Increasing liquidity risk
- Times China’s 1H22 results were disappointing, with core net profit down 97% yoy on sharp declines in GPM and revenue.
- Although Times repaid its US$ bonds due in Apr 2022, it has more due in Mar 2023, repayment of which may be delayed if contracted sales remain weak.
- We downgrade our rating to Hold from Add, with a lower TP of HK$1.4.
1H22 results fall far short of our expectations
Times China’s 1H22 results were disappointing, with core profit tumbling 97% yoy to Rmb52m, some 94% below our estimate, dragged by 1) a 52% decline in revenue due to fewer projects delivered, 2) GPM contraction of 20% pts because of the recognition of low margin projects and lack of high-margin urban redevelopment project contributions, and 3) lower selling prices due to the weak property market and price-caps adopted by local governments.
FY22F contracted sales expected to drop 40% to Rmb56bn
Times’ contracted sales were Rmb32.5 bn in 8M22, down 46% yoy, largely in line with its peers’ performance, hurt by weak market sentiment, especially the mortgage boycott issue in Jun 22. Despite a potential sales pick-up in the next few months due to policy support, we expect sales to fall by c.40% in FY22F. Given Times’ very conservative approach to land replenishment, we expect its contracted sales to stay at Rmb53bn-60bn in FY23-24F, some 40% below its sales in FY20 and FY21.
Increasing liquidity pressure if sales do not improve
Times was one of few privately-owned developers that have successfully repaid their US$ bonds (US$425m) on time, in Apr 22 this year. Meanwhile, its onshore bondholders agreed on 6 Sep 22 to extend the repayment period for its Rmb1.1bn debt by 18 months to 2024. For the rest of this year, Times has total debts of Rmb1.5bn due – including a Rmb247m offshore syndicate loan and Rmb1.2bn due from asset-backed securities. For 2023, it has total debts due of Rmb7.8bn – including Rmb2bn in US$ bonds due in Mar 23, as well as onshore bonds of Rmb1.6bn due in Mar 23 and Rmb2.5bn in May 2023. Overall, we cannot rule out the possibility of Times seeking a delay in the repayment of its US$ bonds, especially if its contracted sales remain weak at some Rmb2bn-3bn per month.
Survival is everything
Dragged by weaker-than-expected sales, a slower cash collection ratio, and settlement of payables in 1H22, its net gearing rose by 26% pts to 97%, even though it has not bought any land. Like many of its peers, Times’ top priority now is to survive and maintain a healthy balance sheet. Sales and profit growth will take a back seat until its balance sheet position improves, in our view.
Downgrade to Hold with a lower TP of HK$1.4
We cut our FY22-24F EPS by 85-91% as we assume much lower GPM and sales, cutting our NAV estimates by 52% to HK$7.0. We lower our TP by 68% to HK$1.4 by widening our NAV-based target discount to 80% (previously 70%) due to its higher liquidity risks ahead. Downgrade to Hold from Add. Please refer to p.2 for key risks.
