SINGAPORE (June 6): OCBC Investment Research is initiating coverage on Yandlord Land Group with a “buy” rating, fair value estimate of $2.24, and FY18F dividend yield of 4.4% which translates into potential total returns of about 36%.
In a Wednesday report, analyst Andy Wong highlights the counter as an “attractively undervalued” one with strong brand equity and exposure to key economic regions.
Valuation-wise, he notes that Yanlord is trading at FY18F P/E of 4.5 times and P/B of 0.62 times, which is a steep discount to its peers’ weighted averages of 42.3% and 60.9%, respectively. In his view, this deep discount for both P/E and P/B is unwarranted.
One of the reasons for Wong’s view is the group’s superior product quality, which he believes to have resulted in Yanlord’s relatively high average land cost-to-ASP percentage of 25% in FY17. This, in addition to the group’s expertise and track record, has translated into more business opportunities for the group as evident in its various collaborations with established industry players, he says.
He also likes the group’s balance sheet, which remains healthy with a net gearing ratio of 52.9% as at end-March.
Further, the analyst believes the stock also positions favourably from a ROE versus P/B perspective vis-à-vis its peers.
“We believe Yanlord’s land bank composition positions it strongly for growth ahead. According to our estimates, 46.1%, 22.5% and 21.9% of its land bank (6.74m sqm as at 31 Dec 2017) is in the Yangtze River Delta, Bohai Rim and Greater Bay Area, respectively; and these are the regions which we are positive on,” says Wong.
“Looking ahead, we project Yanlord’s core PATMI to grow 9.2% in FY18F and 8.6% in FY19F… We conservatively ascribe a target FY18F P/E peg of 6 times in our valuation, which represents one standard deviation below both its 10-year and 5-year average P/E ratios of 8.9 times and 7.4 times, respectively,” he adds.
As at 11.45am, shares in Yanlord are trading 3 cents higher at $1.73.
