20230912-招银国际-DALWAN__Another_reality_check_4页_802kb

DWCM Overview and Business Performance

Dalian Wanda Commercial Management (DWCM) has shifted focus from property development to commercial property investment following withdrawal in 2020, with revenue mainly from recurring rent and management, accounting for 91% of its income in 1H23. Its operating performance is more resilient due to stable gross margins (65% in 1H23 vs. 63% in 1H22 and 62% in FY22) and higher EBITDA margins (55% in 1H23 vs. 53% in H122).

Affiliation Risk and IPO Considerations

Concerns exist about affiliation with Dalian Wanda Group, raising questions on standalone credit assessment. However, DWCM and Zhuhai Wanda are viewed as ring-fenced operations, reducing the risk of pre-IPO put obligations. The IPO of Zhuhai Wanda faces regulatory scrutiny primarily on the use of proceeds for property developments, but negotiations show support for ring-fenced operations. Waiving or amending puts is seen as beneficial for all parties, enhancing standalone credit profile.

Bond Maturity and Financial Profile

DWCM's bond maturity profile, especially offshore ($1.4bn outstanding), is manageable. YTD repayments included $960mn in USD bonds and RMB14.7bn in onshore bonds. Key upcoming maturities are $600mn in Jan'24. Financially, cash levels decreased slightly, net debt rose, but liquidity is supported by financial assets and potential secured financing against IP, with an IP LTV ratio providing headroom for additional borrowing.

Overall Credit View and Recommendations

DWCM's near-term repayment pressure is manageable under the ring-fenced assumption. While it remains a high-beta stock due to headline risks, its risk-return profile is favorable at current valuations, with a buy recommendation issued, supported by stable financials and improved margins.