Moody’s Investors Service has changed the outlook for Yanlord Land Group to “stable” from “negative” on March 9.
"The change in outlook to stable from negative reflects our expectation that Yanlord's credit metrics will continue to improve over the next 12-18 months, supported by its strong revenue growth and controlled debt increase," says Cedric Lai, a vice president and senior analyst at Moody’s.
For the FY2020, Yanlord has seen a 41% growth y-o-y of total contracted sales to RMB78.5 billion ($16.21 billion), despite the Covid-19 outbreak. This comes after it posted a 103% y-o-y growth for total contracted sales of RMB55.5 billion for the FY2019.
On the revenue growth, Lai says, “the rating affirmation reflects our expectation that the company will maintain its financial discipline and good liquidity position over the next 12-18 months”.
In addition, the credit rating company has maintained the property group’s Ba2 corporate family rating (CFR) and the Ba3 backed senior unsecured rating on the bonds issued by Yanlord Land (HK) Co, a subsidiary of the group, and guaranteed by Yanlord.
SEE:OCBC lowers Yanlord Land Group's TP on softer gross margin and pre-sales outlook
According to Moody’s, the Ba2 CFR reflects the group’s established brand name and high-quality products, though it’s being dragged by its geographic concentration, moderate debt leverage and material exposure to joint venture (JV) businesses.
“Moody's expects Yanlord's debt leverage -- as measured by revenue/adjusted debt -- will continue improve to 65%-72% over the next 12-18 months from 49% in 2020 and 30% in 2019,” reads the statement by the credit rating company.
“This is driven by Moody's expectation of Yanlord's strong revenue recognition on the back of its strong contracted sales growth over the past two years, as well as its disciplined approach to pursuing growth and controlling debt increase. Specifically, the company managed to reduce its total adjusted debt by 22% year on year to RMB48.7 billion as of the end of 2020,” it adds.
For the FY2021, Moody’s also expects Yanlord’s EBIT/interest coverage to improve to 3.5 times to 4.0 times over the same period from 3.0 times in FY2020.
Furthermore, Yanlord’s gross profit margin (GPM) is likely to be lowered to around 28% in the next 12 to 18 months from the 36% in FY2020.
However, Moody’s says it believes Yanlord will see total contracted sales to grow to RMB80 billion to RMB85 billion annually in FY2021 and FY2022 due to its sizeable saleable resources, strong sales execution and solid housing demand in its core markets.
Shares in Yanlord closed 1 cent higher or 0.9% up at $1.15 on March 9.
