• 3Q18 PATMI +61.3% YoY
• Lower contracted sales target for FY18
• Addressing its higher gearing ratio

Recent 3Q18 PATMI Beat Our Expectations

Yanlord Land Group Limited’s (Yanlord) recent 3Q18 results were solid, with PATMI beating our expectations. Revenue jumped 51.7% YoY to RMB5,711.6m, underpinned by a 40.1% increase in GFA delivered (147.1k sqm) and 3.1% increase in ASP to RMB33,758 psm. PATMI increased 61.3% YoY RMB1,012.4m.

For 9M18, Yanlord’s revenue rose 57.1% to RMB22,562.6m, forming 75.5% of our FY18 forecast. PATMI of RMB3,287.7m represented an increase of 62.4% and this accounted for 87.8% of our full-year projection due largely to lower-than-expected non-controlling interests (PAT accounted for 78.4% of our FY18 forecast).

Some Delay in Project Launches; Contracted Sales Target Lowered

Looking ahead, Yanlord has RMB11.3b of accumulated pre-sales pending recognition, as at 30 Sep 2018, with advances received amounting to RMB9.0b. It has a land bank of 7.79m sqm, which is sustainable for development for approximately five years. Yanlord highlighted that it had encountered some pre-sales permit delays for two projects in Shenzhen, with a push back to early next year. As such, management signalled that a more feasible contracted sales target for 2018 would be RMB27b, versus RMB30b previously.

For 2019, including the delayed projects, Yanlord would have ~RMB80b of saleable resources. We believe a sell-through rate of ~50%-60% is achievable. In Singapore, Yanlord is hopeful of obtaining Provisional Permission from the authorities by 17 Jan 2019 for its Tulip Garden en-bloc project.

Rising Gearing a Concern, But Seeking to Address This

One of the negatives in 3Q18 was the increase in Yanlord’s net gearing ratio from 78.3% in 2Q18 to 91.2%. Management acknowledged that that this was above its comfort zone, and highlighted that it will continue to be more prudent in its land acquisition. The push back in the delayed projects in Shenzhen will also eventually translate into cash inflows once they are launched, thus alleviating the situation (typical cash collection rate is >90%).

After fine-tuning our assumptions and lowering our target P/E peg to 5x from 5.5x to take into account Yanlord’s higher gearing ratio, we derive a lower fair value estimate of S$2.04 (previously S$2.13).

Source: OCBC Research - 21 Nov 2018