Rating Action: Moody's changes Jinke Property's outlook to positive from stable; affirms ratingsGlobal Credit Research - 12 Apr 2021Hong Kong, April 12, 2021 -- Moody's Investors Service has changed the rating outlook on Jinke Property Group Co., Ltd. to positive from stable.At the same time, Moody's has affirmed Jinke Property's B1 corporate family rating (CFR) and B2 senior unsecured rating."The change in outlook to positive from stable reflects our expectation that Jinke Property's credit metrics will continue to improve over the next 12-18 months, supported by its strong revenue growth and controlled debt growth," says Celine Yang, a Moody's Assistant Vice President and Analyst.Specifically, Jinke Property's revenue growth will be driven by its strong sales execution. Its total contracted sales grew 20% to RMB217.8 billion in 2020, despite the coronavirus outbreak. This growth was preceded by the company's 57% growth in contracted sales to RMB181.4 billion in 2019."The rating affirmation reflects our expectation that the company will maintain good liquidity, good access to onshore funding and stable contracted sales growth over the next 12-18 months," adds Yang.RATINGS RATIONALEJinke Property's B1 CFR reflects the company's (1) established track record of developing residential properties and well-recognized brand in the Chinese city of Chongqing; (2) growing scale and geographic diversification; and (3) good liquidity, supported by strong cash flow from property sales and good access to onshore funding.Jinke Property's CFR also considers its execution risk associated with fast expansion, as well as its increased exposure to trust loans. The latter will raise the company's funding costs and weaken its funding stability if its exposure does not lessen in the next 6-12 months.Moody's expects Jinke Property's debt leverage - as measured by revenue/adjusted debt - will continue to improve to 77%-80% over the next 12-18 months from 74.4% in 2020. This will be driven by Jinke Property's strong revenue recognition, as well as its disciplined approach to pursuing growth. Similarly, Jinke Property's EBIT/interest coverage will improve to about 2.7x-3.0x over the same period from 2.5x in 2020.Moody's expects Jinke Property's sizable salable resources and strong sales execution will enable it to further grow its contracted sales to RMB240 billion-RMB250 billion annually in the next 12-18 months. Proceeds from contracted sales will provide the funds for the company to execute its business expansion, as well as support its revenue growth and liquidity over the next 12-18 months.Moody's also expects the company will take a measured approach to pursing growth in the next 1-2 years. As a result, its annual debt growth will be contained at 10%-15% in the next 1-2 years. Jinke Property's adjusted debt grew only 6% in 2020 to RMB118 billion as of December 2020.The company's B2 senior unsecured debt rating is one notch lower than the CFR, due to structural subordination risk. This risk reflects the fact that the majority of claims are at the operating subsidiaries and have priority over Jinke Property's senior unsecured claims in a bankruptcy scenario. In addition, the holding company lacks significant mitigating factors for structural subordination. As a result, the likely recovery rate for claims at the holding company will be lower.Jinke Property's liquidity position is good. The company's cash balance of RMB43.5 billion as of the end of 2020 covers 134% of its short-term debt. Such cash holdings, together with the company's operating cash flow, will be sufficient to cover its short-term debt and estimated committed land payments over the next 12-18 months.In terms of environmental, social and governance (ESG) factors, Moody's has considered Jinke Property's relatively concentrated ownership in Huang Hongyun and persons acting in concert, who together held 29.99% of the company's shares as of 31 December 2020. Moody's notes that 15.5% of its total outstanding shares were pledged by its major shareholder. A material change in the ownership of these major shareholders would warrant a reassessment of the company's credit position.Moody's has also considered (1) the presence of three independent non-executive directors on a board of nine directors; (2) the company's moderate 35%-37% dividend payout ratio over the past three years; and (3) the application of the listing rules of the Shenzhen Stock Exchange.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's could upgrade the CFR if Jinke Property (1) demonstrates sustained growth in its contracted sales and revenue through economic cycles without sacrificing profitability; (2) demonstrates discipline in its land spending and financial management; (3) improves its credit metrics, such that its EBIT/interest rises to above 2.5x-3.0x and revenue/adjusted debt rises to above 70%-80% on a sustained basis; and (4) maintains good liquidity.A rating downgrade is unlikely given the positive outlook. However, Moody's could revise Jinke Property's outlook to stable if the company (1) generates weak contracted sales; or (2) significantly increases its debt leverage due to aggressive expansion, such that its adjusted EBIT/interest falls under 2.5x-3.0x or revenue/adjusted debt declines to below 70%.Any signs of weakening liquidity or access to funding would also be negative for the company's rating.The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Jinke Property Group Co., Ltd. is a residential property developer based in Chongqing. It was listed on the Shenzhen Stock Exchange in 2011 through a backdoor listing. Huang Hongyun and persons acting in concert owned 29.99% of the company as of 31 December 2020.Jinke Property generates more than 90% of its revenue from property development. The company reported RMB87.7 billion of revenue in 2020. As of 31 December 2020, the company had a land bank of around 71 million square meters in gross floor area (GFA), which is sufficient for around three years of property development.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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