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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Yanlord Land Group: Cashed Up

Strong 2Q09. Yanlord's 2Q09 revenue was up 56% yoy to S$616m as its PATMI rose 36% to S$92m. This brought 1H09 PATMI to S$116m, or c.40% of our and consensus FY09 forecasts. The higher revenue was attributed to higher ASPs achieved, +54% yoy to RMB23,500/sm, as 80% of 1H09 revenue was from its high-profit margin Riverside City project in Shanghai.

S$800m of pre-sales yet to be recognised. The company still has S$800m of pre-sales that have yet to be recognised, and this will underpin earnings over the next few quarters going into FY10. Further success at its new Nanjing and Tianjin projects in 3Q09 continues to underpin its strong earnings visibility into FY10.

Cashed up, Ready to gear up. Following its share placement in 2Q09, coupled with a strong operating cashflow of S$528m in 2Q09, its cash position is up to c.S$1.3bn, bringing gearing ratio down to 0.1x. Further proceeds of c.S$369m from its convertible bond issue were received in Jul 09, and places Yanlord in a good position to be opportunistic with land acquisitions.

Building for the future. Yanlord plans to commence construction for up to 8 projects across 5 cities in 2H09, allowing it to diversify its revenue base whilst launching new projects in the future.

Maintain BUY, TP S$2.80. We believe RNAV-accretive acquisitions will be catalyst for Yanlord going forward. Maintain BUY, TP of S$2.80 (from S$2.81) based on 10% discount to RNAV of S$3.11.

Yanlord - Expecting strong interim results

Expecting a 179% increase in interim profit. Yanlord will announce results around midnight on 11 August. We are looking for a 179% increase in interim net profit to S$214m. In fact, the actual number could be higher as the Group managed to sell almost all of the 0.1m sqm completed but unsold inventories at Shanghai Riverside City in 1H09. In any case, profit will be heavily skewed towards the first half this year. The Group does not pay interim dividend.

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.

Yanlord Land - Buy: High-Grade Property Development and Investment

Valuations remain attractive with a 27% NAV discount and with Yanlord’s strong property sales and solid progress on the development of its highgrade investment property portfolio. We have adjusted down our TP to reflect the latest new share and CB issues, which enhanced financial positions.

In Jun-09, Yanlord achieved another RMB0.96bn of sales, pushing its total contracted sales in 1H09 to RMB6.2bn (or about SGD1.24bn), up 107% YoY. With its strong 1H09 contracted sales, Yanlord has already achieved over 70% of its full-year contracted sales target for 2009 and locked in 93% of our estimated property sales revenue to be recognized in 2009.

High-grade investment property portfolio taking shape — In addition to Yanlord Landmark in Chengdu and Yanlord Towers in Nanjing, Yanlord last Friday broke ground for its 300,000sqm integrated project – Zhuhai Yanlord Marina Centre, located in the Zhuhai city center, adjacent to the Gongbei Zhuhai-Macau immigration checkpoint and the ferry terminal, the two key gateways into Zhuhai. Yanlord’s investment properties, once completed, should help generate recurrent rental income to the company, and at the same time allow it to enjoy the long-term capital value appreciation of its urban city-center landbank.

Enhanced financial positions — On our estimates, with the cash from the share placement and strong property sales, Yanlord’s net gearing will be reduced meaningfully from 60% at end-08 to only about 40% at end-09 – this should allow it to adopt a more proactive property pricing strategy to maximize profit and margin, and take advantage of potential NAV-accretive landbank opportunities.

Yanlord - Sales well ahead of expectations

We provide an update to Yanlord in light of its strong June 2009 YTD sales and recent new share and convertible bond (CB) placements. We reiterate our positive stance on the company and maintain our Outperform rating.

Achieved Rmb6.3bn June 2009 YTD sales. We believe our full-year FY09 cash sales target for Yanlord of Rmb7.5bn is likely to be exceeded given the strong sales achieved up to June YTD. Yanlord has achieved ~84% of our full year target already. We understand that Yanlord’s YTD contracted sales have also generally exceeded market expectations, which range from Rmb6 to 8bn for the full year. Shanghai is still the key driver, contributing ~75% of contracted sales achieved so far. On top of Rmb1.1bn in contracted sales carried forward from FY08, we understand Yanlord should have locked in around Rmb7.4bn in sales to be booked in FY09, representing >95% of our FY09 revenue booking target already. Despite no indication as such, we believe management may lift future completion targets at the interim results to reflect the more positive overall China property market. Market should focus on new launches in Tianjin and Nanjing. Yanlord expects to launch the first phases of Tianjin Riverside Plaza and Nanjing Riverside City during 3Q09. The impending new project launches should help reduce Yanlord’s focus on Shanghai property sales to drive revenue, which currently comprises ~75% of total cash sales (as at June 2009 YTD) to around 60-65% for the full year FY09. We believe the successful launch of these two projects should help Yanlord in striving to expand out of Shanghai as well.

