Yanlord Land Group - Strong sales come to fruition
- Strong FY16 results with decent earnings and DPS improvement.
- Management plans to pace sales in 2017 to maintain margin.
- Continued efforts in land acquisitions in key Tier 1/2 cities to support growth.
- Maintain BUY due to the strong earnings and dividend outlook.
Maintain BUY on its strong earnings and dividend outlook.
- Yanlord reported strong FY16 results from high sales delivery in Shanghai and Nanjing at better gross margin. Around 70% of the Rmb26.5bn unrecognised sales will likely be delivered in FY17, giving it a high revenue visibility. FY16 margin rebounded to 31% from 28% in FY15.
- This margin recovery should continue in FY17 with the strong ASP growth in recent and 2016 sales.
- Given the decent property sales and earnings, management raised dividend payout ratio to 15% from 10% in FY15 which boosted dividend yield back to 3% level after share price shot up by 50% since January 2016.
Conservative 2017 sales target, supported by ample saleable resources.
- Being cautious on the tight price control measures in key Tier 1/2 cities, management plans to pace sales in 1H17 to keep margin and set a conservative sales target of Rmb32bn (5% below the Rmb33.6bn sales in FY16), with 25% growth in saleable resources to c.Rmb50bn from Rmb40bn in FY16.
- Despite local government’s tight price control, management targets to maintain its contracted ASP given its profitability-focused strategy.
- YTD sales are muted at c.Rmb1.5bn due to limited new launches after CNY, but sales should pick up in March when project launches in Nanjing and Tianjin resume.
Continue land replenishment to support mid-term growth.
- Yanlord plans to spend c.Rmb15bn on land banking this year, on top of the c.Rmb18bn spent in 2016. With a strong balance sheet (16% net gearing and Rmb18bn cash-on-hand), we believe the acquisition budget is reasonable.
- While management will maintain its focus on key Tier 1/2 cities for new projects, it mainly acquires new projects through M&A or JV with other investors to lower the average land costs. Apart from that, Yanlord has also invested in primary development in Chengdu, Nanjing and Zhongshan which could help source more quality lands at reasonable costs.
- We maintain our BUY rating on Yanlord with a higher TP of S$2.21 based on 8.9x FY17 PE, which is benchmarked to its historical average PE since 2014.
Key Risks to Our View
- Land acquisition, especially in key tier1/2 cities, will face higher competition that could drag up land acquisition costs.