[ET Net News Agency, 14 June 2018] Morgan Stanley attended Sunac China's (01918) annual
shareholder meeting at Hefei Wanda Vista Hotel. The research house said that management is
confident in refinancing the Rmb65bn debt which will expire in 2018, thanks to its
improved credit profile and quality of landbank.
Deleveraging plan is on track, and Sunac expects net gearing ratio to decline by 40 to
50ppt at year end 2018 from 257% by end 2017. That said, funding cost is up significantly
and Sunac witnessed its refinancing cost 200bps higher than its average funding cost with
construction loan now priced at 30-50% above benchmark rate (was 10-30% in 2H 2017),
Morgan noted.
Management maintained a conservative view on land acquisition which is consistent with
its deleveraging plan. They have set stricter criteria for land acquisitions (net
margin>15% and IRR>50%) and spent only Rmb10-20bn (attributable) on land acquisitions
year-to-date.
For profit booking in 2018, management guided for Rmb13-15bn with 25% gross margin and
Rmb2-3bn negative goodwill. Morgan maintained its "overweight" rating on Sunac, with a
target price of HK$46.7. (KL)