Yanlord Land Group – Adopting a defensive strategy

Excerpts from DBS Group Research report

 Yanlord Land Group (SGX: Z25.SI)

• Near-term emphasis on cashflow security and repayment pressure management
• Halt on investments and dividend payments until concrete signs of turnaround
• Earnings to rebound led by higher GFA delivery and contributions from projects delayed by COVID disruptions
• FY23F presales lower on slower project launches; gross margin to reach its bottom

Maintain BUY, with TP trimmed to S$1.06 upon downward earnings revision and a lower target multiple

Premium developer in China with deep roots in Singapore

Leveraging on its operating track record and Singapore background, Yanlord has made decent connections with local governments and SOEs, placing it as one of the go-to JV partners for luxury developments. The company also has a decent investment portfolio in Singapore upon its acquisition of controlling stakes in United Engineers (UEL) in 2019. Supported by its premium project resources, Yanlord achieved presales growth of 14% in 2022, and outperformed the sector despite the property market downturn.

Earnings to rebound upon delivery of sizeable unbooked sales

Yanlord’s consolidated unbooked sales stood at c.Rmb57bn as of Dec-22 with an average gross margin of c.20-25% (vs 27% in FY22A). This, coupled with the company’s FY23 presales target of c.Rmb45-50bn (c.Rmb20-25bn on consolidated basis), should offer decent revenue booking visibility for FY23- 24F despite the property sector downturn. Together with project deliveries delayed from COVID disruptions in 4Q22, Yanlord has a target to achieve gross GFA delivery of c.4.0m sm (vs c.1.7m sm in FY22A). These hint at a likely rebound in revenue booking and core earnings in FY23F.

Playing it safe with near-term focus on managing repayments

Yanlord has taken a step back on land acquisitions and suspended dividend payment ahead of upcoming debt maturities. It intends to take a conservative approach to manage cash outflows to prepare for the repayment peak in FY23-24. Accordingly, presales outlook (27-34% decline in FY23F) – a share price driver for Yanlord – will likely be weakened by an expected 18% decline in saleable resources available for launch alongside a thinning landbank. Meanwhile, gross margin – another share price catalyst – is expected to bottom in FY23F with recognized GPM closing to the average level of its consolidated unbooked sales.

Valuation/Recommendation

Maintain BUY with TP trimmed to S$1.06/shr. Our TP is revised to S$1.06/sh upon a 4% cut in FY23F earnings and a lower 4.1x FY23F P/E, which was the average 1-year forward PE of the company when the property market started to trend down. We believe Yanlord deserves an above-peers valuation given its better liquidity management track record and solidified market reputation. Yanlord Land share price chartYou can find the full report here and the company website here.