Moody's shifts outlook for CR Land to stable, maintains Baa1 rating

Investing.com -- Moody's Ratings has affirmed the Baa1 issuer rating of China Resources Land (HK:1109) Limited (CR Land) and revised its outlook from negative to stable. The rating agency has also upheld the (P)Baa1 senior unsecured rating on CR Land's medium-term note (MTN) program and the Baa1 rating on CR Land's senior unsecured bonds.

The decision to affirm and revise the outlook is based on CR Land's ability to keep a strong operating and financial profile even amidst weak market conditions. The increased resilience is backed by the company's enhanced business diversification, which is underscored by the growing proportion of high-margin and stable rental income, along with its prudent and focused investment strategy, according to Roy Zhang, a Moody's Ratings Vice President and Senior Analyst.

Zhang further added that the company is expected to maintain its strong market position and continue to outperform the broader market due to its established brand, high-quality land bank, access to low-cost funding, and government ownership background.

CR Land's Baa1 issuer rating reflects the company's balanced business model, supported by its national coverage and quality land bank focused on high-tier cities, growing recurring income, including rental income from its sizable investment property portfolio, and strong funding access and operational synergies with its state-owned parent, China Resources (Holdings) Co., Ltd. (CRH (NYSE:CRH)).

However, these strengths are counterbalanced by the company's exposure to industry cyclicality and regulatory risks, as well as its ongoing investments to expand its investment portfolios.

CR Land's recurring income grew 6.6% to RMB41.7 billion in 2024, which includes RMB23.3 billion in high-margin rental income, up 4.8% from the previous year. This growing contribution from recurring income has improved the company's business stability and has increased its resilience to uncertainties related to the property development business.

The company's contract sales began to recover from a low base, growing 22% year over year in both the fourth quarter of 2024 and the first two months of 2025, outperforming the overall market.

CR Land continues to gain market share and improve its exposure to markets with better demand and profitability. The company's contract sales are expected to stabilize in 2025 as supportive government measures start to take effect.

Over the next 12 to 18 months, the company's total revenue is expected to remain largely flat, as rising recurring income offsets the decline in property development revenue. The company's EBITDA is expected to grow moderately to RMB 68-70 billion from RMB67 billion in 2024, driven by higher EBITDA contribution from high-margin rental income. Consequently, CR Land's debt to EBITDA ratio will stay between 4.5x and 5.5x, a level appropriate for its Baa1 ratings. The company's large cash position will provide added buffer. As of 31 December 2024, CR Land's unrestricted cash/short-term debt coverage remained healthy at 1.9x.

CR Land's liquidity is excellent, supported by the company's sizable cash holdings, moderate short-term debt maturities, and good access to offshore and onshore financing. The company's cash holdings and projected operating cash flow are expected to fully cover its committed land payments and refinancing needs over the next 12-18 months.

The company's close linkage with CRH, which owns a 59.55% stake in the company, will also support its access to funding.

In terms of environmental, social, and governance (ESG) factors, the company's ESG assessment is mainly driven by the company's concentrated shareholder ownership by CRH. The risks are counterbalanced by government directives for leverage control, the company's conservative financial policy, and its track record in maintaining solid business and financial performance.

Upward rating pressure could emerge if CR Land grows its recurring income, resulting in further enhanced revenue and earnings stability, and maintains strong credit metrics, such that its adjusted debt/capitalization falls below 30% on a sustained basis.

On the other hand, the ratings could be downgraded if CR Land's operational performance deteriorates; liquidity buffer or access to funding weakens; or credit metrics deteriorate such that its adjusted debt/capitalization rises above 45%, debt/EBITDA rises above 5.5x, or recurring income/interest coverage falls below 100%, all on a sustained basis.

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