Results first take: 1H22 results in-line with its profit warning
- FY21 results were in-line with its profit warning on weak revenue booking and recognition of impairments
- The company maintained a positive operating cash inflow with 90%+ cash collection rate despite a weak physical market
- 2022 saleable resources tuned down 18% from the original target set in Mar-22 to Rmb530bn
- Presales expectations, delivery and revenue outlook, earnings growth guidance and access to refinancing would be among the key things to watch for
- More to follow after the company’s result briefing on 5:30pm today (30 Aug)
- Our rating and TP are currently under review
What’s new?
Country Garden announced a set of in-line 1H22 results after the morning trading session
Our view
1H22 results in-line with its profit warning
- 1H22 revenue dropped 31% y-o-y, mainly led by a drop in development revenue recognition
- Recognised GPM fell 9ppt y-o-y to c.10.6% after the recognition of impairments on PUD.
- SG&A as % of revenue remains well controlled and improved 0.4ppt y-o-y
- As a result of the above, core net margin fell c.3.5pt to 3% in 1H22 and translated to a c.68% y-o-y decline in attributable core net profit, which came at the higher end of the profit range disclosed in its profit warning
- The company decided not to declare interim dividend (vs Rmb0.21/sh in 1H21) in light of the current property downturn, in-line with expectations
Balance sheet held up well and maintained positive operating cash flow
- Restricted cash as % of total cash down improved slightly from 19% as at Dec-21 to 17% as at Jun-22
- Total debt recorded a 8% decline as at Jun-22 vs Dec-21’s level
- Net gearing as at Jun-22 rose 3ppt (from Dec-21’s 45.4%) to 48.1% alongside a 7% rise in net debt vs a flat total equity
- Short term debt as total debt remained flat at 25% as at Jun-22.
- Adjusted liabilities to asset ratio improved c.2ppt to 73.9%, but is still above the “Three Red Line” requirement of 70%
- The company remains in the “Yellow Camp” as at Dec-21.
- Average funding cost remained largely stable at 5.31% in 1H22 (vs 5.20% in FY21)
- The company maintained positive operating cash flow of Rmb5.25bn during 1H22
Cut sellable resources to Rmb530bn+, 18% decline from initial target
- CG cuts sellable resources to Rmb530bn for 2022, vs previous Rmb650bn
- The company achieved a sell-through rate of 50% in 1H22, implying a total sellable resources of Rmb370bn were launched in the period. This points to another additional sellable resource of RmbR345bn (c.65% of total) will be launched in 2H22
More to follow after the company’s online briefing to be held at 5:30pm today (30 Aug)
Key things to watch for
- Latest view over presales outlook and its concentrated exposure in Tier 3/4 cities
- Can the company reopen its onshore refinancing channel with the help of regulators?
- Profit margin outlook – has 2021 recognised margins bottomed? How much price discounts did CG offer in 1H22? What is the average GPM in the company’s unbooked sales? Any further impairments to be made in 2H22?
- Updates relating the development progress of its diversified businesses – what is the latest prgoress for the company’s robotic business? What is the estimated time to break even and start to make meaningful contribution to P&L? What is the progress so far in the catering business? When can we start to see potential synergies between the company’s development and robotic businesses?
- Any plans to divest its non-property development businesses?
- Dividend policy, among others
