Yanlord Land - Strong contract sales, but stock has outperformed

Outperformed on strong contract sales. Yanlord has outperformed the China developers and FTSE STI Index by 13% and 40% YTD, on the back of a much stronger contract sales YTD. Our latest conversation with management indicated that the group has achieved almost RMB2bn contract sales so far, up 62% YoY and represents 48% of our old estimates. We have therefore increased our FY09 contract sales and earnings estimates up by 40% and 61% respectively.

Leverage and financial flexibility less of a concern. Given the latest project stake sales to GIC and the much improved cash inflow from contract sales, Yanlord's financial flexibility, especially its ability to repay the CB in Feb 2010 should no longer be a concern in our view. Assuming a contract sales of RMB5.9bn this year, we estimate a rather flat gearing of 63% by end 2009.

Momentum is still up, but valuation is a bit stretched. With new upcoming launches in Tianjin and Nanjing in May and July, and continuous encouraging sales in Shanghai, contract sales momentum would still be on the uptrend in our view. However, at S$1.30/share, the stock is trading at 43% discount to our RNAV estimates and 12x FY09 P/E, a slight premium to the S-MID cap China developers in Hong Kong. We re-set our broad trading range to S$1.00 - 1.50 based on our revised estimates, and will start to trim our exposure with another 10% gain from currently level.

We remain Neutral on Yanlord, with Dec-09 price target of S$1.40/share (S$1.10/share previously), based on 40% discount to our RNAV estimates. Our PT translates into 13x/12x FY09E/10E, and 1.1x end-FY09E P/B. Key risk to our rating and price target would include 1) the company's inability to sustain the current run rate of monthly contract sales and as a result miss our RMB 6 billion contract sales forecast; and 2) possible fund-raisings to strengthen its balance sheet further.

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