20210713-招银国际-First_take_from_Corporate_Day__Ehouse_-_Short-dated_sweet_spot_3页_415kb

CMBI Credit Commentary Summary

Core Content

This document is a credit commentary from CMBI Fixed Income Department on Ehouse, focusing on its financial performance, strategic initiatives, and investment implications.

Key Financial Highlights

• Cash Position: As of end-2020, Ehouse held RMB8.1bn in cash. Approximately RMB3.2bn was offshore, representing 50% of total cash.
• Debt Reduction: Total debt decreased to RMB7.3bn by mid-2021, from RMB8.5bn at end-2020, following the repayment of EHOUSE '21 notes.
• Revenue Recovery: In 1H2021, Ehouse's revenue rebounded to 1H2019 levels, but net profit was lower due to increased finance expenses and amortization charges.
• Operating Cash Flow: The company achieved positive cash flow of RMB588mn in 2020, compared to an outflow of RMB607mn in 2019.
• Yield and Investment Recommendation: Ehouse '22 bond offers a yield of ~7.5%, which is 200bp-250bp higher than other industrial credits (e.g., HONGQI ~5.4%, WESCHI ~4.8%). The recommendation is to Buy Ehouse '22 as a diversification play.

Strategic Developments

• Stake Sale to Alibaba: Ehouse expected to complete the stake sale to Alibaba in August 2021. After completion, Alibaba would become the second-largest shareholder with a 22.57% stake.
• Transaction Conditions: The transaction is subject to a 75% majority vote from minority shareholders and a Whitewash waiver to avoid a general offer.
• Cash Proceeds: Ehouse would receive HKD2.5bn from the share issuance and plan to roll out business initiatives with Alibaba in 2H2021.
• Customer Concentration: The top 4 customers are Evergrande, Country Garden, Vanke, and R&F, contributing 30%–40% of sales. Evergrande alone accounts for 20% of sales and 30% of accounts receivables.

Investment Considerations

• Yield Advantage: The higher yield of Ehouse '22 compared to other industrial credits makes it an attractive option for investors seeking additional returns.
• Operational Resilience: Despite its correlation with Chinese developers, Ehouse's strong cash position provides a buffer against operational challenges.
• Repayment Strategy: The company has stated it will repay its USD300mn bond with cash in April 2022 if the offshore bond market remains unfavorable.

Disclaimer and Risk Information

• Risk Disclosure: Investing in securities involves risks, and the information provided may not be suitable for all investors.
• No Individual Advice: CMBIS does not provide individually tailored investment advice.
• Conflicts of Interest: CMBIS may have investment banking relationships with the issuers, which could affect the objectivity of the report.
• Distribution Restrictions:
  • UK: Only available to persons falling within Article 19(5) of the Financial Services and Markets Act 2000 or Article 49(2) (a) to (d) of the Order.
  • US: Intended for "major US institutional investors" only and not for general distribution.
  • Singapore: Distributed by CMBI (Singapore) Pte. Limited, an Exempt Financial Adviser, and subject to legal responsibility only to the extent required by law for non-accredited investors.

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
• CMBI Fixed Income: fis@cmbi.com.hk
• CMB International Securities Limited: Tel: 852 3761 8867 / 852 3657 6291

Author Certification

• The author certifies that all views expressed in the report accurately reflect their personal views.
• The author confirms no compensation was directly or indirectly related to the views expressed.
• The author has not traded in the stock(s) covered in the report within 30 days prior to its issue and will not do so within 3 business days after its issue.
• The author does not serve as an officer of any Hong Kong listed company covered in the report and has no financial interests in them.