20210708-招银国际-First_take_from_Corporate_Day__Powerlong_-_Businesses_as_usual_3页_418kb

CMBI Credit Commentary Summary

Core Content

This credit commentary from CMBI Fixed Income provides an analysis of Powerlong (PWRLNG), focusing on its financial position, business strategy, and refinancing risks. The report suggests that Powerlong is fairly valued and maintains a positive credit outlook, despite recent market fluctuations.

Main Points

• Valuation Assessment:
  PWRLNG's stock price only declined by 0.5-2.5 points over the past two months during the market sell-off. This movement reflects the company's sufficient liquidity and improving credit story. At current valuations, CMBI considers PWRLNG to be fairly priced.

• Gross Margin Expectations:
  Powerlong anticipates a 1-2 point decrease in gross margin for FY21 compared to the 36.1% recorded in FY20. However, the company is confident that its focus on integrated developments (commercial and residential) will help maintain a gross margin above 30%.

  • Project Acquisition Strategy: Powerlong has a strong track record in securing high-quality integrated projects from local governments at reasonable costs.
  • Investment Criteria: The company requires a gross margin of 30% or above as a key criterion for committing to new projects, with 60-70% of its attributable land premium payments allocated to such integrated developments.

• Leverage and Liquidity:
  As of December 2020, Powerlong's net gearing was 75.6%, adj. liab-to-asset ratio was 69.9%, and cash/short-term debt ratio was 135.4%. The company expects these metrics to remain within the "green camp" (safe range) as of June 2021, indicating stable leverage and good liquidity.

• Refinancing Risk:
  Refinancing risk is not considered a major concern for Powerlong. The company has prefunded USD200mn bonds maturing in September 2021 with a USD200mn issuance in May 2021 (re-offer yield at 5.1%).

  • It also has RMB3bn onshore bonds that are puttable at par in November 2021.
  • Liquidity Position: With a cash/short-term debt ratio above 100%, the company has strong liquidity.
  • Rating Upgrade: Its onshore rating has been upgraded to AAA, further supporting its refinancing capability.
  • USD Bond Performance: The relatively resilient performance of its USD bonds suggests smooth access to the USD bond market.

Key Information

• Company Focus: Powerlong's strategy centers on integrated commercial and residential developments, which are expected to protect gross margins.
• Financial Health: The company maintains a healthy liquidity profile and is well-positioned to secure projects from local governments.
• Credit Outlook: CMBI remains positive on Powerlong's credit profile, viewing it as fairly valued and low risk in terms of refinancing.
• Legal and Regulatory Context:
  • The report is issued by CMB International Securities Limited (CMBIS), a subsidiary of China Merchants Bank.
  • It includes author certification and important disclosures, emphasizing that the views expressed are the author's personal opinions and that no compensation is tied to these views.
  • The report is not investment advice and is intended solely for informational purposes.
  • Distribution Restrictions: The report is not available to all investors and is limited to major US institutional investors in the United States. In Singapore, it is distributed by CMBI (Singapore) Pte. Limited (CMBISG), an Exempt Financial Adviser.

Disclaimer

• Conflict of Interest: CMBIS may have investment banking relationships with the companies mentioned, which could affect the objectivity of the report.
• Legal Responsibility: In Singapore, CMBISG accepts legal responsibility for the report's contents only to the extent required by law.
• Use of Information: The report is for intended recipients only and cannot be reproduced, reprinted, sold, or published without prior written consent.

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 | fis@cmbi.com.hk