• 1Q19 PATMI fell 59.5% YoY
• Momentum to gather pace
• Keeping to RMB40b contracted sales target

1Q19 results missed expectations

Yanlord Land Group Limited (Yanlord) reported a weak set of 1Q19 results which fell short of ours and the street’s estimates. Gross revenue and gross profit dipped 49.6% and 61.4% YoY to RMB3,622.9m and RMB1,546.0m, respectively, with the latter forming 14.2% of our FY19 forecast. The weaker performance was attributed to both a decline in GFA delivered (-18.0% to 68.7k sqm) and ASP (-44.4% to RMB44,550 psm).

The lower ASP was partly due to a change in product mix, as 1Q18 included a significant amount of GFA delivered for its Shanghai Yanlord on the Park project, which commands ASPs of close to RMB100k psm. 1Q19 PATMI came in at RMB323.1m, representing a dip of 59.5% YoY, and this constituted 9.6% and 10.1% of ours and Bloomberg consensus’ full-year forecasts, respectively.

More launches to come; RMB40b pre-sales target intact

Looking ahead, Yanlord has RMB11.8b of accumulated pre-sales still pending recognition (as at 31 Mar 2019), of which ~90% is expected to be recognised in FY19. Hence we are expecting an improvement for the rest of the financial year. Yanlord achieved pre-sales of RMB8.4b for 4M19, with momentum picking up in Mar (RMB3.4b) and Apr (RMB3.2b).

As it has more launches lined-up in Jun and Jul, including projects in Shenzhen and Zhuhai which are expected to fetch healthy ASPs, management has reiterated its RMB40b contracted sales target for 2019.

Keeping a close watch on gearing

In terms of financial position, Yanlord’s net gearing ratio rose from 96.8% as at end-FY18 to 103.9% as at 31 Mar 2019. Although it acquired no land bank in 1Q19, the increase was attributed to higher borrowings for the payment of land premium (~RMB2b). Once Yanlord’s launch momentum picks up pace, it would be able to bring down its gearing ratio with the cash collection from the sales proceeds.

We lower our core PATMI forecasts for FY19 and FY20 by 10.4% and 2.7%, respectively, and now base our valuation on 5x blended FY19/20F core EPS. Correspondingly, our fair value estimate moves from S$1.75 to S$1.68. Maintain BUY.