Yanlord Land Group - OCBC Investment 2019-08-14: Back-end Loaded Year


Yanlord Land Group - Back-end Loaded Year

  • Yanlord Land 2Q19 PATMI fell 41.5% y-o-y.
  • Back-end loaded year.
  • Net gearing ratio finally came down.

Dip in 2Q19 earnings within expectations

  • YANLORD LAND GROUP LIMITED (SGX:Z25) reported 2Q19 revenue of RMB4,089.0m, which was a decline of 57.7% y-o-y due to a 65.7% dip in GFA delivered, but partially offset by a higher ASP of RMB28,496 psm (+11.1%).
  • Gross profit fell by a smaller magnitude of 46.8% to RMB2,038.6m as a result of a higher gross profit margin of 49.9% (+10.2 ppt).
  • PATMI slipped 41.5% y-o-y to RMB865.3m, as the lower gross profit and higher expenses and finance costs were partially offset by a boost from a fair value gain of RMB791.0m on investment properties. 2Q19 PATMI formed 28.8% of our FY19 forecast.
  • For 1H19, revenue and PATMI declined by 54.2% and 47.8% to RMB7,711.9m and RMB1,188.4m, respectively. Results were within our expectations.
  • Yanlord Land has ~RMB13.5b of its pre-sales which will be progressively recognised as revenue, most of which we believe will be in 2H19. This would imply a backend-loaded year.

Healthier balance sheet with net gearing ratio lowered to 65.2%

  • On another positive note, Yanlord Land’s net gearing ratio came down sharply from 103.9% (as at end-1Q19) to 65.2% following five consecutive quarters of increase from 1Q18 to 1Q19. This was driven by healthy pre-sales and cash collection in 2Q19, coupled with a more prudent stance on land acquisitions, which were minimal in 1H19. This will remain the case in 2H19, as its current land bank can still last for ~5 years.
  • Yanlord Land’s accumulated contracted pre-sales and subscription sales (including JVs and associates) accelerated 77.9% y-o-y to RMB20.7b in 1H19, and are on track to meet its full-year target of RMB40b. Sell-through rates were ~65-70% on average, although we note that some projects were sold out or almost fully sold on their opening launch dates.
  • Gross margin for its 1H19 pre-sales was ~35%, which is on the low side, in our view. However, launches in 2H19 include areas such as Longgang District in Shenzhen, which are expected to fetch higher ASPs and margins. As such, we see a sequential pick-up in 2H19 gross margins for Yanlord Land’s pre-sales.
  • We make the following adjustments: lower revenue forecasts of 4.9% for FY19 and 1.4% for FY20, higher SG&A expenses, higher gross margins and weaker RMB to SGD assumption (SGD1 to RMB5.05 from SGD1 to RMB4.95). Correspondingly, our PATMI projections are lowered by 6.7% for FY19F and 3.4% for FY20F.
  • Our fair value drops from S$1.68 to S$1.56, still pegged to 5x blended FY19/20F core EPS.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-08-14
SGX Stock Analyst Report BUY MAINTAIN BUY 1.56 DOWN 1.680