20210715-招银国际-Takeaways_from_Corporate_Day_More_Clarity_Amid_Volatility_28页_2mb

CMB International Takeaways from Corporate Day Summary

Core Content Overview

CMB International hosted its first Corporate Day for credit clients, featuring online meetings with 16 issuers and three keynote speeches. The event provided insights into the current state of the Chinese credit market, the property sector, and structured products. The key focus areas included monetary policy outlook, regulatory changes in the property industry, and the performance of various developers and financial institutions.

Key Takeaways

Monetary Policy and Credit Environment

• Professor Ding Anhua highlighted the tightening credit environment in China since the Yongmei default, noting that rating agencies are more cautious, with a downgrade-to-upgrade ratio of 9:1.
• The government has been prudent in managing SOEs and LGFVs (Local Government-Funded Ventures) to contain default risks.
• LGFVs are considered safer investments within the onshore credit bond universe, although there is increased credit differentiation.
• Despite recovery in operating performance, there is a trend of flight-to-quality, as seen in the widening credit spreads for certain provinces.

Property Sector Trends

• Mr. Lin Bo from E-house provided updates on developers' performance and the regulatory environment.
• Pre-sales growth in 2021 reached 36% compared to FY19, indicating resilience, though this was affected by the pandemic in FY20.
• Land sales and new starts have slowed due to tighter financing controls and new land auction policies.
• CRIC expects residential GFA sold to decline by 5% YoY, while pre-sales will remain flat.
• Land investment is expected to be cautious, with many developers spending less than 50% of their budget in 1H21.
• "3-Red-Lines" and "2-Red-Lines" regulations are influencing developers' leverage and banks' property-related exposure.
• Developers who meet the "3-Red-Lines" thresholds (net gearing ≤ 100%, adj. liabilities-to-asset ≤ 70%, cash/ST debts ≥ 100%) are in the green camp, while those with fewer ratios met are in the yellow camp.
• Commercial bills may be included in the calculation of "3-Red-Lines" thresholds, and developers failing to meet them may be barred from land auctions.
• Centralized land auctions have led to a decline in land GFA transacted in 6M21 by 13% YoY, but average land costs increased by 30%, driven by high-quality land sales.
• Land sales proceeds in seven cities will be transferred to tax authorities starting 1 Jul'21 to improve transparency and control local government leverage.

Structured Products and Asset Allocation

• Alec Yin and Dr. Yang Zhao introduced CMBI's capabilities in structured products and emphasized scientific global asset allocation.
• Scientific investments (quantitative) provide diversified exposure and can enhance yields by 2% to 6% annually.
• CMBI's Fixed Income Plus product combines research and sourcing capabilities, offering tailored solutions for clients.

Key Issuer Performance

Key Developer Insights

• Dafa Properties outperformed with 95% YoY contracted sales growth.
• Yuzhou Properties is expected to improve significantly YoY, with a re-stated 1H20 results and a 48% target filled in 1H21.
• Powerlong Real Estate and Redsun Properties are expected to remain in the green camp under the 3-Red-Lines.
• CENCHI has weak contracted sales and faces execution risks in expansion beyond Henan, with a low sell-through rate of 50% - 60% in 1H21.
• Hongqiao Group has a strong turnaround, with a >200% YoY net profit increase due to higher aluminum prices and a significant reduction in leverage.
• China South City has a manageable refinancing plan and is considering bond buybacks.
• Developers are increasingly turning to M&A and urban redevelopment to replenish land banks.

Additional Insights

• Credit spreads for certain provinces like Guizhou, Tianjin, and Yunnan widened, indicating flight-to-quality.
• Offshore funding is a key source for developers with near-term maturities.
• ESG certification and green bond issuance are anticipated for companies with sustainable practices.
• Refinancing plans are in place for several developers, including Hongqiao and China South City, to manage upcoming maturities.
• Leasing companies have seen slight improvements in asset quality and NPA ratios, though net interest margins have declined due to higher funding costs.