20260401-招银国际-FUTLAN_FTLNHDs_An_outperformer_in_a_challenging_operating_environment_4页_584kb

CMBI Credit Commentary Summary

Core Content

This document provides a credit commentary on FUTLAN/FTLNHDs, a Chinese property developer, focusing on its financial performance, credit profile, and future outlook. The analysis highlights the company's resilience in a challenging market, its strong access to funding, and the potential for sustainable growth in its recurring income streams.

Main Points

1. Credit Recommendation

• Maintain Buy: CMBI recommends maintaining a "Buy" rating for FUTLAN/FTLNHDs due to their strong risk and return profiles.
• Resilience in Challenging Environment: Seazen has shown resilience, particularly through its recurring rental and property management income, which has grown consistently.

2. Operating Performance

• FY25 Results: While overall FY25 results were negatively impacted by lower ASP and GFA in property developments, recurring income continued to grow.
• Recurring Income Growth: Recurring income increased by 7% to RMB14.1bn, covering 4.2x of gross interest expenses.
• Profit Contribution: Rental and property management income contributed 62.6% of gross profit in FY25, up 47.6% from FY24.
• Gross Margin Recovery: The gross margin of recurring income improved significantly, leading to an overall 23.3% gross margin in FY25, up from 16.8% in FY24.

3. Funding and Refinancing

• Stable Credit Profile: Seazen has maintained a stable credit profile and has better access to funding channels compared to its peers.
• Refinancing Activities: Seazen raised USD510mn to refinance USD600mn in bonds maturing in July and October 2025.
• New Bond Issue: In March 2026, Seazen issued USD355mn of FTLNHD 11.8 03/09/29 and redeemed USD234.0mn in existing bonds.
• Secured Loans: Seazen obtained cRMB12.5bn in secured loans against its IPs in FY25, with potential for RMB5-6bn more from unpledged malls.
• Funding Cost Reduction: Secured loans and bonds against IPs have helped reduce funding costs from 5.88% in FY24 to 5.81% in FY25.

4. Future Outlook

• Focus on IPs: Seazen is expected to increasingly focus on its investment properties (IPs), with plans to open 5 new malls in FY26.
• Recurring Income Target: It guided a conservative target of a 2.8% YoY increase in recurring income, reaching RMB14.5bn in FY26.
• Market Conditions: New mall launches will depend on market conditions.

5. Financial Position

• FCF: Free cash flow (FCF) fluctuated between RMB3,527mn in 2023 and RMB5,884mn in 2025.
• Inventory Days: Increased from 31.2 in 2023 to 36.7 in 2025, indicating slower inventory turnover.
• Cash Conversion Cycle: Improved from 20.1 in 2023 to 9.9 in 2025, suggesting better liquidity management.
• Debt Metrics:
  • Debt/EBITDA increased from 3.5x in 2023 to 7.6x in 2025.
  • Net Debt/EBITDA rose from 1.6x to 3.1x.
  • EBITDA/Interest dropped from 6.6x to 2.8x, indicating higher interest burden.

6. Additional Activities

• Commercial REITs: Seazen has started applying for the public issuance of commercial REITs using its commercial real estate projects, including the Changzhou Tianning Wuyue Plaza and Nantong Qidong Wuyue Plaza projects. It intends to hold at least 34% of the REITs.

Key Information

• Operating Performance: Recurring income is a key driver of resilience, with a growing contribution to gross profit.
• Funding Access: Seazen has successfully accessed the USD bond market and has a strong capacity for secured loans.
• Future Growth: Expansion of investment properties and new mall openings are expected to support recurring income growth.
• Financial Flexibility: The company has demonstrated adequate financial flexibility to manage its debt maturities over the next 2-3 years.

Summary Table

Disclaimer and Legal Information

• Author Certification: The author certifies that all views reflect their personal opinion and that there are no conflicts of interest.
• Important Disclosures:
  • The report is not tailored for all investors.
  • Past performance is not indicative of future results.
  • The value of investments may fluctuate.
• Distribution Restrictions:
  • UK: Only for persons within Article 19(5) or Article 49(2) of the Financial Services and Markets Act 2000.
  • US: Intended for "major US institutional investors" only.
  • Singapore: Distributed by CMBISG, an Exempt Financial Adviser, to specific categories of investors.

Contact Information

• Glenn Ko, CFA: (852) 3657 6235 / glennko@cmbi.com.hk
• Cyrena Ng, CPA: (852) 3900 0801 / cyrenang@cmbi.com.hk
• Yujing Zhang: (852) 3900 0830 / zhangyujing@cmbi.com.hk
• CMB International Global Markets Limited: Fixed Income Department, Tel: 852 3657 6235 / 852 3900 0801 / fis@cmbi.com.hk