OREANDA-NEWS. Times Property Holdings Limited (Times; B+/Stable) must address the issue of land replenishment pressure in its core markets for its ratings to be upgraded, despite the homebuilder's larger scale and expansion plans, says Fitch Ratings.

Times had land reserves of 6.8 million square metres (sq m) gross floor area (GFA) in its core markets of Guangzhou, Foshan and Zhuhai as at end-June 2016, with the 980,000 sq m of GFA sold in 1H16 leaving the homebuilder with only about two to three years of stock in these three cities.

Fitch believes land replenishment pressure in the homebuilder's core markets is high, which explains why over 90% of its total attributable land cost of CNY9.5bn was for land acquisition in these markets in 1H16. The homebuilder still has 41% of its total land reserve of 12 million sq m located in two oversupplied cities of Qingyuan and Changsha.

Fitch does not see significant improvements in Times' business or financial profile, even though its enlarged scale is comparable with some 'BB' rated peers, such as Logan Property Holdings Company Limited (BB-/Stable) and Yuzhou Properties Company Limited (BB-/Stable).

Robust housing sales in Times' core markets led to contracted sales of CNY13.4bn in 1H16, beating Fitch's expectations and meeting 62% of Times' annual target of CNY21.5bn. We believe the company may achieve contracted sales of CNY24bn for the whole year, with CNY40bn of sellable resources and an estimated sell-through rate of 60%.

Fitch expects Times' leverage to stay above 40% in 2016 (end-June 2016: 43%, 2015: 35%) due to aggressive land acquisition, with land payments in 1H16 already achieving 80% of the company's annual budget of CNY10bn. However, Fitch believes leverage will remain below 50% in the next two to three years, thanks to strong sales and a satisfactory cash collection ratio.

We also see pressure on Times's EBITDA margin (1H16: 20%), following the acquisition of expensive land parcels in 1H16 with a unit cost of CNY8,439 per sq m compared with a contracted sales average selling price of CNY11,152 per sq m in 1H16. Times also lacks geographical diversification, with 28 of its 29 projects located in the Guangdong province.