SINGAPORE (Nov 15): DBS is maintaining its “buy” on Yanlord Land given its attractive valuation and high-margin business.
Yanlord is trading at 5.4x FY18 earnings and 0.6x book value versus historical average of 9.3 times and 1.1 times book.
On top of the strong 9M17 delivery with decent margin, Yanlord’s earnings visibility for FY17 is high with RMB27 billion ($5.5 million) unrecognised sales outstanding, of which 45% will be booked in 4Q17 which matches DBS’ full-year revenue estimates.
“We maintain our target price off $2.25, based on 7.1x FY18 earnings and maintain our 'buy' call,” says analyst Danielle Wang in a Wednesday report.
To recap, Yanlord reported 9M17 core earning increased by 93% y-o-y despite a 9% decline in revenue due to strong net profit margin expansion to 14% in 9M17 from 7% in 9M16.
It has locked in 51% and 78% of DBS’ full-year revenue and earnings estimates. 9M17 gross margin came in strong at 45.4% mainly due to the delivery of high-margin projects.
However, Yanlord’s net debt to total equity ratio has increased to 67% as of September from 16% as at December 2016 due to the land premium payment for newly acquired projects.
in 10M17, Yanlord achieved RMB20 billion presales. Management considers its projects in Shanghai, Nanjing and Zhuhai as valuable projects where land is hard to be replenished at reasonable costs.
Management has decided to push back the new launches while selectively launching several batches to maintain the company's balance sheet. The presales figure for 2017 is expected to conclude at RMB25 billion versus previous presales target of RMB32 billion for 2017 while 2018 presales is expected to increase to RMB30 billion.
In 2017, Yanlord bought one project in Shanghai at RMB57,428 psm, one in Wuhan at RMB3,847 psm, and projects in Hangzhou at RMB7,300 psm. Expected total saleable resources for FY18 amounts to RMB50-60 billion.
“We believe these projects can continue to support Yanlord’s high gross margins,” says Wang.
Shares in Yanlord are down 2 cents at $1.72 or 5.4 times 2018 forecast earnings.