HONG KONG, 7 August 2019. Pengyuan International has assigned a global scale long-term issuer credit rating (LTICR) of ‘BB’ to Ronshine China Holdings Limited (Ronshine). The outlook is stable.

Ronshine is a Chinese property developer that primarily engaged in the development of mid to high-end residential properties. Property development contributed 97% of total revenue and the construction services, rental income and others contributed the rest. Ronshine’s rating reflects its leading market position in the regional markets, strong contracted sales, high quality land bank, and improving financial profile. On the other hand, Ronshine ’s rating is constrained by its relatively smaller scale and high business concentration in China’s property market.

The stable outlook for Ronshine reflects our expectations that the Company will keep growing its contracted sales while improving its financial profile.

KEY RATING RATIONALES

Credit Strengths

Established market position is expected to be maintained in Western Taiwan Straits Economic Zone and Yangtze River Delta regions. Ronshine is one of the top property developers in the southeast of China, particularly in the city of Fuzhou and Hangzhou. The Company was recognized as the “2018 Best 10 of Development of China Real Estate Developers in Fujian” and ranked among the “China’s Top 23 Most Competitive Listed Real Estate Developments in 2018”. With its strong brand recognition, Ronshine has continuously grown its business scale over the last few years.


We believe the Company had solid sales execution capability. Ronshine has achieved strong growth in contracted sales in the past three years, with total contracted sales growth of 107%, 104% and 143% in 2016, 2017 and 2018 respectively. The Company was ranked at No. 28 in 2018 among all Chinese property developers in terms of attributable contracted sales, which is a noticeable advancement from the No. 36 place in 2017. The strong contracted sales and heathy cash collection generated stable cash inflow to sustain the Company’s expansion. After the peak contracted sales growth in 2018, we expect the expansion pace to slow substantially in 2019 and 2020.


Our assessment shows that Ronshine has a high-quality land bank located across first- and second-tier cities. In our view, Ronshine has a diversified and low-cost land bank, which is sufficient to support its growth and profitability in the next two years. At the end of 2018, Ronshine had 154 projects across 39 cities in China, with total land bank and attributable land bank reaching 25.4 million square meters (sqm) and 12.9 million sqm, respectively. Ronshine's land bank is of high quality, focusing on first- and second-tier cities which together make up 88% of its land bank by value and 82% by gross floor area (GFA) at the end of 2018. The unit cost of the Company’s land bank was RMB 6,356/sqm, only 30% of its contracted sales average selling price at the end of 2018.


Ronshine has been deleveraging and we expect the trend to continue in the next two years. Thanks to lower land acquisition and strong contracted sales, Ronshine has reduced its leverage in 2018, with gross debt decreased 11% and net debt decreased 23% year-on-year. Attributable land acquisition decreased to RMB7 billion in 2018 from RMB34 billion in 2017. We expect the Company’s leverage to further come off in 2019 and 2020 driven by lower land acquisition.


Credit Weaknesses

The Company’s operating scale is relatively smaller than the largest peers in China’s property development industry. Despite the rapid growth in the last few years, Ronshine is still considered a smaller developer when compared to some of the largest peers in China’s property development industry. The Company reported total contracted sales of RMB122 billion and revenue of RMB34 billion in 2018, which is roughly one-fourth and one-tenth of the largest peers in the industry. In addition, the Company’s land bank size is also about one-sixth of the largest peers at the end of 2018.


We consider Ronshine’s business concentration risk is relatively high. Ronshine has all of its revenue generated from China property, with 97% from residential property development. The Company’s financial performances are largely influenced by the cyclicality of Chinese economy and its property market.


RATING OUTLOOK

We would consider downgrading Ronshine’s issuer credit rating if its credit profile deteriorates substantially, which could be caused by 1) leverage increases substantially to a prolonged period; 2) EBITDA margin declines materially with little perspective to recover; 3) noticeable deterioration of operating profile.

We would consider upgrading the Company’s issuer credit rating if its credit profile improves substantially, which could be caused by 1) leverage decreases in a large scale on a sustained basis; 2) EBITDA margin improves significantly and expected to be maintained; 3) substantial improvement of operating profile.

 

ANALYSTS CONTACT

MEDIA CONTACT

OTHER ENQUIRIES

Primary Analyst

Winnie Guo

+852 3615   8344

winnie.guo@pyrating.com

 

Secondary Analyst

Simon Lee

+852 3615   8307

simon.lee@pyrating.com

 

 

Committee Chair

Tony Tang

+852 3615   8278

tony.tang@pyrating.com

 

media@pyrating.com

contact@pyrating.com

 

Date of Relevant Rating Committee: 31 July 2019

Additional information is available on www.pyrating.com

Related Criteria

General Corporate Rating Criteria (15 March 2019)

Industry Credit Guidelines Chinese Homebuilders and Property Developers (31 August 2018)

Corporate Financial Adjustments and Ratio Definitions (7 May 2018)


 

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