Yanlord Land Group - DBS Research 2018-08-17: Accelerated Project Recognition 

Yanlord Land Group - DBS Group Research 2018-08-17: Accelerated Project Recognition  YANLORD LAND GROUP LIMITED SGX:Z25

Yanlord Land Group - Accelerated Project Recognition 

  • Stronger-than-expected 1H18 results on accelerated project recognition. 
  • Presales expected to pick up in 2H18; keeping presales target unchanged. 
  • Accelerated land acquisitions to catch up in scale. 
  • Maintain BUY with a lower Target Price of S$2.17. 

What’s New 

Stronger-than-expected 1H18 results on accelerated project recognition.

  • On the back of a 56% increase in GFA delivered during the period, alongside a 6% increment in ASP recognized, Yanlord Land Group’s revenue was up 59% to Rmb16.9bn in 1H18. 
  • Yanlord Land Group’s gross profit margin remained stable at 46%, with the substantially high gross margins achieved in 1Q18 (1Q18: 55.7%) mostly offset by the booking of projects with lower profitability in 2Q18 (2Q18: 40%).
  • Core profit based on our calculation was Rmb2.1bn, up 65% and represent c.57% of our full-year estimate. Unbooked revenue (including pending collection presale proceeds) stood at Rmb14.2bn and are mostly expected to be booked during the remainder of 2018. 

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Presales expected to pick up in 2H18.

  • For 7M18, Yanlord Land Group achieved an accumulated contracted sales of c.Rmb13.1bn, representing only c.44% of its Rmb30bn full-year presales target. Nevertheless, the company remains confident in reaching its target for the year as Yanlord has a back-end tilted project launch with a rough distribution ratio of 30:70 between 1H and 2H of the year.
  • Notably, the company indicated that it has been able to obtain presale approval for an existing project in Shanghai (Yanlord on the Park) at an ASP (Rmb115,000 psm) higher than its previous launch (Rmb107,000 psm).
  • With several key projects in Shanghai, Tianjin, Nanjing and other cities within the launch pipeline, Yanlord Land Group aims to launch c.Rmb30bn worth of saleable resources in 2H18, which requires a modest sell-through rate of c.66% to achieve its full-year pre-sales target (1H18: c.75%). 

Acceleration in land acquisitions may hint for a potential strategy change.

  • Yanlord Land Group acquired a total of seven land parcels with an aggregate land premium of Rmb5.3bn in 1H18 in Shenzhen, Tianjin, Nanjing, and Nantong. In July, Yanlord acquired a land parcel in Hangzhou at a land premium of Rmb2.94bn for a GFA of c.155,000 sm.
  • We believe Yanlord is targeting to catch up in scale on top of its highly profitable existing projects in Shanghai and Nanjing. 
  • Whether Yanlord can accelerate asset turnover through the newly purchased projects will be a key item to watch. 

Net debt ratio reached two-year high.

  • Yanlord Land Group’s active land replenishment strategy (together with the consolidation of stake of a subsidiary company from GIC that holds some land parcels in Nanjing and Suzhou) has consequently led to an increase in its net debt ratio to 78.3% as at June 2018 (FY17: 50.8%).
  • On the back of an expected pickup in presales growth in 2H18, the company will likely participate in further land acquisitions. 
  • In 7M17, Yanlord collected Rmb12.4bn of cash from its presales of Rmb13.1bn during the period, which translated into a strong collection ratio of c.95%. Yanlord Land Group currently aims to achieve a 90%+ cash collection rate for 2018. 

Average funding cost trended up slightly.

  • Yanlord Land Group’s average funding cost stood at 5.5% in 1H18 (FY17: 5.375%). It has seen increased costs in obtaining onshore bank loans. Non-RMB debt accounted for c.35% of total debt. Alongside the continuance of Yanlord’s active land acquisition strategy for future growth, the company intends to issue more USD debt for expansion but shall continue to monitor the currency risk and costs closely. 
  • Yanlord Land Group’s FY18 earnings mostly locked in, with FY19 performance to mostly depend on presales in 2H18. Backed by an unbooked revenue of c.Rmb14.2bn alongside an indicated gross margin of c.45%, Yanlord’s FY18 earnings outlook remains intact and have fully locked in our revenue estimates of the company for the year. 
  • Yet, Yanlord Land Group’s FY19 results will largely depend on its presales performance in 2H18. Assuming Yanlord has successfully achieved its presales target of Rmb30bn in 2018 (and can all be recognised in 2019), the company can lock-in 83% of our FY19 revenue estimates. 

Maintain BUY on undemanding valuations.

  • Target Price lowered to S$2.17. The stock is currently trading at 4.0x and 3.7x FY18F and FY19F PE alongside a 5.0% and 5.4% FY18E and FY19E dividend yield.
  • Yanlord Land Group’s current valuation remains undemanding. If the company can accelerate asset turnover through newly purchased projects, it might regain investors’ interests.
  • We maintain BUY on the counter with a lowered Target Price of S$2.17, pegged to a 5.5x the average of FY18 and FY19 EPS.
  • We have fine-tuned our FY18/FY19 EPS by 4%/-3% to factor in the uncertainty of the company in achieving its presales target and thus its FY19 earnings. 

Danielle WANG CFA DBS Group Research | Carol WU DBS Research | Ken HE CFA DBS Research | https://www.dbsvickers.com/ 2018-08-17
SGX Stock Analyst Report BUY Maintain BUY 2.17 Down 2.270