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.

Sponsored Links

Oceanus Group Ltd: Still in gestation phase

Population growth cushions net profit. Oceanus Group Ltd (Oceanus) reported its 1H09 results with a 23.7% YoY decline in sales to RMB138.5m. Profit before tax and one-offs grew 16.0% YoY to RMB209.3m thanks to a larger abalone population, which boosted the fair value of its biological assets. Net profit recorded a nine-fold surge to RMB187.4m in the absence of oneoff RTO expenses.

Abalones feel the heat of recession. Weakness in the group's results came from its 2Q09 sales, which contracted by 43.8% YoY, as it came under pressure on two fronts - lower selling prices as well as leaner volumes. ASP fell by 10-15% as the global recession weighed on 'live' abalone prices, while volumes fell by 13% as the group set aside a portion of its livestock for future processing. Unusually high volumes sold a year ago due to an industry supply crunch magnified the volume squeeze. Further evidence of the recession was reflected in the group's biological assets, whose average unit fair value was marked down by 25% from a year ago.

Sowing today for future growth. Although Oceanus' 2Q09 results were uninspiring, management remains optimistic on its outlook as it believes that abalone prices have bottomed out and that demand remains firm. It expects 2H09 to be stronger and remains committed to expansion via downstream integration. As the group is in the expansion phase of its business life cycle, we expect fruits of labour sown today to be reaped over the next two years. For now, the business will have to endure a phase of high capital intensity and trial-and-error before its envisioned business model gains traction.

Downstream businesses to drive 2H09 and beyond. Riding on the success of its first Ah Yat Tian Xia restaurant, the group launched 3 new restaurants in 2Q09. Management targets to open 20 restaurants in 2009, 50 in 2010, and 100 in 2011, with eventual plans to list this chain as a separate entity. We expect Ah Yat Tian Xia to drive the group's growth as the chain gains critical mass and reaps economies of scale. Further driving Oceanus' downstream integration is its new processing plant, which is on track for completion in 3Q09. The plant will fully automate processes that are currently manual, and could lift capacity by 10-fold over the next two years. Overall, Oceanus remains on track with its long term growth plans. As such, we maintain our BUY rating and S$0.40 fair value estimate on the stock.

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.