Softer contracted sales and earnings outlook 

• FY22 core profit after tax and minority interest (PATMI) fell 19% year-on-year (YoY) to CNY2.01b

• Surprising decision to omit dividends for FY22

• Net gearing ratio of 54.5% higher than end-FY21 but lower than end-1H22

Investment thesis 

Yanlord Land Group Limited (Yanlord) is a high-quality Chinese developer with strong exposure to key economic regions in China, such as the Yangtze River Delta, Bohai Rim and Greater Bay Area. Key management’s interests are also aligned with minority shareholders, as Yanlord’s founder, Chairman and CEO Mr. Zhong Sheng Jian owns close to 70% of Yanlord’s total shares outstanding. Yanlord’s contracted sales rose 14% to CNY68.1b in 2022 and this growth outperformed industry peers. However, contracted sales in 2023 is likely to see a decline based on management’s guidance. Yanlord’s decision to not declare any dividends for FY22 was also a disappointment, but we believe this is more of a conservative approach as its balance sheet appears to remain healthy. Yanlord has one tranche of USD bonds maturing in Apr 2023 (USD350m), followed by another two tranches in Feb 2024 (USD400m) and May 2026 (USD500m).

Investment summary 

• Recent FY22 results missed our expectations – Yanlord’s recent FY22 results disappointed and missed our expectations. Revenue and gross profit fell 18% and 13% YoY to CNY28.7b and CNY7.8b, respectively. This was due to a dip in gross floor area (GFA) delivered as a result of Covid-19 related lockdowns, but partially offset by higher average selling prices recognised. FY22 PATMI slipped 42% YoY to CNY1.5b, but according to Yanlord, its core PATMI came in at CNY2.0b, which we estimate was a decline of 19%. What was surprising was management’s decision to omit a dividend for FY22 (FY21: 6.8 Singapore cents), which was attributed to a prudent decision to conserve cash in anticipation of debt to be repaid in FY23 and FY24.

• Gross contracted sales rose 14% YoY to CNY68.1b in FY22, but management guiding for a decline in FY23 – Yanlord’s gross contracted sales rose 14% to CNY68.1b in 2022. While this growth outperformed industry peers, management provided weak guidance for its FY23 contracted sales target. This is expected to come in at CNY45-50b, which would represent a dip of 27-34% as compared to FY22. This is partly due to saleable resources of only CNY80b, as Yanlord was cautious on replenishing its land bank, with CNY20.2b (attributable basis: CNY1.9b) of new land acquisitions in FY22 at an average land cost of CNY12,881 per square metres (psm).

• Net gearing ratio increased to 54.5% but financial position still healthy – Yanlord’s net gearing ratio declined from 61.9% (as at 30 Jun 2022) to 54.5% (as at 31 Dec 2022), but this was higher as compared to end-FY21 (49.0%). We believe Yanlord’s financial position remains healthy. It has USD350m, USD400m and USD500m of senior notes maturing in Apr 2023, Feb 2024 and May 2026, respectively. We cut our FY23 core PATMI forecast by 23.8%, which correspondingly lowers our fair value estimate from SGD1.28 to SGD0.97, still pegged to a price-to-earnings (P/E) target multiple of 4.5x.

ESG Updates

• Yanlord’s ESG rating was upgraded in Mar 2022. The upgrade was driven largely by Yanlord’s improved worker safety initiatives and formal whistle-blower protection system. Yanlord’s corporate governance practices are also on par with its global and home market peers, and most of its directors on its board and audit and pay committees are independent. However, on the other hand, only 4.1% of Yanlord’s portfolio (based on number of completed properties) was certified to green building standards in 2020, which was lower than the industry average of 10.9%.

Potential catalysts

• Easing of price caps in key cities which Yanlord has exposure to

• Stronger-than-expected pre-sales

• Boost in dividends per share

Investment risks

• Further property cooling measures could impact earnings

• Rising offshore funding costs and currency risks

• Overspending on land bank acquisitions

Company description

Yanlord is a real estate developer based in the PRC focusing on the development of high-end fully-fitted residential, commercial and integrated property projects in strategically selected key and high-growth cities in the PRC. Yanlord was listed in June 2006 on the Mainboard of the Singapore Stock Exchange. Currently, the Group has an established presence in 20 key high-growth cities within the six major economic regions of the PRC.

HOLD by OCBC Investment Research.  Share price closed at S$0.88