Better sales momentum, but share disposal by substantial shareholders may limit near-term upside. We believe the improved fundamentals is not reflected in the share price, but the share sale by its substantial shareholder, Aberdeen, will remain a share price overhang in the near term.
Strong sales momentum in Shanghai and Nanjing likely to continue to 1H16. Yanlord’s sales have picked up significantly since March-2015, thanks to the recent loosening in downpayment requirements and rate cuts which stimulated the demand for its high-end upgrader products. Management expects 2016 sales to grow 15-20% y-o-y to over Rmb30bn which represents supported by Rmb45-50bn saleable resources. We believe the existing projects in Shanghai and Nanjing, which are selling well currently, will remain the sales drivers for 2016.
Land bank replenishment in 2016 will be key for future sales growth. Yanlord has been conservative on land banking and has acquired only two land parcels in Nanjing and Suzhou since 2012. As at mid-2015, Yanlord’s land bank had been reduced by 808k sm from two years' ago with those at its key cities Shanghai and Tianjin being reduced by 350k sm and 258k sm respectively. We believe land bank replenishment will be the key for sustainable sales growth beyond 2016. Management has budgeted Rmb8-10bn for land acquisitions in 2016 and is looking at projects in cities where they currently have good sales performance.
We maintain a BUY rating on Yanlord with S$1.35 TP based on 9x FY16 PE, which is benchmarked to its historical average PE since 2014. Current valuation implies further upside in the medium term.
Key Risks to Our View:
Land acquisition may take time to finalize and may raise investors’ concern on sales growth from 2017 onwards. Share performance may have potential upside if the share price overhang from Aberdeen’s share disposal can be solved earlier than expected. (Read Report)
Read Related Report
1) Yanlord - Dark Horse of 2015 by Macquarie Equities Research published on 11 December 2015
Source : DBS Group Research