Yanlord Land Group (YLLG SP) - DBS Research 2017-11-16: A High-margin Play

Yanlord Land Group (YLLG SP) - DBS Vickers 2017-11-16: A High-margin Play YANLORD LAND GROUP LIMITED Z25.SI

Yanlord Land Group (YLLG SP) - A High-margin Play

  • Yanlord Land Group's 9M17 results in line with expectations.
  • Guided down 2017 presales due to tight presales permit control.
  • Likely to see better presales growth in 2018 to improve balance sheet with ample saleable resources. 
  • Maintain BUY due to attractive valuation; share buyback likely to protect from downside.

What’s New 

Maintain BUY on attractive valuation and high-margin play.

  • Yanlord is trading at 5.4x FY18 PE and 0.6x P/BV (vs historical average of 9.3x PE and 1.1x P/BV). On top of the strong 9M17 delivery with decent margin, Yanlord’s earnings visibility for FY17 is high with c.Rmb27bn unrecognised sales outstanding, of which 45% will be booked in 4Q17 which matches our full-year revenue estimates. 
  • We maintain our TP of S$2.25, based on 7.1x FY18 PE and maintain our BUY call.

Guided down 2017 presales target but better sales outlook in 2018. 

  • Yanlord achieved Rmb20bn presales in 10M17.
  • Management considers its projects in Shanghai, Nanjing and Zhuhai as valuable projects where land is hard to be replenished at reasonable costs. Management has decided to push back the new launches while selectively launching several batches to maintain the company's balance sheet.
  • The presales figure for 2017 is expected to conclude at Rmb25bn (vs. previous presales target of RMB32bn for 2017) while 2018 presales is expected to increase to Rmb30bn.

Landbank replenishment at low costs to support presales growth and earnings in 2018. 

  • Yanlord bought one project in Shanghai at c.Rmb57,428/sm, one in Wuhan at c.Rmb3,847/sm, and projects in Hangzhou at c.Rmb7,300/sm in 2017, etc. Expected total saleable resources for FY2018 amounts to Rmb50-60bn. We believe these projects can continue to support Yanlord’s high gross margins.

9M17 results were decent with strong sales delivery and margin. 

  • Core earning increased by 93% y-o-y in 9M17 despite a9% decline in revenue due to strong net profit margin expansion from 7% in 9M16 to 14% in 9M17. It has locked in 51%/78% of our full-year revenue and earnings estimates. 9M17 gross margin came in strong at 45.4% mainly due to the delivery of high-margin projects.
  • However, Yanlord’s net debt to total equity ratio has increased to 67% as of September 2017 from 16%as at December 2016 due to the land premium payment for newly acquired projects. 
  • Using management’s 2017 full-year contracted sales target of Rmb25bn and YTD land acquisition as calculation, we expect Yanlord’s net debt to total equity ratio to go up further but below 80%.

Danielle WANG CFA DBS Vickers | Carol WU DBS Vickers | Ken HE CFA DBS Vickers | http://www.dbsvickers.com/ 2017-11-16
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.250 Same 2.250