Daily Brief China: Shandong Fengxiang, Angelalign Technology, Leapmotor, SKYX Platforms, Central China Real Estate, Jupiter Wellness, CIFI Holdings, Air China Ltd (H), Bruush Oral Care and more
We rate Central China Real Estate (CCRE) as “high risk” on the LARA scale. The company’s activities are geographically concentrated in Henan, the third most populous province in China. While this exposes CEMR to political and policy changes within the province, we believe the risks are partly mitigated by the firm’s in-depth market knowledge, brand recognition, as well as long-standing relationships. with local government and construction companies. Our view also takes into account the deteriorating operating and financing environment in the Chinese real estate industry, which has had a negative impact on CEMR and other private developers.
Our fundamental credit bias on CCRE is “negative”, given the company’s low sales, very low margins, poor liquidity and lack of access to capital market funding amid the turmoil of the sector. In addition, CEMR has significant non-debt liabilities. Going forward, the company’s debt repayment prospects may depend on developing synergies with its minority investor SOE (Henan Railway) to realize new business and financing opportunities.
Controversies for CEMR are “immaterial”, despite the reputational risk due to worker deaths. This was mostly reported in the media in 2019 and 2020, with these statistics not provided in the company’s ESG reports. The ESG impact on credit is “neutral”. We note positively that CEMR’s corporate governance has improved, supported by increased transparency and its willingness to honor debt obligations.