Yanlord Land - Buy: Strong Sales and Rising Margins

Reiterate Buy (1M) — Yanlord’s strong 1H09 results and contracted sales performance YTD show that it is benefiting from the strong recovery in transaction volume and prices in the China property market. With its high-grade investment property portfolio now taking shape, Yanlord is growing into a major city-center integrated property player in China. We increase 2009E-2011E EPS by 3-10%, factoring in latest achieved ASPs for recent new launches. We raise our NAV-based target price to S$3.26 and reiterate our Buy (1M) rating.

Strong 1H09 results — Net profit was S$176.7mn, up 58.3% YoY, better thanour expectations. More importantly, gross profit margin improved 11.5ppt YoY to 62.6% in 1H09, while net profit margin was up 0.2ppt to 22% – reaffirmingour view that developers focusing on high-end, city-center properties should fare better on profitability given the more favorable demand-supply situation.

Strong financial position — Alongside an improvement in earnings, Yanlord’s financial position also improved significantly, with net gearing lowered to 12.8% at end-1H09 (from 64% at end-2008). This should allow it to adopt a more proactive property pricing strategy to maximize profit and margin, and to take advantage of potential NAV-accretive landbank opportunities.

Strong contracted sales — In 1H09, Yanlord has already achieved RMB6.2bn of contracted sales, up 107% YoY. Added to the sales performance at Yanlord’s latest new launches in Nanjing, Shanghai, and Tianjin, it has already achieved over 98% of its full-year contracted sales target for 2009 and locked in 100% of our estimated property sales revenue to be recognized in 2009. Echoing the strong sales environment, Yanlord is starting construction on eight new p rojects, which should help ensure a continued sales pipeline going into 2010.

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