SINGAPORE (Jul 17): Chinese real estate developer Yanlord Land Group Limited is “red hot”, and if its pre-sale figures are anything to go by, the company is on its way to exceeding a RMB 70 billion ($13.92 billion) sales target, says KGI Securities analyst Kenny Tan in a report today.
The company released pre-sale figures for June, with a jump of 59.5% y-o-y and 49% m-o-m. With strong summer sales expected, KGI Securities is maintaining its outperform call on the company with a 12-month target price of $1.45.
“Across our Chinese property peer list, pre-sale numbers are generally better m-o-m and y-o-y... The confluence of positive news led to strong market performance of Chinese property stocks, leading to an overall [approximately] 8% gain in the Global X MSCI China Real Estate ETF (CHIR) in the past two weeks,” says Tan.
Additionally, China’s Caixin Services purchasing managers index (PMI) came in at 58.4 for June, an improvement from 55 in May, he notes.
Yanlord is slated to bring in RMB 32.8 billion in revenue in FY2020F, nearly twice its FY2019 figure of RMB 18.6 billion.
In April this year, Yanlord announced that the group and Hong Kong Land Holdings’ MCL Land have jointly won the tender for the en bloc sale of Tulip Garden in Singapore with a bid of $906.9 million. The winning bid is approximately 20% above Tulip Garden’s reserve price of $753 million when it was put up for sale by tender in late-February.
On a six-month basis, the company’s 6M2020 of RMB 29.773 billion is 42.5% of its RMB 70 billion target. “While below the half-way mark, we expect 2H2020 to provide sufficient pre-sales to make up the shortfall, as August to October is the usual peak property sales season,” says Tan.
For comparison, Yanlord’s 6M2019 pre-sales of RMB 18.04 billion was about 32.4% of the company’s eventual RMB 55.704 billion figure for FY2019, he added.
“As such, we think Yanlord should be able to exceed the RMB 70 bn target. We adopt the cap rate methodology to valuate UEL [useful economic life] and Yanlord’s investment properties together, using an 80% operating margin and 4-7% cap rate assumption for the properties,” he says.
WACC has been lowered to 8% to reflect lowered equity risk premiums and cost of debt. The valuation methodology for the property development business has also been changed to capture our estimated property market value more accurately.
As at 12.25pm, shares in Yanlord Land are trading at 2 cents lower, or 1.49% down, at $1.32.
