Fitch: Shimao's More Efficient Sales, Stable Assets Support Ratings
Better market conditions and product rationalisation supported Shimao's more efficient sales, which was reflected in the improved sell-through rate of new and existing saleable resources. This helped to reduce development expenditure needed to generate sales. Shimao sold CNY12.6bn, or 63% of its newly available saleable resources of CNY20.1bn, in 1H16 compared with sales of CNY11.1bn, or 51% of CNY21.8bn of new saleable resources, in 1H15. Moreover, Shimao sold CNY21.9bn of completed and available for sale units, which made up 63% of contracted sales of CNY34.5bn, in 1H16 compared with completed unit sales of CNY14bn, or 44% of CNY31.6bn in contracted sales, in 1H15. Its cash collection of contracted sales remained at a healthy 85% in 1H16, comparable to 85% at end-2015 and improved from 80% in 1H15.
Fitch expects Shimao to continue delivering neutral to positive cash flow from operations. This is supported by Shimao's tight control of its asset base, as measured by attributable land value, which remained stable at around CNY96bn from end-2015 to 1H16. Shimao delivered annual sales of around CNY70bn over that period. By not buying more land than it had sold, Shimao has been able to use profits from projects sold to fund new development expenditure, and this has helped to reduce the use of development loans and cut its leverage.
Fitch expects Shimao to exceed its contracted sales target of CNY67bn in 2016, which will support improvement in its financial profile. The company's leverage, measured by net debt to adjusted inventory, is likely to slowly decline from 24.6% at end-1H16 and 30.6% at end-2015. Fitch expects Shimao's EBITDA margin to remain in a tight range of 22%-24%, compared with 22.3% in 1H16 (end-2015: 23.1%). Fitch expects the ratio of total contracted sales to total debt to stay above 1x from 2016, compared with 0.91x in 2015 and 1.12x in 2014.