April 12, 2019

We see Yanlord Land Group Limited (Yanlord) as a beneficiary of improved sentiment within the Chinese property market, and this is apparent in the recovery seen in industry contracted sales growth for Mar following a soft 2M19. We believe policies from local governments have become more favourable, and developers have been given higher pricing autonomy with the loosening of pre-sales price curbs for selected Tier 1 and 2 cities. Since the start of the year, the easing credit environment and a dovish Fed have led to more conducive onshore and offshore funding options for developers. The recent introduction of new Hukou reforms by NDRC was another positive development for the sector.

Based on data from CRIC, overall transaction volume in China increased 82% MoM and 1% YoY respectively to hit 21.31m sqm in Mar. For Yanlord, CRIC estimated that its 1Q19 contracted sales more than doubled YoY to RMB7.06b on a gross basis. Yanlord recently announced that its Riverbay Gardens project in Suzhou had achieved an impressive 100% sell-out on the first day of its latest launch. Total pre-sales for the 193 units for this project amounted to RMB1.16b, or ~RMB35.3k psm.

Although Yanlord’s share price has rebounded 20.5% YTD (as at 11 Apr close) after declining 24.7% for the whole of 2018, this still pales in comparison to the average 43.2% YTD share price appreciation of the A/H shares-listed Chinese developers which we track. Despite Yanlord’s smaller size relative to its peers, we see Yanlord as a potential laggard play given the right mix of its quality land bank (~21% exposed to Greater Bay Area and ~47% exposed to Yangtze River Delta) and strong fundamentals. Based on Yanlord’s closing price of S$1.47, it is trading at a cheap FY19F P/E ratio of 4.2x, which is approximately 1.4 standard deviations below its 8-year average forward P/E of 7.6x. FY19F price-to-book ratio of 0.51x and dividend yield of 4.8% also make Yanlord an attractive investment proposition, in our view, on top of the more positive industry outlook. Maintain BUY with an unchanged fair value of S$1.75. – OCBC Investment Research 

Yanlord Land Group closed at: S$1.49