Fitch revises outlook for Yuexiu Property to stable, affirms ’BBB-’ rating

Published 04/06/2025, 16:12
© Reuters.

Investing.com -- On Wednesday, June 4, 2025, Fitch Ratings revised its outlook from Negative to Stable on the Long-Term Issuer Default Rating (IDR) of China-based Yuexiu Property Company Limited (YXP). The rating agency also affirmed YXP’s rating at ’BBB-’. This includes YXP’s senior unsecured rating, the ratings on the medium-term note program, and the notes under the program issued by Westwood Group Holdings Limited, all of which are guaranteed by YXP.

The revision to a Stable Outlook is due to YXP’s proven ability to generate positive Fitch-defined cash flow from operations (CFO), even amidst declining contracted sales in 2024. Fitch anticipates that YXP’s sales will stabilize in 2025, backed by strong sales performance year to date and ongoing land replenishment, which ensures adequate quality sellable resources in higher-tier cities.

YXP’s Standalone Credit Profile (SCP) of ’bb’ is attributed to its strong market position, moderate leverage, and robust funding access. However, the risk of a further downturn in the Chinese property market persists. YXP’s rating includes a two-notch uplift based on strong incentives to support from its parent, Guangzhou Yuexiu Holdings Limited (GYX), which is wholly owned by the Guangzhou municipality’s State-owned Assets Supervision and Administration Commission (SASAC).

YXP’s contracted sales saw a decrease of 19% year-on-year to CNY114 billion in 2024, which was better than Fitch’s forecast of a 25% decline. Sales began to pick up in the fourth quarter of 2024, with strong sales momentum continuing into the first quarter of 2025. This was supported by continued stabilization in higher-tier cities and the company’s ongoing landbank replenishment, providing high quality saleable resources. Sales in the first four months of 2025 rose 37% year-on-year to CNY41 billion, making up 34% of its full-year target of CNY120 billion, a 5% year-on-year gain.

Despite the sales decline, CFO improved in 2024 from 2023, due to stringent cash flow management. Fitch expects CFO to remain positive in 2025, with broadly stable construction and land acquisition costs. YXP’s net leverage rose to 47% by the end of 2024, up from 45% in 2023, despite positive Free Cash Flow (FCF), due to joint-venture consolidation and deconsolidation adjustments. However, Fitch expects net leverage to remain stable at a moderate level.

In 2025, YXP’s inventory recycling, such as selling old inventory to local governments for social housing, will help the company improve its land bank quality. YXP returned three land parcels in Guangzhou to the government in 2024 in exchange for CNY13.5 billion in other land or land credit that can be used to acquire new land parcels in areas that can better meet market demand.

YXP’s property development gross profit margin declined to 10% in 2024, down from 15% in 2023, as property prices fell. The company expects gross profit to remain weak in 2025, but improve gradually thereafter, as the proportion of sales generated from higher-cost inventory acquired before the industry downturn declines.

YXP’s IDR benefits from a two-notch uplift based on the support of its parent, GYX. We assess the parent’s legal incentive to provide support as ’Medium’ in light of the guarantees on its onshore bonds, strategic incentive as ’Medium’ amid high financial contributions and operational incentive as ’Medium’, given management and brand overlap.

YXP’s attributable sales scale is expected to be about 35% larger than Jinmao’s over the next two years. Both had similar sales scales in 2023, but Jinmao’s fell 32% in 2024, whereas YXP’s attributable sales declined by 14%. YXP’s better sales performance is due to its active land acquisition practices in key markets in recent years. YXP is less geographically diversified, with its home market of Guangzhou accounting for over 40% of total sales, but this is mitigated by its leading market position in the city and stronger property sales performance in its land bank markets.

Fitch’s key assumptions within their rating case for the issuer include contracted sales remaining flat in 2025-2026, land acquisition costs at 35% and 40% of sales proceeds in 2025 and 2026, respectively, construction costs at 37% of sales proceeds in 2025-2026, EBITDA margin at 4%-6% in 2025-2026, and average funding cost of around 3.6% in 2025-2026.

Factors that could lead to a negative rating action or downgrade include a sustained decline in contracted sales and/or sustained deterioration in CFO, net leverage above 55% for a sustained period, evidence of weakening funding access, or a perceived weakening in GYX’s incentive or ability to support YXP. On the other hand, factors that could lead to a positive rating action or upgrade include a clear trend of contracted sales growth, positive CFO on a sustained basis, or net leverage below 45% for a sustained period.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.