OREANDA-NEWS. Fitch Ratings has revised Sunshine 100 China Holdings Ltd's (Sunshine) Outlook to Positive from Stable, and affirmed its Long-Term Foreign Currency and Local Currency Issuer Default Ratings at 'B-'. The Chinese homebuilder's senior unsecured rating and the ratings on its USD215m 12.75% senior notes due 2017 have also been affirmed at 'B-' as well as its Recovery Rating at 'RR4'.

The Positive Outlook takes into account of Sunshine's liquidity improvement and management execution in sales expansion. Sunshine is likely to benefit from the strategic cooperation with EBA Investments (Advisory) Limited (EBA) and from the looser credit and tax policies for China's property market in 2015.

KEY RATING DRIVERS
Relieved Liquidity Position: Sunshine's relatively tight liquidity position (CNY8bn short-term borrowings vs. CNY3.6bn cash by end 2014) has been much relieved by its diversified funding sources since 4Q14. This includes the company's USD215m senior notes, HKD1.3bn equity placement, and the potential CNY5bn financial support from EBA. Sunshine's improving liquidity management provides more flexibility for future business expansion and helps to lower interest costs.

Improving Sales Help Deleverage: Fitch expects Sunshine's improved sales and a high cash collection rate to help to lower its leverage (net debt/adjusted inventory) further to the mid-forties percentage range in the next 12 months from 50% in 2014. For the first five months of 2015, Sunshine bagged CNY2.6bn contracted sales (+38% yoy), vs. CNY6.7bn in 2014. Commercial projects may contribute more than 30% of sales in 2015 (2014: 16%), with high gross profit margins of over 50%.

Strategic Cooperation with EBA: EBA is the sole exclusive real estate investment platform under China Everbright Limited. Under the cooperation framework agreement, EBA will assist Sunshine to formulate a series of development strategies and further promote its financing ability, business scale and rate of capital return in the future, together with a total amount of CNY5bn in financing support for future project development.

Adequate Land Bank: Sunshine has a large land-bank of 10.6m sqm at end-2014, 13 times the contracted sales gross floor area (GFA) it had in 2014. The company benefits from a low average land cost of around CNY900/sqm (12% of the selling price). In Fitch's opinion, Sunshine is under no pressure to replenish land at high market prices and has no intention to acquire new land for residential projects given that their land tenders tend to be highly competitive.

Slow Turnover Rate: Sunshine's rating is constrained by its slow inventory turnover (measured by contracted sales divided by total debt) - which has stayed at 0.4x-0.5x in the past four years. This is low compared to other B-rated peers. Many of the projects were bought more than five years ago and were large in GFA. Sunshine had no urgency to sell them off quickly in the past few years since the land cost was cheap. Sunshine geared up its construction pace in 2014 after cutting down on land acquisitions to channel more cash flow into construction activities.

KEY ASSUMPTIONS
Slow-down in land acquisition pace as reflected by the new land GFA to be 0.8x times annual contracted sales GFA
Contracted sales of CNY9.4bn in 2015 and CNY11.4bn in 2016
Gross profit margin of property development is expected to be 27.5% in 2015 and 28% in 2016

RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action (upgrade to B) include:
Contracted sales/total debt sustained above 0.6x
Contracted sales above CNY10bn in 2015
Net debt/adj. inventory sustained below 50%

Negative: Future developments that may, individually or collectively, lead to negative rating action (revise Outlook to Stable) include:
Failure to achieve the above factors.