Management: No default on commercial bills
- Management stressed Longfor had not defaulted on any commercial bills. The outstanding balance of Rmb700m will be repaid by year-end, it said.
- SHCPE also confirmed that Longfor had not defaulted on its commercial bills and warned that spreading disinformation causes market instability.
- Management’s indication of early repayment of debts due in 2023 in 4Q22 suggests Longfor’s strong financial position and cash flow, in our view.
- We believe its sharp share price correction today is unjustified. Reiterate Add call and TP of HK$49.5. It is our sector top pick.
No commercial bills default and balance to be paid by year-end
? Longfor’s senior management, including its chairperson, vice chairman, CEO and CFO, held a business update call for investors this evening (10 Aug) on the latest developments and operational updates.
? About recent market talk of a possible default on its commercial bills, management stressed that this is incorrect. It said Longfor had not defaulted on any commercial bills. Management added that Longfor had stopped issuing commercial bills since last year, and the outstanding amount of commercial bills is about Rmb700m, which will be repaid by year-end.
Shanghai Commercial Paper Exchange (SHCPE) supports Longfor
? The Shanghai Commercial Paper Exchange also supported Longfor’s position in an announcement (click) after market close today, and warned that spreading disinformation would affect market stability.
Healthy financials and plans for early repayment of some 2023 debt
? Management said it could not share Longfor’s latest financial numbers due to the blackout period. CFO Mr. Zhao said that Longfor’s financial position is very healthy given that short term debt makes up only about 10% of its total debts, and it records positive operational cash flow, based on its operations in the past few years.
? Mr. Zhao also highlighted that Longfor does not have debts due for the rest of the year. The company plans to repay some of debts due in 2023 in 4Q22, he said.
Proactive on land banking
? Management said Longfor replenished 20 plots of land in second- and top-tier cities, such as Beijing, Hangzhou, Chengdu, Hefei, in 7M22, with attributable land cost of Rmb16.8bn. The total sale value is about Rmb60bn.
? Sixteen plots of land were acquired from government public land auctions and many of these were transacted at reserve price. Longfor also acquired the remaining stake of a residential project from its JV partner KWG in Hong Kong.
JV project risk management
? Management said that its JV projects are not allowed to have non-traditional borrowing and JV partners can only take out their investment amounts and estimated profits.
? Meanwhile, JV partners are not allowed to pledge their JV equity for refinancing.
? Longfor has a whitelist of JV partners, most of whom are SOE developers. So far, there have been only a few JV project partners facing liquidity problems.
Management: Expect to see more supportive measures ahead
? Management expects to see more supportive measures until the property market normalises, given that land sales are key revenue sources for local governments.
Management’s overall thinking
? Longfor’s chairperson said management had been calm in the face of volatile share and bond price movements but nothing much could be done in a blackout period. Nevertheless, she believes Longfor will emerge as one of the key winners from this round of rapid consolidation of the property market.
Reiterate our Add; Longfor is our top pick in the sector
? We reiterate our Add rating on Longfor with NAV-based TP of HK$49.5 on its strong financials and diversified recurring income from malls and property management.
? Key risks to our call include further deterioration of the property market in the next 6-12 months and more developers facing liquidity problems.
