SINGAPORE (May 24): DBS Group Research is downgrading Yanlord Land Group to “hold” with a lower target price of $1.47, cutting its recommendation for the property developer from “buy” with a target price at $1.62 previously.
This comes as DBS slashes Yanlord’s earnings estimates for FY19F and FY20F by 30% and 9% respectively. This translates to price-to-earnings (PE) ratio valuations of 6.0 times for FY19F and 5.8% for FY20F, which the brokerage deems “no longer attractive”.
“Unbooked revenue declined further to RMB 11.8 billion as at March 2019 as a result of the sluggish presales performance over the past two years and limited pick-up during 1Q19,” says lead analyst Danielle Wang. “Even if its targeted presales growth of 66% can be achieved for the full year, meaningful earnings contributions will likely come through only from 2021 onwards.”
The brokerage notes that its earnings forecasts for FY19F and FY20F are 28% lower than market consensus estimates.
“While we believe Yanlord is still within reach of achieving its RMB 42 billion presales target on the back of its rich saleable resources pipeline, meaningful revenue and earnings contribution from these presales will only come through after 2020,” Wang explains.
However, she notes that sentiments have been improving in key China cities where Yanlord has scheduled project launches.
These key cities include Suzhou, Tianjin, Zhuhai and Nanjing, which have exhibited promising growth in residential average selling prices of between 4% to 17% y-o-y in April.
“Presales performance has always been seen as a key leading indicator that indicates a developer’s ability to turn its land resources into property sales for recognition of revenue and earnings upon project deliveries,” Wang says. “This indicates upbeat market sentiments and is supportive for Yanlord to achieve its presales target.”
As at 1pm, shares in Yanlord are trading flat at $1.22. This implies a PE ratio of 6.0 times and a dividend yield of 3.0% for FY19F.
