95% of full-year revenue secured. Up to July this year, Yanlord had generated over Rmb7.6b proceeds from contract sales, already 65% above that made in the whole of 2008, and accounting for 85% of our already very bullish sales target for 2009. Adding the Rmb1.15b unbooked contract sales carried forward from last year, over 95% of our forecast revenue for 2009 has been secured.
A sought-after brand. Yanlord launched a new project, Nanjing Yanlord Yangtze Riverbay Town P1, on 18 July. Even though the project will not be completed till Dec 10, almost 95% of the 636 units were sold within a week at a decent Rmb15,000psf, generating Rmb1.15b in proceeds.
Watch out for Tianjin. Yanlord has projects in seven cities. While revenues have concentrated in Shanghai and Nanjing, the geographical spread will widen as projects in other cities mature. The Group has delayed the launch of Yanlord Riverside Plaza, the Group’s first project in Tianjin and indeed northern China. Given the more serious marketing efforts, we expect Yanlord to replicate its success in this city where its brand is not known. Presale results of this project could affect share price.
Recap the four reasons for Yanlord being our top pick. a) 48% of its NAV is exposed to Shanghai and the neighbouring Nanjing where property prices going forward will benefit from the development of Shanghai into a major global financial hub, b) its landbank is situated in urban locations where demand is more assured and prices firmer, c) it boasts one of the best corporate governance track records among mainland developers, and d) there is further upside potential on its NAV if the Yanlord brand continues to command premium prices on new projects and as it ventures into new cities.
Target price under review. With the continuous rally of the sector, Yanlord is now close to our target price. Admittedly, trading at a 4% premium to NAV, the stock is not cheap. But liquidity will boost the sector valuation to an otherwise unjustifiable level. As Yanlord is one of the most solid and transparent mainland developers, we are keen to keep the stock as one of our top picks. Thus, we will upgrade our target price, but we will leave that exercise till after the results announcement when we are in an even better position to assess the company. At the moment, our target price is based on a three-tier system whereby the target price for Yanlord, regarded as a solid private enterprise, is set at a 10% premium to NAV.
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