Raised S$603.8m from new shares and CB. Yanlord raised S$228.8m from issuing 110m new shares (~6% of the expanded share base) and S$375m from a new five-year, 5.85% CB maturing in July 2014. The CB conversion price is S$2.62/sh, which if fully exercised should result in ~143m new shares. CB bondholders have the option of ‘putting’ the CB back to Yanlord in 2012. We understand management intends to use the new funds primarily to buy new sites and working capital. It identified several sites for acquisition already. We believe 3–6% earnings dilution and 3% reduction in NAV results from the new shares issued.

12-month price target: S$3.10 based on a PER methodology. We will revisit our full-year cash sales target when Yanlord launches new projects and reports its 2Q09 results – likely to be mid-August. The CBRC’s increased focus on enforcing existing second mortgage rules may slow Yanlord’s sales going forward given high investor demand for its projects. To date, we believe the impact of the changed stance has been limited. We maintain Yanlord as one of our preferred China developers and have an NAV of S$2.9/sh with a target price of S$3.1/sh based on a PER methodology.

Yanlord Land Group Ltd - Positives priced in

Yanlord achieved Rmb960m sales in June, down 31.4% from a high base in May. But 1H09 sales stayed encouraging at Rmb6.2bn, double the sales in 1H08. Cash flow has improved after a recent share placement and convertible bond offering. Higher-than-expected ASPs and sales in 1H09 prompt us to upgrade our core earnings and RNAV estimates, but our fully-diluted EPS estimates have been cut to reflect dilution. Sales are expected to slow down in 2H09 as the bulk of its available stock had been sold in 1H. Current valuations also appear unappealing. Maintain NEUTRAL despite a higher target price of S$2.19 (from S$2.06, still pegged at a 20% discount to RNAV) following adjustments to our RNAV.

Yanlord Land Group: Adding To The Bank

An Eye On Acquisitions. We hosted Yanlord Land at our 'Pulse of Asia' conference in Singapore and highlight some key takeaways. Chief among these would be the expected use of the funds from the recent share placement exercise and convertible bond offering. The bulk of funds raised will be used to replenish its landbank, with the focus on Shanghai and Chengdu. We expect that news of land acquisition could be forthcoming within the next few months. Given its development track record, particularly in Shanghai, successful acquisition would very likely be value accretive for the Group, and provide a re-rating catalyst.

From Yangtze to Bohai. Furthermore, we expect that June sales will continue to be strong, with at least RMB500m expected. This would bring 1H09 pre-sales to at least RMB5.8bn. Looking ahead into 2H09, we expect Yanlord to switch its marketing efforts away from Shanghai to its new projects in Nanjing and Tianjin. We expect ASPs of around RMB15,000 psm and RMB16,000 psm respectively. Its maiden foray into Tianjin and the Bohai Rim should see strong interest.

Maintain BUY, TP S$2.81. We remain positive on developers like Yanlord with exposure to luxury inner-city projects as well as presence in Shanghai, where we foresee supply scarcity. We have raised our ASP assumptions slightly for its Shanghai inner-city projects, for a revised RNAV of S$3.13 (prev S$3.02). We maintain our 10% discount for a TP of S$2.81 (prev S$2.72). Reiterate BUY.

Yanlord Land - Easy To Accept

One good thing to be said of Yanlord’s capital raising exercise: $228 mln from the placement of 110 mln new shares and up to $375 mln worth of convertible bonds (CB) is that there is nothing “unusual” about it, specifically CBs, which are the “traditional” type, unlike those issued in 2006/07 by the likes of Sino-Environment, KS Energy where bondholders could force redemption if the ordinary share price were to fall significantly below the conversion price (and main cause of all the woes).

