Daily Brief Credit: Central China – Earnings Flash – FY 2022 Results – Lucror Analytics and more

Central China Real Estate’s (CCRE) FY 2022 results were much weaker than expected, as revenue declined 43% y-o-y and the gross margin contracted to a low of 8% (FY 2021: 16%). EBITDA turned slightly negative, and we estimate CFO (after interest and tax) at negative CNY 4.0 bn. Net debt increased due to the negative cash flows, contrary to our expectations of deleveraging. Liquidity is poor, and the company has announced a distressed exchange for USD 897 mn of notes due in 2023.

In our view, CCRE’s poor profitability suggests that its operating challenges are more severe than expected. This could have been exacerbated by the company’s high exposure to lower-tier cities and counties in Henan, despite its established brand position and market share.

We foresee that CCRE’s revenue and gross margin will remain weak in FY 2023. In addition, any improvement in the company’s medium-term prospects would hinge on a recovery in contracted sales and ability to restart land-banking activities in H2, in order to extend its sales pipeline. This is crucial as CCRE is a pure-play property developer. The company’s longer-term prospects could depend on the development of synergies with SOE minority investor Henan Railway, to obtain new business and financing opportunities.

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Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

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