20210819-招银国际-TPHL__Curve_fairly_priced_4页_566kb

CMBI Credit Commentary - TPHL Summary

Core Content

This credit commentary provides an analysis of Times China's (TPHL) financial performance and outlook, focusing on its income statement, balance sheet, cash flow, and debt profile. The report also includes insights into the company's sales performance, land investment strategy, and financial transparency, ultimately concluding that the TPHL curve is fairly priced and initiating a MW call with a yield range of 4.9% to 7.1%.

Main Points

Financial Performance

• Stable Income Statement: Times reported revenue of RMB13.6bn in 1H21, a -8.6% yoy decline, primarily due to the impact of the COVID-19 outbreak in May and June.
• High Gross Margin: The gross margin reached 33.3% in 1H21, up from 28.8% in 2020. This is attributed to lower revenue booking and delayed construction.
• Full Year Guidance: Management guided for a full year revenue booking of RMB42bn (+10% yoy), supported by contract liabilities of RMB37bn.

Balance Sheet and Debt Profile

• Lower Total Debt: Total debt decreased to RMB54.9bn (2020: RMB61.5bn), indicating deleveraging efforts.
• Higher External Guarantees and Payables: External guarantees increased to RMB8.9bn (2020: RMB6.6bn), and payables rose by RMB11bn.
• Net Debt Increase: Net debt increased by ~RMB7bn, leading to a net gearing of 69% (2020: 66%).
• Improved Liquidity: The cash/short-term debt ratio improved to 2.3x, and unrestricted cash/short-term debt to 1.9x. This reflects an optimized debt profile.

Cash Flow

• Positive Free Cash Flow: Times generated RMB150mn in free cash flow in 1H21.
• Cash Flow Guidance: The company revised its 2021E cash flow guidance, with construction costs increasing to RMB17.4bn and investment budget decreasing to RMB19.8bn.
• Balanced Cash Flow: Despite the changes, the net cash flow remained at RMB0.0 for both the old and new guidance.

Sales and Development

• Pre-Sales Performance: Times achieved RMB45.4bn in pre-sales for 1H21, representing +39.3% yoy and 41% of annual sales target.
• Historically 2H Loaded Sales: The company typically achieves a higher proportion of sales in the second half of the year.
• Sufficient Saleable Resources: Times has RMB115bn in saleable resources, indicating a 56% targeted sell-through, which supports the expectation of meeting its RMB110bn sales target.

Financial Transparency

• Increased MI: The company's measured interest (MI) as a percentage of total equity rose to 52.5% (2020: 47.7%), potentially affecting financial transparency.
• Lower Attributable Sales Ratio: The attributable sales ratio dropped to 60% (2020: 62%), suggesting a greater involvement in joint ventures (JVs).
• Collaborative Projects: The increase in MI is partly due to collaborative projects, where only 35% of the new land acquired is attributable to Times.

Key Information

• Gross Margin Normalization: The report expects the gross margin to normalize in the full year, returning to 28%-30%.
• Land Bank Expansion: Times has acquired 7 land parcels and converted 4 urban redevelopment projects (URPs) into a land bank, adding ~2.25mn sqm of land at an actual investment cost of RMB6.7bn.
• Credit View: The TPHL curve is considered fairly priced, and the MW call is initiated with a yield range of 4.9% to 7.1%.

Tables Summary

Table 1: Times GPM Breakdown

• Property Development:
  • Revenue: RMB11,006bn (1H21)
  • As % of total revenue: 81%
  • GPM: 22%
• Urban Redevelopment:
  • Revenue: RMB2,407bn (1H21)
  • As % of total revenue: 18%
  • GPM: 83%
• Total Revenue: RMB13,638bn (1H21)
• Total GPM: 33%

Table 2: Times Cash Flow Guidance

• Cash Inflow:
  • Cash inflow from sales: RMB22.9bn (1H21)
  • Total cash inflow: RMB22.9bn
• Cash Outflow:
  • Land premium: RMB6.7bn (1H21)
  • Construction capex: RMB8.8bn (1H21)
  • Tax: RMB3.2bn (1H21)
  • Finance cost: RMB2.0bn (1H21)
  • S,G&A, div and others: RMB2.0bn (1H21)
• Total Outflow: RMB22.7bn (1H21)
• Net Cash Flow: RMB0.2bn (1H21)

Disclaimer and Risk Information

• Author Certification: The views expressed reflect the author's personal opinions, and no compensation is tied to these views.
• Trading Restrictions: The author and associates did not trade in the stocks covered in the past 30 days and will not do so within 3 business days after the report's release.
• Investment Risks: There are risks involved in trading securities. The report is not a recommendation and is provided for informational purposes only. Past performance is not indicative of future results.
• Distribution Restrictions: The report is distributed only to specific investors and is not intended for general public use. It is not an offer to buy or sell securities.