HONG KONG, 25 March 2019. Pengyuan International has assigned a first-time global scale long-term issuer credit rating (LTICR) of ‘BB’ to Central China Real Estate Limited (CCRE). The outlook is stable.

CCRE is a Chinese property developer with 91%, 5% and 3% revenue generated from property development, project management and hotel services as of the first half of 2018. CCRE’s rating reflects its leading market position in Henan Province and strong cash flow efficiency. On the other hand, CCRE’s rating is constrained by its high concentrated exposure to property development market in Henan province.

The stable outlook for CCRE reflects Pengyuan International’s expectation that the Company will keep growing its contracted sales and land bank while maintaining a healthy financial profile.

KEY RATING RATIONALES

Credit Strengths

Regional market leader in Henan Province. Having taken root in Henan province for 26 years, CCRE established track record in development of branded properties in the local market and has been ranked as the top developer in Henan province measured by contracted sales. The Company’s market share in Henan in terms of total contracted sales increased to 6.7% in 2018 from 3.6% in 2016, which is driven by CCRE’s much faster growth than its peers in the province. Such expansion was supported by the Company’s attributable land acquisitions of RMB10.6 billion and RMB12.5 billion in 2017 and 2018 respectively.

 

Improving cash flow efficiency. Thanks to its strong contracted sales and execution capability, CCRE has improved its cash flow efficiency noticeably in the past few years. By our estimates, the Company’s sell-through rate has improved to 340% in 2018 from 110% in 2016 and 174% in 2017, compared to the peer average of 117% with similar operating scales and credit profiles in 2017. Cash collection ratio maintained at average of 90% in the period of 2016-2017, compared to the peer average of 79% in 2017.  We expect the company to maintain its current strong cash flow efficiency in 2019 to 2020.

 

Diversifying revenue into project management service. CCRE is expanding its project management service steadily and, in our view, will generate an alternative source of revenue and help improve the Company’s profitability in the long term. We expect the project management business to record a steady growth in 2019 driven by its abundant project pipeline. As of 30 June 2018, CCRE secured 93 third-party projects under CCRE’s management entrustment contracts and estimated management fee of RMB3,044 million in total to be received in the coming three to four years.

 

Very strong liquidity. We estimate CCRE’s 12 month forward looking cash flow liquidity to be above 3.0x, which is considered to be very strong in our opinion. Our liquidity assessment is supported by its strong cash position, positive funds from operations (FFO) and healthy debt structure. CCRE has recorded positive FFO and managed its percentage of short-term debt to total debt below 30% in the past 6 years.

 

Credit Weaknesses

High geographical concentration. CCRE is a regional-focused property developer, with all of its land reserves located in Henan province. Lack of geographical diversity makes CCRE highly exposed to economic cyclicity and regulatory changes of Henan province.

Smaller scale. CCRE has a relatively smaller scale in terms of recognized revenue among Chinese property developers and other property developers outside China. We estimate the Company’s revenue to be in a range of between RMB20 billion to RMB30 billion and attributable contracted sales to be within the range of RMB50 billion to RMB70 billion during period of 2019 and 2020. CCRE was ranked as No.57 among all property developers in China in 2018 measured by its contracted sales.

 

RATING OUTLOOK

The stable outlook for CCRE reflects Pengyuan International’s expectation that the Company will keep growing its contracted sales and land bank while maintaining a healthy financial profile.

We would consider downgrading CCRE’s issuer credit rating if its credit profile deteriorates substantially, which could be caused by 1) Leverage increases substantially on a sustained basis. 2)  EBITDA margin declines substantially on a sustained basis. 3)  Substantial 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 substantially on a sustained basis. 2)  EBITDA margin increases substantially on a sustained basis. 3) Substantial improvements of operating profile.

 

 

Note: ratings mentioned in this press release are unsolicited ratings.

