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Why Be Bullish On Yanlord?
Tradeable, Tradeable Ideas | 02 April 2014
Related stocks:
Z25
By: Lim Si Jie
Articles (169) Profile
  1. Yanlord’s attractive fundamentals value-adds to its consistent and reliable performance in the last 5 financial years.
  2. The confidence of Yanlord’s management in Yanlord’s prospects gives investors the reassurance of Yanlord’s future
  3. Yanlord’s exposure to the Chinese residential market is set to benefit from China’s growing rate of urbanization

Company Profile

Yanlord Land Group Limited (Z25.SI) is one of the major property developers in the People’s Republic of China (PRC).

Currently, the Group has an established presence in ten key high-growth cities within the five major economic regions of the PRC, namely,

  1. Yangtze River Delta – Shanghai, Nanjing and Suzhou;
  2. Pearl River Delta – Zhuhai and Shenzhen;
  3. Western China – Chengdu and Guiyang;
  4. Bohai Rim-Tianjin and Tangshan;
  5. Hainan International Tourist Island-Sanya

Sector Profile

The Canada Pension Plan Investment Board (CPPIB) said on Tuesday it will invest US$250 million in the Chinese real estate market through a new venture with China Vanke, the nation’s largest residential developer.

CPPIB said it intends to capitalise on the PRC’s rising incomes and strong economic fundamentals. These are factors that could provide significant demand for middle-income housing.

The outlook for residential and commercial property in the PRC is set to depend on the Chinese economy in 2014 with home inflation curbs set to continue. In 2014, the Chinese government continued to roll out home buying restriction policies.

Although the Chinese government has been implementing cooling measures to cool demand in its property market, Yanlord can be seen as an opportunity for investors to gain exposure to the Chinese real estate market at bargain prices.

Business Model

Yanlord focuses on developing high-end residential, commercial, and integrated property projects in selected key high-growth cities in the PRC.

The Group also proactively seeks to expand its investment property development projects portfolio. Yanlord has retained a total gross floor area (GFA) of approximately 500,000 square metres for development into investment properties.

These developments are expected to boost the asset value of the Group and generate recurring rental income.

Corporate Development

Yanlord has mandated DBS Bank Ltd., HSBC, The Royal Bank of Scotland and Standard Chartered Bank as Joint Book runners and Joint Lead Managers for a proposed SGD-denominated Reg S bond.

The proposed bonds will improve Yanlord’s liquidity position, help fund future growth and improve the company’s debt maturity profile. As part of the proceeds will be used for debt refinancing, the proposed bonds will not result in any material increase in the company’s debt leverage .

Shanghai Yanlord Senlan Real Estate Co., Ltd., has sold a property unit in its project to Mr Zhong Si Min (brother of Executive Director, Mr Zhong Siliang) and nephew of Mr Zhong Sheng Jian (Chairman and Chief Executive Officer) (“YSG Transaction”). The transaction was executed by one of the company’s key personnel.  This exhibits great confidence in both the company’s developments as well as the property’s future outlook.

As a property investor, you would only invest if you are confident in the potential growth in your property investment. The Zhong family must have seen some form of undervaluation or potential growth in that development before deciding to make the long term investment.

Release of Full Year Results (2013)

Recently, Yanlord released its audited financial statements for financial year (FY) 2013.

The highlights of Yanlord’s financial statements include:

  1. In addition, to further enhancing shareholder value, Yanlord’s Board has proposed the payment of a first and final dividend of 1.30 Singapore cents per share to shareholders. This represents a dividend payout ratio of approximately 8.5 percent.
  2. Revenue in FY 2013 rose 9.5 percent to RMB11.280 billion on higher average selling price (“ASP”) achieved.
  3. Strong buyer demand drove pre-sales up 54.5 percent as at 31 December 2013 to RMB9.812 billion; progressive recognition of pre-sales in subsequent quarters provides greater transparency and confidence of Group performance in FY 2014.

Fundamental Analysis

  • Return on Equity (5 yr average): 9.24 percent

Return on equity (ROE) measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. A five-year average ROE of 9.24 percent is a good representation of Yanlord’s profitability to its investors and shareholders.

This means for every dollar invested in Yanlord, shareholders are able to attain a positive return of 9.24 cents.

  • Current Ratio: 2.21

Yanlord finances are healthy and sound with a current ratio of 2.21.Yanlord wouldn’t have any problems in handling short term hiccups in cash flow as its assets is liquid and able to be converted to cash quickly.

There is a positive uptrend of revenue in the past 5 years of Yanlord’s financial statements. This indicates the growth of Yanlord is not a one-off event but is actually healthy and sustainable.

Yanlord is also at a discounted price in relation to its enterprise value. At $1.07, Yanlord is at a 50 percent discount from its enterprise value ($1.61).

Yanlord can be said to be value for money as compared to the market as well as sector. An investor has to pay less than $1 for every dollar of sale. This can be applied to Yanlord’s book value as well.

#Bullish

I am bullish on Yanlord in the long run and would expect Yanlord to move closer to its true valuation by about 31.7 percent of its current price level ($1.07). On top of the capital gains, investors can also anticipate regular dividend payouts from Yanlord. The regular dividend payout thus adds to the bullish case for Yanlord.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

Yanlord Land Group  1.290 +0.040 +3.20%   
Business: A real estate developer. [FY18 Turnover] Property development (95.2%), others (2.7%), property investment & hotel operations (2.1%).

Insight: May-19, 1Q19 revenue were halved to Rmb3.6b due to... Read More


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