20210813-招银国际-CSI_Properties_–_A_low_beta_and_carry_play_3页_469kb

CMBI Credit Commentary - CSIPRO Summary

Core Content Overview

This document provides a credit commentary on CSI Properties (CSIPRO), focusing on its investment potential in the current volatile market environment. The analysis highlights CSIPRO's low beta, carry opportunity, and diversification benefits, making it an attractive investment for risk-averse investors.

Key Investment Recommendations

• Initiate coverage with buy recommendations on CSIPRO'25 and CSIPRO perps.
• CSIPRO perps are preferred over CSIPRO'25 due to:
  • Higher yield (YTC of 7.7% vs. YTM of 5.0%)
  • Lower cash price
  • Shorter tenor
• The perps are expected to be called at par in September 2022, supported by CSI's sufficient liquidity and ability to secure lower cost funding.

Revenue and Profit Trends

Metric	FY2019	FY2020	FY2021
Revenue (HKD mn)	3,137.0	5,198.2	1,732.1
Profit before tax (PBT) (HKD mn)	737.8	1,309.0	444.5
PBT Margin (%)	23.1%	25.2%	25.7%

• CSI's revenue and profit declined significantly in FY21, down 67% and 66%, respectively.
• The decline was primarily due to its sales and delivery schedule and to a lesser extent, the impact of the pandemic.
• CSI is expected to rebound in FY22 and FY23 with:
  • Residential property sales of around HKD1.5bn in FY22.
  • HKD4bn in FY23, assuming 30% sell-through of the two MTR projects.
  • Recurring rental income of HKD200mn per year.
  • Potential commercial property sales.

Disciplined Investment and Financial Strategy

• CSI maintains disciplined business and financial policies, with a focus on capital recycling rather than expansion.
• Investment criteria include:
  • IRR requirement of 20-25% for new projects.
  • Focus on luxury residential and MTR-linked projects in Hong Kong.
  • Commercial properties in Shanghai for its mainland operations.
• China exposure is limited to 25-30% of its asset base.
• Dividend policy is prudent, with a payout ratio of 12-15% of net profit.
• Adj net debt/total assets ratio is targeted around 40%, and stood at 39.6% as of Mar'21.

Capital Expenditure and Debt Management

• CSI has pre-funded most of its construction capex (around HKD4bn) over the next four years.
• Funding costs are at or below HIBOR+1.5%.
• Capex and obligations are largely pre-funded, increasing the likelihood of calling the CSIPRO perps in Sep'22.
• The initial spread of the perps is expected to step-up by 300bps, with the coupon reset to 7.812% (based on 5-yr UST + 7.005%).
• CSI is not subject to covenants that would prevent it from calling the perps.

Author Certification and Important Disclosures

• The author certifies that the views expressed reflect their personal opinions and that compensation is not tied to specific recommendations.
• No personal or associate transactions in the covered stocks within 30 days before the report's release.
• No financial interests in the listed companies covered.
• Investment risks are highlighted, including uncertainty in returns and market volatility.
• The report is not investment advice, and investors are encouraged to consult professional advisors.

Legal and Distribution Information

• The report is intended for specific recipients and is not for public distribution.
• CMBIS has an investment banking relationship with the issuers covered in the report.
• Conflicts of interest may exist, and CMBIS assumes no responsibility for them.
• Distribution restrictions apply depending on the jurisdiction:
  • UK: Only for persons under Article 19(5) or Article 49(2) of the Financial Promotion Order.
  • US: Intended for major US institutional investors, not for general public.
  • Singapore: Distributed by CMBI (Singapore) Pte. Limited (CMBISG), an Exempt Financial Adviser.

Conclusion

CSI Properties is presented as a low-risk, high-carry investment in a volatile market, supported by its disciplined financial strategy, pre-funded capital expenditures, and potential for revenue recovery. The perps are particularly highlighted for their favorable yield, lower cost, and high probability of redemption in September 2022. Investors are advised to exercise caution and consider consulting a financial advisor before making any investment decisions.