OREANDA-NEWS. China Jinmao Holdings Group Limited's (Jinmao; BBB-/Stable) net leverage, as measured by net debt/adjusted inventory, is likely to stay below 40% in 2016 (2015 estimate: 40.9%), underpinned by robust growth in contracted sales and increased recurring income, Fitch Ratings says.

The property company's EBITDA fell 32% to CNY6.3bn in 2015, but this has no impact on its ratings. Fitch does not consider the timing of accounting profit recognition, upon project delivery, an important factor in our ratings for Chinese homebuilders because almost all project cash flows would have occurred before the properties are delivered.

Jinmao's contracted sales from property development rose 50% to CNY27.8bn in 2015, significantly increasing its business scale. This growth is likely to be sustained, based on its plans for project launches in 2016. Fitch expects gross margin to be resilient above 30% as the majority of the projects are in first or second-tier cities, which enjoy better demand and stronger pricing.

Primary land sales fell by 23% in 2015 and this has contributed to the lower profit. The fall was due to the government's strict land control in Changsha, where Jinmao operates its Meixi Lake projects. Fitch estimates that the company's unsold primary land amounted to approximately 20 million sqm at end-2015, which would sustain more than 10 years of development. This would be a stable source of cash revenue for Jinmao as land costs have already been paid and it does not need to incur further development expenditure. Fitch expects 2016 primary land sales to hit the company's CNY3bn target, which would complement core property development sales and help Jinmao achieve 20% sales growth in 2016.

The company's recurrent income from the investment property and hotel businesses rose 6.4% in 2015, with improved EBITDA margin widening to 40% from 31.3%, which reflected the more stable operations at its new hotel assets. The three new hotels that have opened since 2014 recorded much higher revenue per available room and started to contribute profit in 2015. Fitch expects Jinmao's recurring EBITDA to interest coverage to improve to 0.5x in 2016 from 0.4x in 2015 on a deconsolidated basis, as the scale of investment properties and hotels in operation increases.