Yanlord Land Group - OCBC Investment 2020-02-28: Still Upbeat Despite Near-Term Disruptions


Yanlord Land Group - Still Upbeat Despite Near-Term Disruptions

  • Yanlord Land's FY19 PATMI -5.5%; DPS of 6.8 S cents declared.
  • Room for contracted sales to grow in 2020 despite COVID-19.
  • United Engineer privatisation an astute piece of business.

FY19 results above our expectations

  • Yanlord Land Group (SGX:Z25)’s FY19 results were above our expectations. Revenue fell 25.0% to RMB18,666.4m due largely to lower GFA delivered (-16.7%) and weaker ASP (-16.3%).
  • PATMI slipped 5.5% to RMB3,350.5m but this was boosted by a RMB1,898.5m fair value gain on investment properties and RMB1,518.6m gain on bargain purchase arising from the acquisition of United Engineer (SGX:U04). Excluding these effects, we estimate that core PATMI came in at RMB2,450m, representing a 22.4% decline but 17.8% above our forecast.
  • Similar to FY18, management declared a first and final dividend of 6.8 S cents per share, which translates into an attractive dividend yield of 5.8% based on a closing price of S$1.17. See Yanlord Dividend History.

Ample saleable resources; targeting contracted pre-sales growth of 17-20% in 2020

  • Yanlord Land achieved contracted pre-sales of RMB55.7b in FY19. This is more than double that of FY18 (RMB25.8b) and also came in above management’s RMB50b target.
  • Looking ahead, Yanlord Land is targeting contracted pre-sales of approximately RMB65-67b in 2020, which would represent growth of 17-20%. This is underpinned by saleable resources of RMB125b and a conservative sell-through rate of slightly above 50% (FY18: 68%) in light of the uncertainties over COVID-19.
  • Yanlord Land highlighted that the month of Feb was quiet as showflats were largely closed, but is hopeful of a recovery from 2Q20. It further expects its construction activities to resume to full capacity around the middle to end of Mar.

Privatising UEL at an attractive valuation

  • In an astute move by management, Yanlord has successfully completed the privatisation of United Engineer at an attractive valuation, in our view. The acquisition price of S$2.70 per United Engineer share translates into P/NTA of 0.84x (based on 30 Sep 2019 financials).
  • We believe the acquisition multiple is even lower as there were revaluation gains recorded for some of United Engineer’s core investment properties as at 31 Dec 2019. For example, UE BizHub City, UE BizHub Tower and UE BizHub West saw their property valuations increase by 2.7%, 7.3% and 0.8% in FY19, respectively.
  • Management spent some time on the analyst conference call highlighting its plans for its United Engineer business. One of the key focus would be to explore the feasibility of a redevelopment of UE BizHub Tower, as this property can potentially benefit from the government’s CBD Incentive Scheme and thus able to obtain an additional GFA of ~100k sqft. Yanlord Land would also look to divest some of United Engineer’s non-core assets such as some of its manufacturing facilities.
  • After rolling forward our valuations to 5x blended FY20/21F core EPS, our fair value inches up slightly from S$1.43 to S$1.45.
  • See Yanlord Share Price; Yanlord Target Price; Yanlord Analyst Reports; Yanlord Dividend History; Yanlord Announcements; Yanlord Latest News.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-02-28
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