ANALYSTS CONTACT

MEDIA CONTACT

OTHER ENQUIRIES

Primary Analyst

Simon Lee

+852 3615   8307

simon.lee@pyrating.com

 

Secondary Analyst

Winnie Guo

+852 3615   8344

winnie.guo@pyrating.com

 

Committee Chair

Tony Tang

+852 3615   8278

tony.tang@pyrating.com

 

media@pyrating.com

contact@pyrating.com

 

Date of Relevant Rating Committee: 15 March 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)


 

DISCLAIMER
Unsolicited ratings – participative rating (disclosed but not affected the result)

 

Pengyuan Credit Rating (Hong Kong) Company Ltd (“Pengyuan International”, “Pengyuan”, “the Company”, “we”, “us”, “our”) publishes credit ratings and reports based on the established methodologies and in compliance with the rating process. For more information on policies, procedures, and methodologies, please refer to the Company’s website www.pyrating.com. The Company reserves the right to amend, change, remove, publish any information on its website without prior notice and at its sole discretion.

 

All credit ratings and reports are subject to disclaimers and certain limitations. CREDIT RATINGS ARE NOT FINANCIAL OR INVESTMENT ADVICE AND MUST NOT BE CONSIDERED AS A RECOMMENDATION TO BUY, SELL OR HOLD ANY SECURITIES AND DO NOT ADDRESS/REFLECT MARKET VALUE OF ANY SECURITIES. USERS OF CREDIT RATINGS ARE EXPECTED TO BE TRAINED FOR INDEPENDENT ASSESSMENT OF INVESTMENT AND BUSINESS DECISIONS.

 

CREDIT RATINGS ADDRESS ONLY CREDIT RISK. THE COMPANY DEFINES THE CREDIT RISK AS THE RISK THAT THE RATED ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS MUST NOT BE CONSIDERED AS FACTS OF A SPECIFIC DEFAULT PROBABILITY OR AS A PREDICTIVE MEASURE OF A DEFAULT PROBABILITY. Credit ratings constitute the Company’s forward-looking opinion of the credit rating committee and include predictions about future events which by definition cannot be validated as facts.

 

For the purpose of rating process the Company obtains sufficient quality factual information from sources believed by the Company to be reliable and accurate. The Company does not perform an audit and undertakes no duty of due diligence or third-party verification of any information it uses during the rating process. The issuer and its advisors are ultimately responsible for the accuracy of the information provided for the rating process.

 

Users of the Company’s credit ratings should refer to the rating symbols and definitions published on the Company’s website. Credit ratings with the same rating symbol may not fully reflect all small differences in the degrees of risk, because credit ratings are relative measures of the credit risk.

 

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS OR COMPLETENESS OF ANY INFORMATION GIVEN OR MADE BY THE COMPANY IN ANY FORM OR MANNER. In no event shall the Company, its directors, shareholders, employees, representatives be liable to any party for any damages, expenses, fees, or losses in connection with any use of the information published by the Company.

 

The Company reserves the right to take any rating action for any reasons the Company deems sufficient at any time and in its sole discretion. The publication and maintenance of credit ratings are subject to availability of sufficient information.

 

The Company does not receive compensation for its unsolicited credit ratings. The rated entity participated in the rating process. The unsolicited credit rating has been disclosed to the rated entity or to its related party and, following such disclosure, the credit rating result has not been amended before being issued.

 

The Company reserves the right to disseminate its credit ratings and reports through its website, the Company’s social media pages and authorised third parties. No content published by the Company may be modified, reproduced, transferred, distributed or reverse engineered in any form by any means without the prior written consent of the Company.

 

The Company’s credit ratings and reports are not indented for distribution to, or use by, any person in a jurisdiction where such usage would infringe the law. If in doubt, please consult the relevant regulatory body or professional advisor to ensure compliance with applicable laws and regulations.

 

Copyright ? 2019 by Pengyuan Credit Rating (Hong Kong) Company Ltd. All rights reserved.

 


MEMBER LOGIN

Register Now
Forgot Your Password ?
Welcome to Pengyuan International!
Please login for full access.