Poly Real Estate Alert:Access China conference 2016highlights

Poly Real Estate (Poly-A) attended our Access China 2016 conference and thefollowings are the key takeaways.

    - The contracted sales of the company has reached RMB154bn, remained asone of the top five developers in China in terms of contracted sales value- Contracted sales target for 2016 is yet to be confirmed, but the managementis hoping to see a double digit growth in sales value.

    - For the outlook of the industry, management expects the sales performancein 2015 will be continued to 1H16. But they expect the supply in 2H16 will begradually picking up due to the more active land acquisition in 2015, andhence more new construction start is expected- Currently, developers in the market are mostly launching new projects andselling the stocks as a way for inventory clearance. Hence, construction startsis needed for new supply.

    - Poly-A was more active in the land market in 4Q15. 1) Land acquisitions4Q15 in terms of GFA and value accounted for 60% and 80% of the total in2015.

    - Commenting on the policy on inventory clearance, management thinks thereis no concrete measure launched by the government yet and it is unlikely forgovernment to enforce strict rules on this as the government intended to letthe market do the adjustment by itself.

    - The management expected the gross margin in 2015 to increase slightly from32% in 2014. Nevertheless, they predicted to see a slight drop in gross marginduring 2016, then another low single-digit decline in 2017. All the above is toreflect the faster growth in land cost than the ASP.

    - Cash collection for 2015 was 100%, reaching the record high level for thecompany, thanks to the strong brand recognition of Poly-A, (enables fastermortgage approval for its customers). In addition, the improved liquidityenvironment among the banks also contributed to the high cash collection.

    - The majority of the debts of Poly-A is denominated in RMB. In the short term,the company is unlikely to raise offshore debts unless there is urgent need inforeign currency.

    - The management expected the weighted average interest rate to drop toaround 5% during 2015, from 6.5% as of end-2014- The company has received the approval from the CSRC regarding its A-shareissuance plan. Management said preparation works have been in progress andexpects the issuance could take place in 2Q16.