Fitch: China Overseas Grand Oceans' 1H16 Performance Stabilises
COGO's contracted sales value rose 14% yoy to HKD11.5bn in 1H16 as market conditions in Tier 3 cities in China, on which COGO is focused, improved. The company continued to focus on clearing inventory by lowering prices, in what Fitch views as a cash-protection strategy. Average selling price decreased 11% to HKD8,368 per square metre (sq m) in 1H16, but gross floor area sold rose 28% to 1.4 million sq m. The EBITDA margin improved to 13.6% at end-1H16 from 10.1% at end-2015.
COGO did not acquire any land in 1H16 as it remained cautious amid rising land prices. The company only acquired four sites in 2015 at the end of the year, with a total land premium of CNY2.7bn, down 35% from CNY4.2bn in 2014 and less than one-third of the CNY8.8bn in the peak year of 2013. As at June 2016, COGO's total attributable land bank was at 8.9 million sq m, spread across 13 cities in China. Fitch will continue to monitor COGO's land replenishment plan, as its current land bank represents 3-3.5 years of sales, which is relatively low compared with peers.
COGO's financial metrics remain sufficient for its standalone 'BB' credit profile. As of June 2016, its ratio of net debt to net adjusted inventory was 13%, improved from 20% in at end-2015. Fitch expects the ratio of contracted sales to total debt to be around 1x for full year 2016. Fitch expects COGO's EBITDA margin to remain stable around 13%-14% for 2016.