OREANDA-NEWS. Fitch Ratings expects Modern Land (China) Co., Limited's (Modern Land; B/Positive) attributable sales to slowly approach CNY10bn, the level at which Fitch would consider positive rating action, in 2016-2017, which is later than the previous estimate of 2015. The home builder's expansion will be limited by its modest land bank.

Modern Land's total contracted sales rose 53% to CNY11.3bn in 2015. However attributable contracted sales increased only 12% to CNY7.5bn because more sales were generated from joint ventures (JVs) and associate projects. Attributable sales accounted for 66% of the company's total sales in 2015, down from 90% of the total in 2014. Fitch expects the attributable sales to approach CNY10bn if Modern Land successfully meets its CNY15bn sales target in 2016.

Modern Land's gross available-for-sale land bank is 3.5 million sqm, representing less than CNY30bn of saleable resources. That is barely enough to sustain three years of contracted sales if we assume annual contracted sales of CNY11bn and an attributable percentage on par with 2015's level. Xiantao, a small city in China's Hubei province, still accounts for most of the unsold land bank (18%), even though the company has diversified into several Tier 1 and Tier 2 cities. It is harder to generate sizeable sales and profit from its Xiantao land bank because demand is weaker in lower-tier cities.

Modern Land targets to build a stronger presence in Tier 1 cities in the next few years. The company has formed more JVs to alleviate the land bank bottleneck and help reduce the capital needed for the expansion. Modern Land's leverage, as measured by net debt/adjusted inventory, rose to 22% as at end-2015 from 8% in 2014, which is in line with Fitch's expectation. Fitch expects Modern Land to need more time to reach critical mass in the targeted regions and sustain an attributable sales scale of CNY10bn.