Offshore liquidity boosts investor confidence
? We think Logan will maintain its contracted sales target for FY22F at Rmb140bn, based on Rmb200bn saleable resources (same as FY21).
? Its offshore cash balance secures repayment of US$0.8bn senior notes due in Aug 21 and will be replenished by sales receipts in HK and Singapore.
? It expects the payout ratio for FY21F to be no less than 30%. We upgrade Logan to Add from Hold with a higher TP of HK$7.7.
FY22F saleable resources maintained at Rmb200bn
We hosted a pre-blackout call with investors and Logan’s management joined. Logan’s attributable contracted sales grew by 16% yoy in FY21 to Rmb140bn, slightly below its 20% initial growth target. Management has not yet provided a sales target for FY22F, but given that its FY22F saleable resources are maintained at Rmb200bn, we estimate nil growth in contracted sales in FY22F (i.e. Rmb140bn) and a similar cash collection ratio (i.e. 80%).
Sufficient cash in offshore bank accounts
Management estimates Logan’s end-FY21F cash balance (onshore+offshore) to be c.Rmb40bn, of which Rmb35bn was at management’s disposal. About US$600m rested in offshore bank accounts; management explained the high offshore balance was due to onshore projects (one in HK and two in Singapore), as well as HK$1.1bn raised via share placement in Dec 21. Logan has secured more than 90% of the total saleable value from Singapore projects; it expects sales receipt to be fully collected in 2-3 years. It targets to launch the high-end luxury project in HK in Mar 22 (click here for our published preview) which has total saleable resource of ~HK$30bn based on its estimates. Hence, the cash to be collected from projects in HK and Singapore would help Logan maintain ample offshore cash balance.
Management expects FY21F payout ratio to be no less than 30%
Management expects its free cash onshore to support its onshore debt repayment in FY22F (principal~Rmb8bn) and working capital required for converting urban renewal projects. With a high offshore cash balance for Logan, management is confident of repaying US$0.8bn senior notes due in Aug 21. In addition, management expects the FY21F payout ratio to be no less than 30% (40% in FY19-20), higher than our previous forecast of 15-22% for FY21-23F.
Upgrade to Add with a higher TP of HK$7.7
We lift FY21-23F EPS by 0.4-2.5% to factor in a little upward revision of its gross margin and interest income from a higher cash balance. We also lift its payout ratio to 30% for FY21-23F. While we keep its end-FY22F NAV at HK$17/shr, we narrow target discount by 5% pt to 55% to factor in our high confidence in Logan’s liquidity. Hence, we lift our TP for Logan to HK$7.7 and upgrade to Add from Hold. Key downside risks include rating downgrades by credit rating agencies, triggering demand for early repayment of its loans. Faster cash collection from pre-sales and regulators’ relaxation of developers’ pre-sales receipt for debt repayment are re-rating catalysts.