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Announcement:

Moody's: CR Land's ratings unaffected by weak 1H 2017 results

24 Aug 2017

Hong Kong, August 24, 2017 -- Moody's Investors Service says China Resources Land Limited's weak results for 1H 2017, with increased debt leverage and lower revenue, have no immediate impact on its Baa1 issuer and senior unsecured ratings, or on the stable ratings outlook.

"We expect CR Land's debt leverage to gradually increase in the next 12-18 months to fund business growth, but believe the company will maintain its disciplined financial management policy," says Franco Leung, a Moody's Vice President and Senior Credit Officer.

Moody's expects CR Land's debt leverage -- as measured by adjusted net debt/net capitalization - to increase to around 35% in the next 12-18 months from around 32% at June 2017 and 24% at end-2016, given the company's increased debt-funding needs to support its business growth. Nevertheless, such metrics remain appropriate for its Baa1 ratings.

CR Land's reported debt increased significantly to HKD105.7 billion at end-June 2017 from HKD79.8 billion at end-2016, mainly driven by debt-funded land acquisitions in 1H 2017.

CR Land acquired 5.77 million gross floor area (GFA) of land bank at an attributable consideration of RMB27.5 billion in 1H 2017. Moody's expects its land payments for the full year 2017 to be higher than the RMB47.2 billion for 2016 and RMB29.3 billion for 2015 respectively, on an attributable basis.

"We expect CR Land to register modest revenue growth in the next 12-18 months, despite the decline in 1H 2017," adds Leung, who is also Moody's Lead Analyst for CR Land.

CR Land delivered HKD35.3 billion revenue in 1H 2017, down 21% year-on-year from 1H 2016. But Moody's expects CR Land to register modest single-digit full year revenue growth in 2017, because the company's property delivery schedule is skewed towards the second half of 2017. In addition, the company had unrecognized sales of HKD95.9 billion at end-June 2017, a significant portion of which will be turned into revenue over the next 12-18 months.

Moody's expects CR Land's interest coverage will slightly weaken to around 6.1x-6.6x in the next 12-18 months from around 6.6x for the 12 months ended June 2017 and 7.6x in 2016 due to the expected increase in debt leverage. Such a level of interest coverage nevertheless remains robust.

The company's gross profit margin improved to 34.9% in 1H 2017 from 33.9% in 1H 2016, mainly due to higher margins in its property development and investment property segments. Moody's expects the company's gross profit margin to remain stable at 32%-33% in the next 12-18 months.

The company achieved RMB63.2 billion in contracted sales in 1H 2017, up about 14% from 1H 2016, but milder than the 27% and 23% year-on-year growth achieved in the full years 2016 and 2015 respectively. Its sales growth will continue to generate the cash flow necessary to support the company's business growth.

CR Land's cash to short-term debt ratio weakened to around 1.7x at June 2017 from 3.9x at end-2016, largely driven by an increase in short-term debt to HKD27.4 billion from HKD12 billion over the same period. However, Moody's considers the company's liquidity risk as low because of its strong funding access.

The principal methodology used in these ratings was Homebuilding And Property Development Industry published in April 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Founded in 1996, China Resources Land Limited is a leading property investment and development company in China. At 30 June 2017, its land bank totaled a gross floor area of 47.85 million square meters, with projects diversified across 57 Chinese cities. The company is 61.27% owned by China Resources (Holdings) Company Limited, a conglomerate ultimately owned by China's State Council.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Franco Leung
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

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