20230404-招银国际-Seazen__Maturing_IP_portfolio_is_a_key_differentiator_3页_622kb

CMBI Credit Commentary Summary

Core Content

The CMBI Credit Commentary focuses on Seazen, a non-state-owned developer, and evaluates its financial position and investment opportunities in the context of the current market environment. The report highlights the company's resilience in the tight credit conditions and its strategic shift towards asset-light operations and recurring rental income.

Main Points

1. Financial Flexibility from Maturing IPs

• Seazen's maturing investment properties (IPs) have provided strong financial flexibility.
• Despite weakened FY22 results, the company's ability to refinance and maintain lower funding costs is a key differentiator.
• The report suggests that FUTLANs/FTLNHDs with yields over 20% are currently undervalued and offer better entry opportunities.

2. Performance in FY22

• Seazen experienced a significant decline in revenue and core net profit, down 31% and 97% respectively.
• Gross margin dropped to 13.7% from 16.7% in FY21.
• The silver lining is the growth in recurring rental income and management fees, which increased by ~17% to cRMB9bn.
• The gross margin for these recurring incomes was 72.6%, indicating strong performance.

3. Future Revenue Expectations

• Saleable resources for FY23 are estimated at RMB180bn, including cRMB100bn carried forward from FY22.
• Assuming a sell-through rate of 50%, Seazen expects gross contract sales of RMB90bn in FY23, down from RMB116bn in FY22.
• In 2M23, gross contract sales were RMB13.6bn compared to RMB19.1bn in the same period of the previous year.

4. Debt Management and Funding

• Seazen reduced total debts by RMB24.7bn and net debts by RMB1.5bn in FY22.
• Net gearing remained stable at around 51%.
• The company has secured funding through equity, MTNs, and green notes, with a focus on maintaining low funding costs.
• It has a headroom of over RMB40bn for financing against its IPs, based on a LTV of 60%.

5. Refinancing Risk and Investment Recommendations

• The company's refinancing risk is manageable due to its strong liquidity and debt reduction efforts.
• The report recommends buying FUTLANs/FTLNHDs, especially longer-dated papers, due to their potential for upside and current undervaluation.
• Longer-dated FUTLANs/FTLNHDs have corrected 4-10 points since mid-Feb'23, making them more attractive.

Key Information

Table of Yields and Prices

Funding and Debt Reduction

• Total debts decreased to RMB80.1bn in FY22, with net debts at RMB47.7bn.
• The company capped land acquisitions at RMB20bn and reduced land premium payments significantly.
• Current outstanding land premium payments are RMB1.7bn.

Investment Recommendations

• Buy FUTLANs/FTLNHDs, especially longer-dated papers, due to their undervaluation and potential for upside.
• The report emphasizes the importance of asset-light operations and recurring rental income in protecting profit margins.

Contact Information

• Glenn Ko, CFA
  高志和
  (852) 3657 6235
  glennko@cmbi.com.hk

• Cyrena Ng, CPA
  吴蓓莹
  (852) 3900 0801
  cyrenang@cmbi.com.hk

• Jerry Wang
  王世超
  (852) 3761 8919
  jerrywang@cmbi.com.hk

Important Disclosures

• The report is not an offer or solicitation to buy or sell any securities.
• CMBIGM does not provide individually tailored investment advice.
• The information is based on publicly available data and is subject to change.
• There are risks involved in transacting in any securities, and past performance does not guarantee future results.
• The report may have conflicts of interest due to CMBIGM's business relationships with the companies mentioned.

Legal and Distribution Notes

• The report is intended for specific recipients in the UK, US, and Singapore.
• In the UK, it is only provided to persons under Article 19(5) of the Financial Services and Markets Act 2000 or High Net Worth Companies.
• In the US, it is only for "major US institutional investors."
• In Singapore, it is distributed by CMBISG, an Exempt Financial Adviser, and may only be provided to Accredited Investors, Expert Investors, or Institutional Investors.