In Yanlord’s case, the coupon is 5.85%, which is attractive enough, and conversion price set at $2.6208 per share, or 26% premium to the placement price, and the bonds to run till maturity in 5 years time (July 13 2014), unless the amount outstanding were to drop substantially (to less than 10% of the original amount) as a result of conversion, which can start from Aug 23rd this year (assuming share price continues to run up after a stunning 356% surge).

The total number of shares to be issued on conversion of the CBs is 143 mln shares, representing 7.4% of the post-placement issued capital.

If there is anything negative about the above, it is the sale by founder Zhong Sheng Jian of 10 mln shares also at $2.28 each. He had bought 2.154 mln shares at 90 cents each in Oct ’08 and 3.5 mln shares on 1/4/09 at $1.10 each. (In addition, he bought 16.75 mln 2012 Convertible Notes* on Apr 1 ‘09.) The placement of 10 mln vendor shares will reduce his holding to 1.273 bln shares, still a substantial 65.6% stake, after the placement by the company, but before the conversion of the CBs. (Yanlord’s Top 20 shareholders list is dominated by institutional shareholders such as UOB Asset, Aberdeen, Schroders.)

Being a China property company, the amount to be raised is understandably large (to fund acquisition of new development sites, possible strategic investments, JVs etc), or least the biggest by a non GLC.

Yanlord’s balance sheet at end Mar ’09 shows borrowings of S$1,708 mln (16% short term and 84% long term) vs Shareholders Funds of S$2,004.03 mln. There was cash of S$580 mln. We have not followed Yanlord which listed in 2006. Yesterday’s $2.28 close is almost mid point between the Nov ’08 low of 50 cents, and the Oct ’07 peak of $4.22.

* There is an existing issue of Convertible Notes, S$477.25 mln nominal issued in Feb ’07 with a 4%coupon, and maturing on Feb 6 2012. The conversion price is $2.71 per share. The outstanding amount at end Mar ’09 was $338.3 mln, convertible into 124.83 mln shares.

Yanlord - Small but packed with goodies

Four reasons why Yanlord is our top-pick. Yanlord continues to be one of our top choices in the sector as: a) 60% of its NAV is exposed to Shanghai and the neighbouring cities 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 the new projects and as it ventures into new cities.

Sales so far this year came mainly from Shanghai. Following an amazing April, Yanlord generated another Rmb1.4b (52% from Shanghai Yanlord Riverside City and 25% from Yanlord Peninsula in Suzhou) contract sales in May. Some 72% of the total Rmb5.3b generated up to May this year came from Shanghai Yanlord Riverside City. As a result, almost 85% of the 0.2m sqm completed but unsold inventories brought forward from 2008 have been sold. The bulk of the remaining unsold space relates to the 30,000sqm at Nanjing Yanlord International Apartments. As inventories have already come down sharply, there is no rush to sell any units now.

Sales progress exceeded expectations. The rate of sales has exceeded expectations. Contract sales in the first five months this year are already 13% above that generated in the whole of 2008, and account for some 58% of the Rmb9b that could be generated this year assuming all units that are available for sale are sold.

Non-compromising sales strategy pays off. Unlike its peers, Yanlord did not resolve to price cuts to clear stocks around the end of last year. Hence, contract sales only started to pick up in March when Yanlord took advantage of the improved market conditions to sell. Yanlord’s patience has paid off handsomely. Gross development margins improved to 64% in 1Q09, from 2008’s average 56%, and we expect margins will rise further to close to 70% in 2Q09. This means Yanlord’s interim results will compare favourably with that of its peers whose development margins are likely to suffer as a result of the earlier price cuts.

Selling prices sustained by brand. But Yanlord is only able to have a margin-focus strategy because it has built a successful brand over the years. As can be seen from the table below, ASP of the major projects have not softened along with the market in 2008.
Upcoming launches. 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. Yanlord Riverside Plaza, the Group’s first project in Tianjin and indeed northern China, will be launched next month. The response will indicate how well Yanlord can replicate its success in a city where its brand is not known. This will be followed by Yanlord Yangtze Riverside City in Nanjing in 4Q. The initial batches of both projects are expected to price at Rmb15,000-16,000psm, or a 10% premium to neighbouring projects, and the gap will eventually rise to a typical 20-30% in subsequent phases.

Cash call? We estimate Yanlord’s gearing is only about 50% at present. But as can be seen from the various cash calls made by mainland developers, high gearing is not a pre-requisite for fund-raising. Rather, companies are tempted to take advantage of this unusually liquid market to beef up their coffers. So in this sense, one can never rule out a cash call by Yanlord.

