Weak sales and liquidity largely reflected
? Yuzhou’s FY21 core net profit was only Rmb242m with gross profit margin of
15%.
? We expect FY22F contracted sales to decline by 47% yoy to Rmb55bn in
view of weak sales in 1Q22, but expect some recovery from 2Q22.
? We think its upcoming proposal of a debt restructuring plan should provide
some relief to equity investors. Upgrade to Hold with a lower TP of HK$0.68.
FY21 results: core net profit Rmb242m
Yuzhou’s core net profit was Rmb242m in FY21, lower than our estimate of Rmb1.1bn,
due to lower-than-expected gross profit margin (GPM) of 15% at the consolidated level
(18% at JV/associates level) and recognition of impairment loss on properties under
development of Rmb390m. It did not declare final DPS; we do not expect it to pay
dividends for FY22F-23F in view of its upcoming debt restructuring plan.
We expect 47% decline in FY22F contracted sales
Yuzhou’s gross contracted sales were flat yoy at Rmb105bn in FY21. It has halted land
acquisition since Jul 21 with a weak start in sales for FY22F (Rmb11.4bn sales in 1Q22).
We estimate that even with some recovery in sales momentum for the rest of 2022 due to
relaxation of policies at the city level, it would only achieve contracted sales of Rmb55bn
in FY22F (i.e. a 47% yoy decline).
Appointed external advisors to better deal with offshore creditors
On 1 Apr, Yuzhou engaged three external advisors to facilitate engagement with offshore
creditors. We expect the company to roll out an offshore debt restructuring plan in about
one month, in which it might solicit the creditors’ consent to defer the payment of bond
interest for a period. Once this materialises, Yuzhou can focus more on driving
contracted sales and cash collection. However, until any improvement in its liquidity is
seen, we think Yuzhou will continue to avoid new land acquisition.
Gross profit margin to come under pressure through FY23F
Its unbooked sales grew 75% yoy to Rmb40bn at end-FY21F, supporting a flattish topline
in FY22-23F from Rmb27bn in FY21. As a result of property sales ASP pressure since
2H21, we estimate a further dip in recognised property sales GPM in FY22F to 13%,
before recovery in FY23F to 15%. This leads to our EPS cuts of 59%/45% in FY22F/23F,
reflecting new net profit margins (NPM) of 2%/3% in FY22F/23F, respectively.
Upgrade to Hold with a lower TP of HK$0.68
We cut Yuzhou’s NAV/share by 38% to HK$2.25 but narrow our target discount to 70%
(80% previously), reflecting a depleting land bank with our lower ASP assumptions and
expectation of a restructuring plan that should provide some relief to equity investors. We
therefore upgrade Yuzhou to Hold from Reduce with a lower TP of HK$0.68. Key upside
risks include better-than-expected contracted sales and relaxation of the use of sales
proceeds locked in escrow accounts of onshore banks. Demand for early repayment by
creditors is a key downside risk.