SINGAPORE (June 30): The Chinese market is one of the few sectors that has continued producing steadfast results amid a recovering Chinese economy.
As such, KGI Securities has initiated coverage on China-based property developer Yanlord Land Group Limited with an “outperform” recommendation and a target price of $1.30.
“Our target price is based on a sum-of-the-parts (SOTP) valuation between Yanlord’s development and rental businesses,” writes Kenny Tan in a report dated June 29.
Despite the Covid-19 outbreak, which has taken a toll on the global economy, property sections in a few Asian economies have largely seen a V-shaped rebound. This is due to lower borrowing costs while acting as a safe haven for capital amidst volatile financial markets.
“China is one such country, where residential property Average Selling Prices (ASP) continue a multi-year uptrend despite the prior lockdown and economic disruption,” he says.
Yanlord’s target market segment has also been relatively unaffected in the middle kingdom, as luxury home purchases continue to rise.
“Recent 5M20 data shows promise, and management is confident of hitting pre-sale targets given earlier in the year,” he adds.
Contract pre-sales are up 68.4% y-o-y for 5M20, with a 41.8% y-o-y increase in contracted gross floor area (GFA). Prices for pre-sold property averaged some RMB35,915 per sqm, with Nanjing contributing the bulk of pre-sales.
“We think Yanlord will see substantially improved GFA delivered and recognised revenue in the upcoming three years,” says Tan.
Yanlord has also increased its presence in Singapore with the acquisition of United Engineers in December 2019, as well as a direct property purchase and re-development of a condominium together with a Hongkong Land subsidiary.
“We think this will help with Yanlord’s branding amongst local investors, as the company is currently sitting at an attractive dividend rate versus peers,” Tan adds.
“Our valuation currently excludes the rental income from Yanlord’s own investment buildings, which potentially contributes another $0.20 – $0.40 to the target price. Further upside will depend on whether Yanlord can capitalise their properties at more attractive margins,” he says.
As at 10.04am, shares in Yanlord are changing hands flat at $1.17.
