Yanlord Land - Buy: Strong Sales Volume and Firm ASP Drive Powerful Growth

Reiterate Buy, lower risk rating to Medium — With its focus on prime city-center locations and premium quality offerings, Yanlord should be able to take better advantage of the recent recovery in the China property market to return to growth after the earnings pullback in 2008. Current valuations remain attractive with a 30% NAV discount and with its quality portfolio. Reflecting continued strong contracted sales and higher ASP assumptions we raise our 2009E-11E earnings 16%-58%, increase our target price to S$2.91, and lower the risk rating to Medium (from Speculative). We reiterate our Buy rating.

Strong contracted sales YTD — In May, Yanlord achieved another RMB1.42bn of contracted sales, pushing total contracted sales in the first five months of 2009 to RMB5.3bn. It continues to benefit from the strong Shanghai market, and sales at Riverside City contributed about 50% of total sales in 2009 YTD.

High earnings visibility — Taking into account RMB1.15bn of presales made in 2008 but not yet booked at end-2008, Yanlord had already secured over 90% of our estimated property sales revenue for the financial year 2009 by end-May 2009 (assuming 80% of contracted sales YTD are booked in FY09). The promising sales also accounted for 62% of Yanlord’s full-year sales guidance, and we believe the company is on the right track to accomplish its sales target.

More resilient margins — Yanlord’s focus on prime-location, high-end, mixed-use multi-product developments presents a unique product offering versus its peers, and helps it achieve more resilient margins in our view. Despite a tough year in 2008, the company was able to record improvements in overall margins. With continued recovery of the China property market, Yanlord should see strong earnings growth powered by higher volume and ASPs.

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