Conference call takeaway: Sufficient liquidity to tank the uncertainties ahead
- Sufficient cash in hand to repay both on- and offshore bonds due in 2022
- Abundant saleable resources at hand for the next 2 years despite a 4-month halt in land acquisition
- Expect more favorable policies to come around the “Two Sessions” in Feb-Mar
- Core earnings expected to remain stable within the range of c.Rmb11-13bn with >30% dividend payout ratio in FY21
- We currently have a BUY rating with TP of HK$7.55
What’s new
We recently hosted a company update conference call with Logan. Key takeaways of the call are as below:
Well poised to handle upcoming repayment obligations. Logan reiterated that they have sufficient cash in hand ready for repaying both on- and offshore bonds due in 2022. Derived from its business operations in Hong Kong and Singapore, the company currently has c.US$700m of cash sitting in their offshore bank account. This places Logan in a comfortable position to settle its bond repayment obligations even if the rumored guaranteed bonds (those due in 2022) are to be repaid by the company. Logan reiterated that neither them or their subsidiaries are directly related to the recently rumored guaranteed bonds, and the bonds themselves are pledged with certain assets from the borrower in question. In relation to their debt and cash positions, exact figures will have to wait for results announcement in March, but Logan expects total outstanding interest-bearing debts to range at Rmb80-85bn as at Dec-21, with unrestricted cash to stand at c.Rmb32-33bn (of Rmb40bn total cash).
In preparation for onshore bond issuances. Logan reiterated that they are one of the handful POEs developers that were invited by government to raise fund in the onshore market in Dec-21, and they are currently applying for onshore corporate bonds and MTN that are estimated to be issued in Mar-Apr.
Sufficient saleable resources for the upcoming two years despite a 4-month land acquisition halt. Logan acquired 29 land parcels with attributable land premium of Rmb31bn and Rmb70bn saleable sources in 2021 in the public auction market. Over 80% of lands are situated in Greater Bay Area and Yangtze River Delta. Most of their JV partners are quality POEs and SOEs such as Country Garden, CIFI, Yuexiu, Midea etc, the risk of partners running into liquidity trouble is limited. Logan took a halt in land acquisitions since Sep-21, but the company believes potential saleable shortfall from this decision can be fully offset by the progress Logan made in the redevelopment conversion end. The company indicated that they have secured c.Rmb27bn of saleable resources from urban renewal conversions in 2021. This, together with their land acquisitions from the public space, would bring their unsold landbank saleable to c.Rmb350-360bn and this should be able to support Logan in launching c.Rmb200bn of saleable resources for 2022. Looking forward, the company plans to resume land acquisition earliest in 1Q22 and targets to see a positive growth on land premium spent vs 2021.
More favorable policies to come. Logan agrees that there are more supportive policies to come, and most developers, Logan included, could see decent benefits from these policies. Some cities reported declines in mortgage rate following the 5bp 5-year LPR cut. They believe reasonable homebuying demand is gradually recovering and expect favorable policies on demand-side to come around the “Two Sessions” in Feb-Mar.
Core earnings to remain stable and range at c.Rmb11-13bn in FY21 with >30% dividend payout ratio. Logan expects a single-digit y-o-y movement on their core earnings in FY21 within the range of Rmb11-13bn. The company has yet to decide on their FY21 dividend policy but indicated that they will take into account of market practices and industry outlook when making the decision. Having said that, the company believe their dividend payout will be kept at least at 30% for FY21 (vs 2020 and 1H21’s 40%).