Some 90% of 2009 revenue already secured. As Yanlord’s contract sales in May have again beat expectations, this has given us confidence that Yanlord’s brand carries a solid premium. As a result, we are now using more upbeat ASP assumptions in our model, raising our 2009 net profit forecast by 9% to S$265m, representing a 60% yoy growth, followed by a 20% upgrade for 2010. Some 90% of our 2009 revenue has been secured through sales.

Raise target price by 10%. We have replaced our original assumption of a 10% increase in property prices in 2009 by a more upbeat 20% to take into account Yanlord’s premium brand, thereby raising our NAV from S$2.61 to S$2.88/share. Our target price is based on a three-tier system whereby target price for Yanlord, regarded as a solid private enterprise, is set at a 10% premium to NAV, equivalent to S$3.17, 10% above our previous S$2.87. Our target valuation is above the historical average discount to NAV and can be justified by the re-rating of Shanghai as far as property price potential is concerned.

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.

Yanlord Land : Making A New Mark

Another Strong Month. It was another good month of sales for Yanlord, as it managed to register about RMB1.4bn of pre-sales for May. While this was down on a m-o-m basis (RMB1.9bn in April), it was still a better result than any month in 1Q09. With this, 5M09 sales revenue has hit RMB5.3bn, which exceeds the RMB5bn achieved for the whole of FY08.

Shifting to Tianjin and Nanjing. With the excellent performance YTD still largely attributed to Yanlord Riverside City in Shanghai, we believe the company may choose to slow on the launch momentum for this project, saving the remainder of the GFA for 2010-11, whereupon higher ASPs could potentially be achieved. Instead, it is likely to shift its focus in 2H09 to its Tianjin and Nanjing projects instead. We remain confident on the company’s execution ability, particularly for Nanjing where it already has brand presence.

Maintain BUY, TP S$2.78. With improved fundamentals for the sector, we have adjusted our ASP assumptions for the Chinese property market, pricing in a 0% price change for 2009 and a 10% price increase for 2010. We continue to like Yanlord, given its strong management and proven execution as well as lowered cashflow risks given recent improvements in balance sheet. It continues to trade at a discount to its HK-listed mid-cap peers. Maintain BUY, TP of S$2.78 based on a 10% discount (from 30% previously) to RNAV of S$3.09 (from S$2.99).

Yanlord Land - Buy: Strong Sales Volume and Firm ASP Drive Powerful Growth

Reiterate Buy, lower risk rating to Medium — With its focus on prime city-center locations and premium quality offerings, Yanlord should be able to take better advantage of the recent recovery in the China property market to return to growth after the earnings pullback in 2008. Current valuations remain attractive with a 30% NAV discount and with its quality portfolio. Reflecting continued strong contracted sales and higher ASP assumptions we raise our 2009E-11E earnings 16%-58%, increase our target price to S$2.91, and lower the risk rating to Medium (from Speculative). We reiterate our Buy rating.

Strong contracted sales YTD — In May, Yanlord achieved another RMB1.42bn of contracted sales, pushing total contracted sales in the first five months of 2009 to RMB5.3bn. It continues to benefit from the strong Shanghai market, and sales at Riverside City contributed about 50% of total sales in 2009 YTD.

High earnings visibility — Taking into account RMB1.15bn of presales made in 2008 but not yet booked at end-2008, Yanlord had already secured over 90% of our estimated property sales revenue for the financial year 2009 by end-May 2009 (assuming 80% of contracted sales YTD are booked in FY09). The promising sales also accounted for 62% of Yanlord’s full-year sales guidance, and we believe the company is on the right track to accomplish its sales target.

More resilient margins — Yanlord’s focus on prime-location, high-end, mixed-use multi-product developments presents a unique product offering versus its peers, and helps it achieve more resilient margins in our view. Despite a tough year in 2008, the company was able to record improvements in overall margins. With continued recovery of the China property market, Yanlord should see strong earnings growth powered by higher volume and ASPs.

Yanlord Land Group: Start Spreading The News, Buy

1Q09 In Line, Pre-Sales Strong. Yanlord’s 1Q09 net profit jumped 161% yoy to S$24.3m on a 60% increase in topline to S$186.4m. While this forms 25% of our FY09 forecast (and c.13% of consensus), we have increased our FY09 forecasts by 89% due to strong pre-sales by the company, particularly in April. In a conference call with analysts, the company shared that an additional RMB1.9bn of sales was booked in April alone, which nearly matched the RMB2bn achieved in 1Q09. In total, these formed about 80% of FY08 sales.

