Yanlord Land Group - DBS Research 2016-05-12: Actively building up land reserve

YANLORD LAND GROUP LIMITED Z25.SI

Yanlord Land Group - Actively building up land reserve

Realising land bank replenishment in key Tier 1/2 cities in 1Q16
Decent sales outlook in 2Q supported by new launches in hotspot cities and high subscribed sales
1Q sales delivery saw slight margin improvement; financial strength also improved to support land acquisitions this year
Maintain BUY on the strong sales outlook

Yanlord spent Rmb4.3bn to acquire three new projects in Shenzhen and Tianjin, adding 610k sm to its 4m-sm land bank.
Apart from the three projects, management is also working to acquire other new projects in Suzhou, Nanjing, Shenzhen and Tianjin, which will increase its exposure in the Tier 1/2 cities.
With its strong financial position, we expect Yanlord to spend up to Rmb10-15bn on land acquisitions this year. Increasing land reserve in cities with low inventory will fuel the company’s sales growth from 2017 onwards.

Thanks to the strong residential market in Tier 1/2 cities, Yanlord achieved Rmb13.1bn sales in 4M16 which represents a strong y-o-y growth (+192%) and 48% sales target lock-in. 4M16 ASP also saw 8.5% growth from 2015 which will support a gradual margin recovery when the projects are delivered.
Despite the recent policy tightening in Shanghai, Shenzhen and Nanjing, management expects the strong demand to continue in these cities. For example, its Shanghai project is seeing more local buyers after the policy tightening and its recent launch in Nanjing was still oversubscribed.
Supported by further new launches in Shanghai, Nanjing, Tianjin and Zhuhai, sales outlook for 2Q is likely to remain decent. The Rmb3.6bn subscribed sales outstanding (in which c.Rmb2bn is from Shanghai) will also support contracted sales in the coming months.

Revenue and earnings increased by 182%/738% from the low base in 1Q15, locking in 16%/12% of our full-year revenue and earnings estimates (vs 6%/2% revenue and sales lock-in in 1Q15).
1Q16 gross margins improved 1ppt from FY15 and is in line with our full-year estimate.
There is potential margin upside from the Nanjing project, which is planned to be delivered towards end-2016.
Due to the strong sales, Yanlord’s financials strengthened further to a net cash position.

Yanlord is trading at 8.2x PE and 0.5x P/BV (vs historical average of 10x PE and 1.1x P/BV). Its share price has gone up by 14% YTD and has outperformed the sector by 27%.
Given the good sales delivery in 1Q with margin improvement, FY16 earnings may see some upside.
Maintain BUY on the decent sales outlook.

Andy YEE CFA DBS Vickers | Danielle WANG CFA DBS Vickers | Carol WU DBS Vickers | Ken HE CFA DBS Vickers | http://www.dbsvickers.com/ 2016-05-12

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