dated investment.

• Liquidity and Debt Profile:
  HPDLF has a manageable debt maturity profile and adequate liquidity, with a cash/ST debt ratio of 1.1x. It has no outstanding onshore bonds or MTNs, and its next 12-month public offshore maturities are HKD720mn due Jul'22 and USD250mn CBs due Jan'23.

• Investment Portfolio:
  The company’s investment portfolio is valued at cHKD15bn, with cHKD9bn invested in liquid and listed equities in HK and the US. This reduces the risk associated with its investment activities.

• Financial Performance:

  • In FY21, revenue and net core profit declined by 10.6% and 62.8% to HKD30.7bn and HKD4.8bn, respectively, primarily due to investment losses of HKD3.0bn.
  • Excluding investment gains/losses, the company is expected to see 28% revenue growth and 3% net core profit growth to cHKD34bn and cHKD7bn.
  • Gross margin fell to 43% in FY21 from 64% in FY20, but adjusting for investment gains/losses, it would be 48% in FY21, still very high for the sector.

• Margin and Sales Outlook:

  • Hopson's contracted ASP is HKD47,087/sqm, and unrecognized sales ASP is cHKD18,100, which is slightly higher than the recognized ASP of HKD17,985/sqm in FY21.
  • The company set a FY22 sales target of cHKD56bn, a 7% growth from FY21. However, contract sales in 2M22 were cHKD4bn, down 10% yoy.

• Debt Ratios:

  • As of Dec'21, HPDLF maintains a net gearing of 73.5%, adj liab/assets of 63.2%, and cash/ST debt ratio of 1.1x, placing it in the green camp under the 3 Red Lines.
  • These ratios are improved from Dec'20, where net gearing was 89.7% and adj liab/assets was 64.4%.

Key Information

• Auditor Change Concerns:
  Concerns about auditor change were largely mitigated, as the company's FY21 results were audited and reviewed by E&Y, with unqualified opinions expected.

• Investment Risk:
  While the investment losses in FY21 were significant, the firm is not overly concerned due to the majority of its investment portfolio being in liquid and large-cap equities.

• Disclaimer and Risk Notes:

  • The report is not investment advice and should be used with caution.
  • There are risks involved in investing in securities, and actual outcomes may differ from the report’s analysis.
  • The information is subject to change and not guaranteed.
  • CMBIS may have conflicts of interest due to its investment banking relationships with the issuer.

Contact Information

• Glenn Ko, CFA
  Email: glennko@cmbi.com.hk
  Tel: (852) 3657 6235

• Polly Ng
  Email: pollyng@cmbi.com.hk
  Tel: (852) 3657 6234

• James Wen
  Email: jameswen@cmbi.com.hk
  Tel: (852) 3757 6291

• CMBI Fixed Income Department
  Email: fis@cmbi.com.hk
  Tel: 852 3761 8867 / 852 3657 6291

Legal and Regulatory Notes

• Disclaimer:
  CMBIS may have investment banking relationships with the issuers mentioned in the report and may not be independent in its analysis.

• Distribution Restrictions:

  • The report is intended for specific recipients in the UK, US, and Singapore.
  • In the UK, it is only provided to those falling under Article 19(5) or Article 49(2) of the Financial Services and Markets Act 2000.
  • In the US, it is distributed only to major US institutional investors.
  • In Singapore, it is distributed by CMBI (Singapore) Pte. Limited (CMBISG), an Exempt Financial Adviser, and is subject to regulatory oversight.

Conclusion

Despite a decline in FY21 financial performance due to investment losses, HPDLF remains a strong credit with high asset quality, low-cost land bank, and manageable debt maturity. The firm’s positive free cash flow and adequate liquidity support its Buy rating, and the short-dated CB offers a high yield opportunity. Investors are advised to consult professional advisors and independently evaluate the investment.