Yanlord Land Group - DBS Research 2016-03-02: Exposure to strong markets remains high in 2016

Yanlord Land Group - DBS Research 2016-03-02: Exposure to strong markets remains high in 2016 YANLORD LAND GROUP LIMITED Z25.SI 

Yanlord Land Group - Exposure to strong markets remains high in 2016 

  • Good financial position to support land banking in 2016 
  • Likely to exceed its conservative sales target given high exposure to strong markets of Shanghai and Nanjing 
  • Maintain BUY (TPS$1.35) due to decent 2016 outlook 

 Land acquisitions will be the key focus in 2016. 

  • Thanks to the strong sales in 2015, Yanlord now has a deep pocket to acquire new projects for sales growth beyond 2017. YTD, Yanlord has acquired two new projects in Shenzhen. The residential project in Longgang district is expected to be launched for sale in 2017, potentially offering c.Rmb7-8bn saleable units while the commercial project in Futian district is under relocation. 
  • Management plans to be more active in acquiring new projects in existing cities where they have good brand recognition (i.e. Shanghai, Shenzhen, Nanjing and Tianjin). Seeing the challenges from the escalating land costs and high competition, management is cautious to target projects with above 30% GP margins and plans to cooperate with other larger developers to share their expertise and financial resources. 
  • It also plans to keep a fast asset turnover and prefer projects which they can put on sale within one year after acquisition. Given that the company is at its lowest net gearing since 2009, we estimate it can spend up to Rmb15bn for land acquisitions this year. 

 Setting a conservative sales target. 

  • Management has set a conservative Rmb27bn sales target for 2016 which is 6.5% lower y-o-y. Based on 19% growth in saleable resources (Rmb50bn in 2016 vs. c.Rmb42bn in 2015), the implied 54% sell-through rate is lower than 2015’s 70%. 
  • Similar to 2015, Yanlord has a substantial portion of saleable resources in Shanghai (c.40% of total) and Nanjing (c.20%) which have potential ASP upside, hence we believe the sales target is conservative and is likely to be exceeded. 

 Maintain BUY. 

  • Under the strong upgrader demand in 2015, the company was able to grow ASPs for its key projects in Shanghai and Nanjing in 2015. We believe this would provide sustainable margins when the projects are gradually delivered in FY16/17. 
  • Yanlord is trading at a 46% NAV discount, 7.3x FY16 PE and 0.5x P/BV (vs its historical 10x PE and 1.1x P/BV). We believe Yanlord's projects will remain in favour under the policy loosening environment which enables management to keep a high ASP. However, shareholders' reduction of position remains as a share price overhang. 

 FY15 results above expectations with strong balance sheets for land acquisitions. 

  • Revenue and core earnings increased by 41%/45% from the low base last year and were 24%/1% better than our expectations. 
  • GP margin came in at 27% which is below our expected 30% margin mainly due to the recognition of property sales in 2014 and early 2015 at lower ASPs. 
  • Net gearing ratio improved significantly (vs Sept-2015) by 20ppts to 2%, providing strong financials for land acquisitions.

Andy YEE CFA DBS Vickers | Danielle WANG CFA DBS Vickers | Carol WU DBS Vickers | Ken HE CFA DBS Vickers | http://www.dbsvickers.com/ 2016-03-02
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.35 Same 1.35