Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

In August, geopolitical risks increased. The escalation in the trade war and events in Argentina and Turkey were on emerging-market investors’ minds, leading to heightened risk aversion. On September 1st, the US placed tariffs on an additional USD 100 bn worth of Chinese goods, after which Beijing retaliated with imposts on USD 75 bn of US goods. In summary, the US now has tariffs on roughly USD 550 bn in Chinese imports, while China has duties on about USD 110 bn of its USD 120 bn in imports from the US.
In late August, President Donald Trump threatened to force American companies to exit China pursuant to the International Emergency Economic Powers Act (IEEPA), which he can trigger by declaring a national emergency. The effect would be to freeze Chinese assets in the US and to exclude Chinese institutions from the US financial system.

In August, geopolitical risks increased. The escalation in the trade war and events in Argentina and Turkey were on emerging-market investors’ minds, leading to heightened risk aversion. On September 1st, the US placed tariffs on an additional USD 100 bn worth of Chinese goods, after which Beijing retaliated with imposts on USD 75 bn of US goods. In summary, the US now has tariffs on roughly USD 550 bn in Chinese imports, while China has duties on about USD 110 bn of its USD 120 bn in imports from the US.
In late August, President Donald Trump threatened to force American companies to exit China pursuant to the International Emergency Economic Powers Act (IEEPA), which he can trigger by declaring a national emergency. The effect would be to freeze Chinese assets in the US and to exclude Chinese institutions from the US financial system.

Asia HY Monthly – Chinese Property Update (August 2019)

We view Guangzhou R&F (GRF) as “High Risk” on the LARA scale. The company has a weak financial profile due to its debt-funded and aggressive growth strategy, and depends heavily on continued access to the debt capital markets. Positively, it has a long operating history and diversified geographical coverage. GRF targets the mid-range to high-end residential markets. It has amassed a well-distributed land reserve, thanks to its aggressive land-banking strategy. In addition, the company has a sizable hotels portfolio, which contributes recurring income.   Our fundamental Credit Bias on GRF is “Negative”, owing to its: [1] high leverage; [2] margin decline; and [3] substantial near-term debt maturities. That said, we believe the company has decent access to capital. We view GRF as "Weak" on the LAGA scale. The company is controlled by founders Li Sze Lim (Chairman) and Zhang Li (Co-Chairman and CEO), who together own 66%. Two NEDs are family members of the founders. Mr Li and Mr Zhang do not appear to have any family connections, as one is from Hong Kong and the other from Guangzhou.

   We view Guangzhou R&F (GRF) as “High Risk” on the LARA scale. The company has a weak financial profile due to its debt-funded and aggressive growth strategy, and depends heavily on continued access to the debt capital markets. Positively, it has a long operating history and diversified geographical coverage. GRF targets the mid-range to high-end residential markets. It has amassed a well-distributed land reserve, thanks to its aggressive land-banking strategy. In addition, the company has a sizable hotels portfolio, which contributes recurring income.      Our fundamental Credit Bias on GRF is “Negative”, owing to its: [1] high leverage; [2] margin decline; and [3] substantial near-term debt maturities. That said, we believe the company has decent access to capital.    We view GRF as "Weak" on the LAGA scale. The company is controlled by founders Li Sze Lim (Chairman) and Zhang Li (Co-Chairman and CEO), who together own 66%. Two NEDs are family members of the founders. Mr Li and Mr Zhang do not appear to have any family connections, as one is from Hong Kong and the other from Guangzhou. 

Guangzhou R&F - Tear Sheet - Lucror Analytics

The Asia HY Trade Recommendations report for August includes a summary of our recommendations, as well as our high-conviction ideas. We also provide relative-value charts and lists of the bonds in the Lucror Asia HY index.

   The Asia HY Trade Recommendations report for August includes a summary of our recommendations, as well as our high-conviction ideas. We also provide relative-value charts and lists of the bonds in the Lucror Asia HY index. 

Asia HY Trade Recommendations - August 2019 - Lucror Analytics

In our view, Guangzhou R&F's H1/19 results were weak. The company reported revenue growth of 3%, but margins were lower. Gross profit and EBITDA declined 1% and 6%, respectively. While revenue recognition could pick up in H2, we expect margins to remain under pressure, in line with the soft ASP. The company may miss its full-year sales target, having achieved only 44% of the CNY 160 bn target in the first seven months of 2019. This could prompt it to further sacrifice ASP and margins in order to boost volumes. Leverage deteriorated and the financial profile remains weak. In H1, the company reduced land acquisition spending by 15%, which helps to shore up cash and may signal a shift in strategy towards deleveraging, given tighter funding conditions. The company’s land bank is sizeable and sufficient for 4-5 years of development, supporting a slower pace of acquisitions. Guangzhou R&F has yet to carry out a material equity issuance, despite having floated plans to issue additional H-shares and to list A-shares onshore.

   In our view, Guangzhou R&F's H1/19 results were weak. The company reported revenue growth of 3%, but margins were lower. Gross profit and EBITDA declined 1% and 6%, respectively. While revenue recognition could pick up in H2, we expect margins to remain under pressure, in line with the soft ASP. The company may miss its full-year sales target, having achieved only 44% of the CNY 160 bn target in the first seven months of 2019. This could prompt it to further sacrifice ASP and margins in order to boost volumes.    Leverage deteriorated and the financial profile remains weak. In H1, the company reduced land acquisition spending by 15%, which helps to shore up cash and may signal a shift in strategy towards deleveraging, given tighter funding conditions. The company’s land bank is sizeable and sufficient for 4-5 years of development, supporting a slower pace of acquisitions. Guangzhou R&F has yet to carry out a material equity issuance, despite having floated plans to issue additional H-shares and to list A-shares onshore. 

Guangzhou R&F - Earnings Flash - H1 FY 2019 Results - Lucror Analytics

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar. 

Lucror Analytics - Morning Views Asia - 23 Aug 2019

China

Guangzhou R&F Properties Co., Ltd. operates real estate businesses. The Company provides housing renovation, housing loans, real estate brokerage, property management, and other services. Guangzhou R&F Properties also operates hotel management.

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Guangzhou R&F Properties (2777 HK)

Asia HY Monthly – Chinese Property Update (August 2019)

In August, geopolitical risks increased. The escalation in the trade war and events in Argentina and Turkey were on emerging-market investors’...

Lucror Analytics

Guangzhou R&F - Tear Sheet - Lucror Analytics

We view Guangzhou R&F (GRF) as “High Risk” on the LARA scale. The company has a weak financial profile due to its debt-funded and aggressive...

Lucror Analytics

Asia HY Trade Recommendations - August 2019 - Lucror Analytics

The Asia HY Trade Recommendations report for August includes a summary of our recommendations, as well as our high-conviction ideas. We also...

Lucror Analytics

Guangzhou R&F - Earnings Flash - H1 FY 2019 Results - Lucror Analytics

In our view, Guangzhou R&F's H1/19 results were weak. The company reported revenue growth of 3%, but margins were lower. Gross profit and...

Lucror Analytics

Lucror Analytics - Morning Views Asia - 23 Aug 2019

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region,...

Lucror Analytics

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