Result first take: FY21 core earnings dropped by 20% yoy with no final dividend, comment on going concerns raised under a clean opinion
- FY21 core earnings declined by 20%, in-line with expectations. Higher than expected revenue was offset by a higher than expected SG&A
- The company did not propose any final dividend for FY21, in-line with expectations. This implies a full-year dividend payout of c.22% on core earnings (vs 47% in FY20)
- Decent improvements were made on balance sheet with total debt fell 26% vs Jun-21 alongside a 21ppt drop in net gearing ratio, but near-term liquidity remains challenging with ST debt representing c.49% of its total outstanding debt as at Dec-21 and a non-restricted cash to ST debt ratio of 1.04x.
- While a clean opinion on its accounting statement, independent auditor has expectedly commented on the material uncertainty on the company’s going concern.
- Despite the absence of an official presales target, the company expect a double-digit drop in saleable resources for launch this yea. We believe this will likely translate to a similar trend on presales too
- Our recommendation and TP on the counter are currently under review
What’s new?
Zhongliang announced a set of in-line FY21 results after market close last night.
Our view
FY21 results in line; no final dividend was proposed
- FY21 revenue rose 15% y-o-y, which was above expectations
- Gross profit margin slid 4ppt to 17.1, mainly a result of Rmb731m impairment provisions made for the company’s projects under development and recognition of lower margin development projects
- SG&A as % of revenue and presales both rose 0.7ppt to 8.4% and 3.7% respectively despite a 22% cut in total staff employed vs Jun-21. This came in higher-than-expected.
- Contribution from JV and Associate project fell 20% y-o-y
- Effective tax rate rose 1ppt to 38%, in-line.
- Reported core earnings dropped 20% y-o-y in FY21 along with 2ppt squeeze in core net profit margin to 3.0%. This was in-line with expectations
- The company didn’t proposed any final dividend for 2021. This implies a full-year dividend payout ratio of c.22% on core earnings (vs 47% in FY20).
Decent balance sheet improvements, yet near-term liquidity remains under pressure
- ST debt as % of total debt rose 6ppt h-o-h to 49%, indicating high repayment pressure in the near term
- Total cash fell 22% from Jun-21, with % restricted cash picked up 6ppt to 26%. Unrestricted cash to ST debt fell to 1.04x (vs 1.09x as at Jun-21) as a result.
- Total debt fell by a larger than expected 26% h-o-h, which led to a larger than expected drop in net gearing ratio from 56.1% as at Jun-21 to 35% as at Dec-21.
- Adjusted liabilities to asset ratio improved c.4ppt from Jun-21 to 76%, but remains above the 70% requirement stated under the “Three Red Line” policy. Zhongliang remains in the “Yellow Camp” as at Dec-21
- Average funding cost picked up to 9% in FY21 vs 8.3% in 1H21 as higher cost onshore and other loans (inc. trusts) represented a higher 33% of total borrowing as at Dec-21 (vs 25% as at Jun-21)
- While a clean opinion on its accounting statement, independent auditor has expectedly commented on a material uncertainty on the company’s going concern.
Presales to see double-digit decline alongside a drop in targeted saleable launch for 2022
- The company targets to launch c.Rmb220bn of saleable resources for 2022. This represents a c.11% drop in saleable resources launched in 2021 (c.Rmb245bn)
- While the company does not have an official presales target, the drop in saleable resources hints a likely double digit drop in presales for this year.
