Yanlord Land Group - DBS Research 2016-11-15: Focused expansion strategy under a tightening market

Yanlord Land Group - DBS Vickers 2016-11-15: Focused expansion strategy under a tightening market YANLORD LAND GROUP LIMITED Z25.SI

Yanlord Land Group - Focused expansion strategy under a tightening market

  • Decent sales in Nov from Nanjing and Tianjin; full year sales target locked-in.
  • 3Q results in line with further margin improvements.
  • Remain focused on its core markets with prudent land acquisitions.
  • Maintain BUY on anticipation of decent 4Q earnings delivery and higher dividend payout.

High contracted sales locked in, will buffer near term impact of tightening. 

  • Yanlord Land Group (Yanlord) has achieved c.Rmb26.3bn contracted sales for the ten months ended Oct 2016, which is close to its Rmb27bn full year sales target.
  • Without much pressure to achieve its sales target for the year, Yanlord recorded decent sales in Nov and locked-in c.Rmb4bn sales from its two well received new launches in Nanjing and Tianjin. 
  • Management expects the recent tightening may impact the market gradually, but it may not substantially lower profitability in all its existing cities. For example, the tighter price limit policy in Nanjing has capped Yanlord’s ASP to below market prices in the city. However, the Group can still raise ASPs in Shanghai , Suzhou and Tianjin. The strong level of subscribed sales achieved year-to-date would also help buffer the impact of tightening curbs in the coming 2-3 months. 
  • Yanlord has yet to finalise its sales plan for next year, but according to its earlier guidance, it could have over Rmb50bn of saleable resouces for 2017. Assuming a c.55-60% sell-though rate, we believe Yanlord could achieve c.Rmb30bn sales in 2017.

Prudent land replenishment through JVs and primary development. 

  • Yanlord has spent c.Rmb10.4bn (attributable) to acquire 1.8m square metres of new land so far this year. To minimise risk in a tightening market, management plans to focus on its existing core cities with sustainable population inflows. 
  • In order to manage land cost, the Group is acquiring some land sites mainly through JVs with other developers or primary development. It is currently working on a JV project in Zhongshan and a large scale primary development project in Chengdu’s new district. 
  • According to management, the Group has a MOU with the Chengdu government for this project, and will operate similar to its previous primary development projects in Nanjing and Haimen, in which the Group will invest in phrases and with limited capital contribution.

Maintain BUY, TPS$1.46 

  • Yanlord is trading at 8.1x FY17 PE and 0.6x PB (vs historical average of 9.9x PE and 1.1x PB). Despite the recent tightening, we believe margins would be sustainable in FY16/17. 
  • Share buyback with anticipation of higher dividend payout from decent FY16 results is likely to support share price performance.

9M16 results were in line, high earnings visibility for 4Q.

  • Supported by the strong sales delivery from Shanghai, Nanjing and Zhuhai, Yanlord’s 9M16 results were in line with revenue and earnings increasing by 148% and 239% y-o-y respectively, locking in 81%/76% of our FY16F revenue and earnings. 
  • Gross margin in 3Q improved further to 27.2% (vs 1H16’s 22.6% and 2Q16’s 20.2%). 
  • Earnings visibility for FY16 earnings is high as the Group has locked in Rmb29.4bn of unrecognised sales and plans to deliver c.35% of this in 4Q16, implying strong FY16 delivery. 
  • Nanjing and Shanghai projects were sold at decent ASPs since 2H15, which should help to further raise the full year gross margin to over 28%.

Andy YEE CFA DBS Vickers | Danielle WANG DBS Vickers | Carol WU DBS Vickers | http://www.dbsvickers.com/ 2016-11-15
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.46 Up 1.410