Yanlord Land - Resilient earnings/margin outlook and solid balance sheet; Buy

We believe the recent pull-back of Yanlord’s share price offers investors a compelling opportunity to own this high-quality developer. Yanlord enjoys a resilient earnings/margin outlook. We estimate that on average 71% of its 2009E-10E net profit will be generated from the cheap land bank it acquired during 2001-03, particularly (56%) from its Shanghai Riverside City project which has been selling well in the past five years. Looking ahead, we also believe its balance sheet will remain solid with no funding gap, even under our stress test given its flexibility to cut capex without affecting sales performance in the coming years.

(1) The key launches in 2009 for the company will be the remaining units of its Shanghai Riverside City Ph III, Tianjin Riverside Plaza and Nanjing Yangtze Riverside City project. These three projects will account for 74% of our 2009E total contract sales projection for the company. We believe a better-than-expected sales performance at these developments should help narrow the share price discount to NAV. (2) A better-than-expected take-up/rental rate achieved by its Yanlord Landmark retail shopping mall in Chengdu (operating as of Dec 2009) should also ease market concerns on its longer-term potential in the commercial property segment.

We marginally revise down our end-09E NAV estimate by 4% to S$1.66 to reflect its recent investment cooperation with GIC on two projects. Correspondingly, we marginally lower our 12-month target price to S$1.16by applying the same TP discount (30%) to NAV. We also adjust our 2009E- 11E FD EPS estimates by +7%/+3%/-15%. We maintain our Buy rating.

The key risk to our target price and investment view is worse-than-expected take-up ratio/price to be achieved by its Shanghai Riverside City project.

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