The team has cut its PATMI forecasts for the FY2021 and FY2022 by 32.4% and 20.4% on lower FY2021 contracted sales.
The team at OCBC Investment Research has kept its “hold” rating on Yanlord Land Group with a lower fair value estimate of $1.16 from $1.20 due to a weaker contracted sales outlook.
“We factor in Yanlord’s actual FY2021 contracted sales in our model, and also assume a 5% contraction for FY2022,” writes the team in its Jan 14 report.
To be sure, Yanlord’s contracted sales for FY2021 ended December fell 24.0% y-o-y to RMB59.6 billion ($12.63 billion), due to a decline in both contracted gross floor area (GFA) and average selling price (ASP) of 12.7% and 13.0% y-o-y to 1.87 million sqm and RMB31,889 per sqm respectively.
In December 2021, the Singapore-listed Chinese developer saw contracted sales dip 16.3% y-o-y to RMB9.2 billion despite an increase in contracted GFA to 322,671 sqm. The figures imply a dip in ASP of 29.4% y-o-y to RMB28,565 per sqm.
The overall contracted sales fell short of management’s target of RMB70 billion, notes the team.
As such, the team has cut its core PATMI forecasts for the FY2021 and FY2022 by 32.4% and 20.4%, respectively.
That said they have ascribed “a higher P/E target multiple of 5.6 times (including a slight ESG valuation discount) given signs of policy easing in the Chinese property sector, coupled with Yanlord’s healthy financial position relative to its peers”, which led to a slight dip in the team’s fair value estimate.
Potential catalysts on the counter’s share price include the easing of price caps in key cities, which Yanlord has exposure to. Stronger-than-expected pre-sales as well as higher dividends per share will also potentially contribute to the re-rating of its share price.
Meanwhile, downside risks include further property cooling measures, rising offshore funding costs and foreign exchange (forex) risks, as well as the group overspending on land bank acquisitions.
Shares in Yanlord closed flat at $1.14 on Jan 24, or an FY2021 P/NAV of 0.3 times and dividend yield of 5.9%.