Fitch Ratings upgraded the long-term foreign currency issuer default and senior unsecured ratings of Hong Yang Group Company Ltd. and its subsidiary Redsun Properties Group Ltd. to B+ from B, with the outlook stable.
This reflected the group's growing contracted sales, with its high-quality land back and financial policy helping to maintain a leverage of below 50%, the rating agency said in an Oct. 16 report. Hong Yang also posted a higher recurring income from its large-scale property rental business.
Fitch forecast that Hong Yang's attributable contracted sales will grow by 25% to 30.00 billion Chinese yuan in 2019, mainly from its Jiangsu province base. Its total contracted sales grew 40% to 43.80 billion yuan in the past nine months.
By end-June, Hong Yang's total land bank was 15.7 million square meters, which Fitch noted is enough for three years' of development. This follows the group's diversification to 11 new cities across China.
Fitch also assumed that the group's total contracted gross floor area will rise by 25% in 2019, 10% in 2020 and 5% in 2021. It expects that Hong Yang's contracted average selling price will remain unchanged in 2019 while rising by 3% in 2020 and 2021.
The rating agency further assumed that Hong Yang will make a property-development gross profit margin of 30% in the next three years, with land acquisition cash outflow to account for 70% of presales proceeds in the same period.
The group's ratings could rise if there was a substantial growth in attributable contracted sales, among other things, Fitch added. Conversely, they could fall if leverage is consistently above 50%, for instance.
As of Oct. 16, US$1 was equivalent to 7.09 Chinese yuan.