S&P Global has revised its outlook on Yanlord Land Group to ‘stable’ from ‘negative’ as the property group’s “moderate investment and expansion appetite will help it to maintain its debt level”, says the ratings agency on March 18.
“This would temper the credit impact of the China-based residential property developer's compressed profitability,” it adds.
Furthermore, Yanlord’s good market standing with a focus on the higher-end residential segment in higher-tier cities will support its operating cash flow.
Yanlord, according to the ratings agency, is likely to slow down its pace of expansion over the next one to two years.
“The management intends to maintain moderate growth in contracted sales in the period. The company has caught up on scale with peers with similar ratings. This follows two years of strong growth in 2018-2020,” says S&P Global.
“Yanlord rose to be among the top-50 property developers in China in 2020, from the 80th position two years ago. Its contracted sales grew at a compounded annual rate of 75% in the period,” it adds.
The ratings agency also affirmed its “BB-“ long-term issuer credit rating on Yanlord and its “B+” long-term issue rating on the company’s guaranteed senior unsecured notes.
S&P Global has forecast Yanlord’s contracted sales around the range of RMB75 billion ($15.50 billion) to RMB80 billion, compared to the RMB78 billion it made in FY2020.
The forecast is based on S&P Global’s assumption of a lower sell-through rate “due to the company's increasing saleable resources in lower-tier cities”.
“Yanlord faces greater uncertainty in these cities over the cycle because the company may not be very accustomed to development there,” it says.
“Yanlord has maintained an above-average sell-through rate of more than 85% in the past three years, mainly due to the prime location of the company's properties in higher-tier cities in Yangtze River Delta and Greater Bay Area,” it adds.
To this end, S&P Global also estimates Yanlord’s land spending to pick up moderately about 35% to 40% of its contracted sales in 2021 to 2022, compared with 30% in 2020.
“The company's unsold land reserve of approximately 6.8 million square meters should be enough for nearly three years of development.”
Looking ahead, the ratings agency expects Yanlord's revenue recognition to remain strong in 2021. “This is on the back of strong growth in contracted sales in previous years.”
Yanlord's total sold but unrecognized revenue increased by 40.5% to RMB106 billion as of end-2020. “We estimate about RMB80 billion of this was from JVs. Yanlord set up most of these JVs in 2017 and 2018, and they will start revenue contribution in the next two years”, it says.
“However, sales growth will gradually decrease to single-digit levels owing to a high base. We expect Yanlord's improved revenue to reduce its leverage on a look-through basis as long as execution risks at JVs are well managed.”
“The company's ratio of consolidated debt to EBITDA will likely fall to 4.5x-4.7x by 2022, from 5.1x in 2020, while its look-through (after proportionally consolidating JVs) debt-to-EBITDA ratio will decline to 4.3 times - 4.5 times from 5.7 times - 5.9 times,” it adds.
Shares in Yanlord closed 2 cents higher or 1.7% up at $1.19 on March 18