Spreading from Shanghai. Once again, its Riverside City project in Shanghai was the key earnings driver, accounting for 80% of 1Q09 revenue. Going forward, Riverside Plaza in Tianjin and Yangtze Riverside City in Nanjing are scheduled for launch in 2Q09 and 3Q09 respectively. This is Yanlord’s maiden foray into the Tianjin market. Good ASPs and sales will be a catalyst, as it would further cement its ability to replicate its success in the Yangtze River Delta to other regions in China.

Upgrade to BUY, TP S$2.09. The pre-sales achieved by the company have not come at the expense of any substantial decline in ASP, a testimony of Yanlord’s brand equity in China. With this, we adjust our ASP assumptions closer to current levels for launched projects and reduce our ASP decline assumptions for landbank projects. Its success in asset turning its inventory, coupled with our eye on a recovery in the Chinese economy, also allows us to reduce our discount to RNAV. Upgrade to BUY, TP S$2.09 based on 30% discount (prev 60%) to RNAV of S$2.99 (prev S$2.40).

Yanlord - Encouraging 1Q09 Result and YTD Sales Performance

1Q09 net profit up 161% yoy – Yanlord reported its FY09 first quarter result with net profit surging 161% yoy to S$24.3mn, compared to S$9.3mn a year earlier. While turnover increased only 60%yoy, the recognition of the highly profitable Shanghai Yanlord Riverside City Ph 2 & 3 in 1Q09 resulted in the robust bottom line growth. Gross profit margin was up 26.6% pts, from 37.5% in 1Q08 to 64.1% in 1Q09, while the net profit margin rose to 21.3% during the period, versus 8.7% in 1Q08.

High earning visibility on the back of strong contracted sales – Yanlord has achieved around RMB3.9bn (RMB2.4bn in Apr 09) contracted sales in the YTD period to end-Apr 09, already representing around 80% of the RMB5bn sales made in FY08. Aggregating with the RMB1.1bn unrecognized sales brought forward from FY08, Yanlord possessed around RMB5bn property sales that can be recognized in FY09 or afterwards. On our analysis, assuming 80% of the RMB3.9bn contracted sales will be booked in FY09, Yanlord has already locked in about 72% of our estimated property salesrevenue for 2009.

Improved financial position – Thanks to the strong cash inflow from property sales, Yanlord's cash balance increased from S$375.7mn at Dec 08 to S$579.6mn as at 1Q09 while the net gearing ratio was lowered from 64% at end-08 to the latest of 56.3%, which remains comfortable, in our view.

Reiterate Buy (1S) – The strong 1Q09 result and sales performance reaffirm our view that Yanlord should be able to take advantage of the recent recovery in the China property market. Reiterate Buy with TP of S$2.09/sh.

Yanlord Land - Asset Play with Prime Location, Premium

Reiterating Buy/Speculative Risk — We are raising our target to S$2.09 from S$1.21 on higher ASP assumptions for Yanlord’s property projects in Shanghai and on the recent solid recovery in transaction volume in the China property markets. With its focus on prime city-center locations and premium quality offerings, Yanlord should be able to take advantage of the recent recovery in the China property market to return to growth after the pullback in 08. We cut 09 estimate to reflect project completions, and raise 10E on higher ASPs.

More constructive market environment — Based on Soufun property statistics, in the first four weeks of April most cities recorded growth compared with the first four weeks in March, including Beijing, Dalian, Shanghai, Nanjing, Hangzhou, Chongqing and Ningbo; Shenzhen and Guangzhou recorded slight declines. In the 12 cities we track, the average digestion cycle was around 16.5 months as of the beginning of 2009.

Shanghai to become a global financial center and shipping hub by 2020 — In our view, the central government’s plan to accelerate the development of Shanghai should help stimulate the economic and property market sentiment in Shanghai, benefiting Yanlord given its landbank exposure and its experience in the Shanghai property market. Based on our estimates, about 22% of Yanlord’s NAV comes from Shanghai. In addition, Yanlord has been in the Shanghai property market for long. As a reference, according to Yanlord, about 58% of the company’s completed properties in the past came from Shanghai, in terms of total GFA.

