Yanlord Land Group - DBS Research 2017-05-16: Pricing Strategy Is The Key

Yanlord Land Group - DBS Vickers 2017-05-16: Pricing Strategy Is The Key YANLORD LAND GROUP LIMITED Z25.SI

Yanlord Land Group - Pricing Strategy Is The Key

  • 1Q17 contracted sales were slower than peers, but demand for its new launches is still strong 
  • Land bank replenishment continues in key cities 
  • 1Q sales delivery was decent with margin improvement; high FY17 earnings visibility with substantial unrecognised sales outstanding 
  • Maintain BUY on its strong earnings and margin outlook 

What’s New 

Maintain BUY on its high earnings visibility and decent margin. 

  • Yanlord is trading at 6.7x FY17 PE and 0.8x P/BV (vs historical average of 9.3x PE and 1.1x P/BV). 
  • On top of the strong 1Q17 delivery with decent margin, Yanlord’s earnings visibility for FY17 is high with c.Rmb24bn unrecognised sales outstanding as at end-March. 
  • We revised up its FY17/18 earnings estimates by 10%/17% to reflect the better-than-expected margin of recent sales delivery. Accordingly, we revised its TP to S$2.25, based on a lower FY17 PE of 8.3x (vs previous 8.9x) due to the uncertain sales outlook for 2H17. 
  • Maintain BUY.

1Q17 contracted sales slower than expected but demand for its projects still strong in April/May. 

  • Including car park sales, Yanlord achieved c.Rmb4.3bn presales in 1Q17. The sales lock-in rate of 13% is lower than sector average of 26%. However, Yanlord’s sales had picked up to c.Rmb2bn in April and we believe May sales should remain stable supported by its recent new launches in Shanghai and Tianjin. 
  • Up to mid-May, the company had locked in c.Rmb6.5bn contracted sales, and additionally, c.Rmb4- 4.5bn subscribed sales pending to be contracted. 
  • Amid the government’s tight price control, we expect Yanlord to take a longer time for presales approval and sales registration of its high-ASP projects. However, we believe management may need to give up further ASP growth for quicker sales in order to meet its sales target by year-end.

Land bank replenishment to continue in 2017.

  • Yanlord entered Wuhan by acquiring a 55% stake in a residential project at AV Rmb4.8k/sm. Given the good location, we believe the project could deliver c.30% margin with the current c.Rmb20k/sm ASP of nearby projects. 
  • Apart from this project, management is planning to add new projects in Wuhan as well as other tier 1/2 cities to support the company’s mid-term growth.

1Q17 results were decent with strong sales delivery and margin. 

  • Revenue and earnings increased by 122%/501% yo-y in 1Q17, locking in 23%/37% of our full-year revenue and earnings estimates (vs 16%/12% revenue and sales lock-in in 1Q16). 
  • 1Q17 gross margin came in strong at 49.5% mainly due to the delivery of high-margin projects - Yanlord Yangtze Riverbay Town in Nanjing and Yanlord Marina Centre in Zhuhai. However, Yanlord’s net gearings ratio increased to 47% from 16% as at December 2016 due to the land premium payment for projects it acquired in Nanjing, Shenzhen and Wuhan. 
  • For the full year, management plans to keep gearing within 60%.

Andy YEE CFA DBS Vickers | Danielle WANG CFA DBS Vickers | Carol WU DBS Vickers | http://www.dbsvickers.com/ 2017-05-16
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.25 Up 2.210