FUTLAN/FTLNHDs: An outperformer in a challenging operating environment

CMBI Credit Commentary FUTLAN/FTLNHDs: An outperformer in a challengingoperating environment Glenn Ko, CFA高志和(852) 3657 6235glennko@cmbi.com.hk Maintain buy on FUTLAN/FTLNHDs Cyrena Ng, CPA吳蒨瑩(852) 3900 0801cyrenang@cmbi.com.hk Yujing Zhang张钰婧(852)3900 0830zhangyujing@cmbi.com.hk We maintain buy on FUTLAN/FTLNHDs in view of the bonds’ to offer good riskand return profiles, especially after Seazendemonstrated once again its goodaccess to various funding channels.We see Seazen one of the few stand-outsamong non-government owned Chinese property developers in term of operatingperformance and access to capital markets. Its resilience has been supported bythe growing recurring income from its high quality (i.e. high occupancy rate,97.8% in Dec’25) investment properties (IPs). Weaker FY25 results but DP margin rebounded and recurring incomecontinues to growth While the overall FY25 results were dragged by property developments with lowerrecognized ASP and GFA, the sustainable growth of recurring rental and propertymanagement income of Seazen supported its resilience in a challenging marketenvironment.In FY25, recurring income increased 7% to RMB14.1bn, covering4.2x of its gross interest expenses. Because of the growing recurring income anddeclining property development income,rental and property managementcontributed 62.6% of Seazen’s gross profit, up47.6% in FY24. The significantlyhighergross margin of its recurring income (69.8% vs 13.0% of propertydevelopment in FY25) led to a considerable recovery of gross profit margin to23.3% in FY25 from 16.8%.We take additional comfort from the improvingmargin of property. Going forward,we expect Seazen to increasingly focus on IPs. Seazen expectsto open 5 new malls in FY26.This, coupled with the ramping up of other newlyopened malls, will continue to support sustainable growth of recurring income.Seazen guided a conservative target of 2.8% yoy increase in recurring income toRMB14.5bn in FY26.It had existing saleable resources of RMB40bn for FY26.Any new launches will depend on market condition. We see further facing the challenging operating environment.In 2M26, itscontract sales wereRMB1.9bn,down 35% yoy. Recent funding exercises and headroom for secured loans alleviate refinancing pressure Seazenmaintained a largely stable credit profile.It continues to demonstrate notably better access to fundingchannels than most of its non-state-owned peers. It raised USD510mn to refinance USD bonds totaled USD600mnmaturing in Jul’ and Oct’25.It is thefirst non-government owned Chinese property developer to resume access tothe USD bond market.In Mar’26, Seazen completed the new issue of USD355mn FTLNHD 11.8 03/09/29 andconcurrent tender offer to early redeem USD167.978mn of FTLNHD 4.5 05/02/26 and USD65.973mn of FTLNHD11.88 09/30/27, totaled USD234.0mn.It also raised cUSD60.4mn from a small share placement in Feb’26. Thesehave largely remove the refinancing risk for FTLNHD 26. In FY25, it obtained additional secured loans of cRMB12.5bn againstits IPs in FY25. We understand that Seazenhas 15 malls remain unpledged, and this could be translated into a headroom of RMB5-6bn secured loans againstits IPs before any increase in LTV on pledged IPs.The ability to secured loans/bonds against its IPs not only helplower its funding costs (5.81% in FY25 vs 5.88% in FY24), but also provide adequate financial flexibility to manageSeazen’s debt maturities over the coming 2-3 years profile. Seazen has also announced that it has commenced the application for public issuance of commercial REITs usingits commercial real estate projects i.e. Changzhou Tianning Wuyue Plaza Project and Nantong Qidong Wuyue PlazaProject, as underlying assets. The commercial REITs will be listed on SSE and Seazen intends tohold at least 34%of the Commercial REITs. There is no detail as to the size and timetable of the public issuance. CMB International Global MarketsLimited Fixed Income DepartmentTel: 852 3657 6235/ 852 3900 0801fis@cmbi.com.hk Author Certification The author who is primary responsible for the content of this research report, in whole or in part, certifies that with respect to the securities or issuer that the authorcovered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2) no part of his or hercompensation was, is, or will be, directly or indirectly, related to the specific views expressed by that author in this report.Besides, the author confirms that neither the author nor his/her associates (as defined in the code of conduct issued by TheHong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) coveredin this research report within 30 calendar days prior to the date of issue of this report; (2) will deal in ortrade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as anofficer of any of the Hong Kong lis