Yanlord - Major contributions from Shanghai, as expected

FY09 sales on target. Based on our recent discussions with management, Yanlord appears to have bagged about Rmb2bn (S$400m) of contract sales in 1Q09, representing 40% of our full-year forecast of Rmb5bn (S$1bn). Presales in 1Q09 rebounded from a trough of Rmb630m (S$126m) in 4Q08, as market sentiment improved after the Chinese New Year holidays, on the back of the government’s relaxation policies such as lower mortgage rates and a reduction in transaction taxes.

Major contributions from Shanghai, as expected. Yanlord sold about 347 units of Shanghai Riverside City in 1Q09, out of the 1,100 units unsold as at end-2008 plus a newly launched 130 units in Mar 09. ASP remained stable at Rmb32,000/sq m for the small units and Rmb39,000/sq m for the large units launched in March. Proceeds from Shanghai were around Rmb1.6bn in 1Q09, or about 80% of Yanlord’s total presales.

Cash flow improving. We expect Yanlord’s cash flow to improve in 2009 on the back of stronger presales. In addition, Yanlord will be receiving cash inflow of Rmb1.25bn (S$250m) after the completion of the sale of its 40% stakes in the Suzhou Lakeview Bay and Shanghai Waigaoqiao projects to GIC Real Estate. Cash inflow should cover estimated construction costs of Rmb3bn-4bn (S$600m-800m), a land premium of Rmb5m (S$100m) and short-term debt repayment of Rmb1.75bn (S$350m).

Fine-tuning earnings and NAV estimates. We have revised our completion expectations based on the latest development schedule. We adjusted our earnings forecasts by +3.1% to -3.0% for FY09-11 as we now assume 301k sq m, 387k sq m and 572k sq m of GFA for booking in FY09-11 (previously 239k, 433k and 541k sq m). Our RNAV per share has been lowered from S$2.24 to S$2.20, to reflect changes in the completion schedule and the sale of the 40% stakes in the Suzhou and Shanghai projects to GIC Real Estate.

Maintain NEUTRAL despite higher target price. We maintain our neutral position on the Chinese property sector on the back of pricing pressure and increasing supply. Yanlord’s share price has rebounded 77% since March, which should have captured most of the positives, in our view. In light of its improved presales in 1Q09 and the alleviated pressure on its cash flow, we have narrowed our discount to NAV from 70% to 40%, in line with the current average discount for the property sector. Accordingly, our target price rises to S$1.32 from S$0.67. Maintain NEUTRAL.

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.

Yanlord, Sino-Env - Short term bearish - Sell

Yanlord, short term bearish divergent.... Sell


Sino-Env, Short term falling towrads yellowline... Sell)

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.

Yanlord Land Group: Awaiting Stimulus; HOLD S$0.725

Yanlord's FY08 net profit ex-exceptionals came right in line with our below-consensus estimates. Though less GFA was delivered, it continued to improve ASPs yoy. We have an eye on further stimulus measures for the macro economy and property market, and we view this as a potential catalyst. Maintain HOLD, TP S$0.96.

Results Right In Line. Yanlord reported FY08 net profit of S$226m (+2% yoy) on revenue of S$1,007m (-18% yoy) due mainly to improved margins/ASPs and a fair value gain on an investment property that obtained completion in FY08 and was revalued up from cost. Stripping out the S$81m revaluation gain, core earnings would have been S$144m, in line with our estimate of S$141m ? which was c.35% below consensus. Dividend of 1.23 ct/shr was declared (FY07: 1.21 ct/shr) and company looks to maintain its 10% payout ratio.

Less GFA Delivered, But Higher ASPs. GFA delivered fell 41% yoy to 286,000 sqm, but this was offset by higher ASPs achieved ? a 33% increase to RMB17,300 psm on average. However, c.55% of revenue was from its Shanghai projects; and the challenge going ahead is to bring its brand equity to other cities. This it plans to do in 2009, with two high-end projects in Tianjin and Nanjing to be launched in 1H09 and 2H09 respectively.

Maintain HOLD, TP S$0.96. Though recent stimulus measures seem to have returned some stability to the market, supply overhang is still a concern. We expect the high-end market to be weak in 2009, and have reduced our GFA delivery assumptions for FY09. We maintain our 25-30% price cut assumptions for first-tier cities. Our RNAV is adjusted to S$2.40 (from S$2.36). We maintain our 60% discount, with TP of S$0.96 (prev S$0.94). Maintain HOLD due to a lack of substantial catalysts for the high-end market at this point.