20210329-招银国际-EHOUSE__Higher_gross_debt_will_weigh_on_its_rating_4页_438kb

CMBI Credit Commentary Summary

Core Content Overview

This document is a credit commentary from CMBI Fixed Income Department on EHOUSE '23, analyzing its financial performance and future outlook. The commentary highlights the company's financial challenges and potential rating implications due to its increased leverage and the impact of the COVID-19 pandemic.

Main Points and Key Information

Financial Performance in 2020

• Revenue Decline: EHOUSE reported a -11% year-over-year (yoy) revenue decline to RMB 8,052 million in 2020, down from RMB 9,095 million in 2019.
• Segment Analysis:
  • Primary Real Estate Agency: Revenue fell by -30% yoy to RMB 3,204 million. The decline was attributed to reduced property sales (GFA: 32.9 million vs 43.3 million in 2019) and a slightly lower commission rate (0.79% vs 0.86%).
  • Fangyou - Real Estate Brokerage Network: Revenue dropped -23% yoy to RMB 2,707 million. The decline was due to fewer units sold (78,661 vs 105,433 in 2019), while the commission rate remained stable at 2.53%.
  • Consulting Business: Maintained steady performance, generating RMB 987 million in revenue.
  • Leju - Digital Marketing Business: Newly acquired, contributing RMB 1,129 million in revenue.

Debt and Leverage

• Gross Debt Increase: EHOUSE increased its gross debt from RMB 5.3 billion at end-2019 to RMB 8.5 billion at end-2020, driven by prefunding for a Feb'21 USD bond and a RMB 1 billion CB issued to Alibaba in Nov 2020.
• Debt-to-EBITDA Ratio: The ratio rose to 6.9x at end-2020, compared to 5.6x in Jun-2020 and 3.3x in end-2019.
• Future Debt Projection: Management aims to maintain a gross debt balance of RMB 7 billion (including RMB 3 billion onshore and USD 600 million offshore), which would result in a 4.3x Debt-to-EBITDA ratio in 2021, assuming a recovery to pre-COVID levels.

Rating Outlook

• Rating Pressure: The higher debt-to-EBITDA ratio is expected to pressure EHOUSE's rating, with S&P likely to downgrade it to BB- or Negative.
• YTM Prediction: The yield to maturity (YTM) is expected to find its bottom near 11% in the near term.

Cash Position

• High Cash Balance: EHOUSE maintains a high cash balance of over RMB 8 billion, which should support its EHOUSE '22 valuations, as it is the next bullet maturity.

Additional Information

• Author Certification: The author certifies that the views expressed in the report are personal and not influenced by compensation.
• Disclosure: The author confirms no trading activity in the stock covered in the report within 30 days prior to the report's issue, and no plans to trade within 3 business days after.
• Important Disclosures:
  • The report is for informational purposes only and not an offer to buy or sell securities.
  • CMBIS does not provide individually tailored investment advice.
  • Past performance is not indicative of future results.
  • The information is based on publicly available data and is not guaranteed for accuracy or completeness.
  • The report may be subject to change without notice.
  • CMBIS may have investment banking relationships with the companies discussed, which could lead to conflicts of interest.

Legal and Distribution Notes

• United Kingdom: The report is only provided to persons falling within Article 19(5) or Article 49(2) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.
• United States: The report is intended solely for distribution to major US institutional investors and may not be provided to others.
• Singapore: The report is distributed by CMBI (Singapore) Pte. Limited, an exempt financial adviser regulated by the Monetary Authority of Singapore. Legal responsibility is accepted 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

Disclaimer

• The information and contents are based on analyses and interpretations of publicly available data.
• CMBIS assumes no responsibility for any reliance on the report's information.
• The report is for the use of intended recipients only and may not be reproduced or distributed without written consent.