Yanlord: "We revise up FY09-10 earnings and NAV. Outperform"

Valuations are pricey across the board. Hence we prefer companies that can stay ahead of the competition in acquisition, which will drive NAV growth and narrow discounts. Yanlord fills the bill with net gearing to fall below 20% on contracted sales achieved YTD and the latest fundraising, which is gearing neutral but cashflow positive. With a revised target price target of S$2.5 we reiterate Outperform.

Fundraising: A combination of debt and equity. On 18 June, Yanlord Land (YLLG SP - S$2.28 - O-PF) placed 110m new shares at S$2.08 to raise S$228.8m. Meanwhile, the company also issued a S$275m convertible bond (CB) in aggregate principle amount with a coupon rate of 5.85%.

Gearing neutral, but cashflow positive. The impact on the net gearing from placement/CB issuance is neutral: The company's 1Q09 net gearing was 53% (before the strong sale of April and May) with net debt of S$1,054m against equity of S$2,004m. Post placement/CB issuance, we expect net gearing to drop marginally to 51% (new net debt of S$1,129m against equity of S$2,204m). This is before factoring in cash proceeds form sales already contracted, which should bring net gearing down to around 15% by end of FY09 (before land acquisition).

Growth enhancing. Even on conservative assumptions of land cost accounting for 40% of selling price and an after-tax net profit margin of 20% (Yanlord’s historic after tax net margin is around 30%), every Rmb1bn the company spends on land acquisition will enhance NAV by 2.3%.

Earnings and NAV revised up. We have lifted our FY09-10 earnings forecasts by 30% and 66% factoring in contracted sales YTD. Our NAV is revised up by 14% to S$2.5. We have re-pegged our target price to par with NAV (from a 10% discount) given prospects of NAV growth from acquisition, which we estimate can generate between 10-15% of NAV growth. Maintain Outperform.

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