Amid a spate of privatisations of companies listed here by controlling shareholders making offers at below book values, one possible candidate bandied about is Yanlord Land Group, a China-based, Singapore-listed developer.

 

In response to questions from shareholders ahead of its AGM, the company denies so. &ldquo Delisting has not been a matter of management nor board discussion,&rdquo says Yanlord in its April 21 response to shareholders&rsquo questions.

 

The company' s single largest shareholder is chairman and CEO Zhong Sheng Jian, who has a total interest of 71.55%, according to the company' s FY2022 annual report.

As at Dec 31 2022, the company&rsquo s net asset value is $3.60, which compares to the current price of around 90 cents, which is down by a-fifth after the company&rsquo s full year results announcement on Feb 27.

 

In the previous few years, despite the fluctuations in its annual earnings, Yanlord would pay a dividend of 6.8 cents. In contrast, the company chose to forgo this payout for FY2022, triggering the lower share price.

 

This is even though Yanlord, as at Dec 31 2022, held cash and cash equivalents of RMB21.6 billion.

 

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In its response to shareholders, Yanlord says dividend has always been an important agenda for the board.

 

&ldquo The board noted that uncertainty continued to exist in China&rsquo s real estate sector arising from continued volatilities in the global economy and austerity measures promulgated by the central government,&rdquo the company says.

 

The company says the decision to withhold dividend for FY2022 is line with its prudent financial policies and approach, so it can have more flexibility to deploy more resources for future business development and operations.

 

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Also in response to questions from shareholders, Yanlord will also not put in place a fixed annual dividend policy as it prefers to weigh the various factors from year to year.

 

&ldquo The board would like to sincerely express its appreciation to the shareholders for your understanding of the tough decision of not declaring any dividend for FY2022, in order to support the group navigating through this period of complexity and changes,&rdquo the company says.

 

In response to criticisms of the gap between the share price and its NAV, Yanlord maintains that &ldquo market forces&rdquo are at play and it is not in a position to intervene.

 

&ldquo The company will continue to strive to increase shareholders&rsquo value through better operational and financial performance,&rdquo the company adds.

 

DBS Group Research has maintained its " buy" call on Yanloard Land Group. However, with lowered earnings forecast, analysts Jason Lam, Ken He, Dexter Chun and Ben Wong have cut their target price from $1.43 to $1.06.

 

The China-based but Singapore-listed developer surprised shareholders recently when it refrained from declaring a dividend following its FY2022 earnings.

 

In previous years, the company has been paying 6.8 cents per share.

 

Yanlord on Feb 28 reported earnings of RMB1.5 billion for the year ended Dec 31 2022, a drop from earnings of RMB2.7 billion reported for FY2021. Revenue in the same period was down from RMB34.8 billion in FY2021 to RMB28.7 billion for FY2022.

 

In their March 20 report, the DBS analysts see signs of a turnaround, given Yanlord' s sizeable unbooked sales of some RMB57 billion as of Dec 2022, offering " decent" revenue booking visibility for the current FY2023 despite China' s ongoing property downturn.

 

The DBS analysts note that Yanlord by suspending its dividend and also scaling back on land acquisition, is " playing it safe" as the company prioritise making repayments in the near term with certain tranches of debt maturing.

 

" It intends to take a conservative approach to manage cash outflows to prepare for the repayment peak in FY23-24," write the analysts.

 

The revised target price, following a 4% cut in earnings estimate, is pegged to 4.1x FY2023 earnings, which was the average 1-year forward PE of the company since 2H21, when the property market started to trend down.

 

In contrast, smaller Chinese developers have been valued at a lower multiple of 3.2x over the same period.

 

" We believe Yanlord deserves an above-peers valuation given its better liquidity management track record and solidified market reputation," the analysts write.

16 Mar 2023 11:01

 

Analysts have downgraded their take on Yanlord Land Group Z25 0.56%   after the group&rsquo s earnings for the FY2022 ended Dec 31, 2022, fell by 42% y-o-y to RMB1.53 billion ($298.0 million).

 

The results &ldquo disappointed and missed [the] expectations&rdquo of the team at OCBC Investment Research (OIR), which kept its &ldquo hold&rdquo call on the stock.

 

During the FY2022, Yanlord&rsquo s revenue and gross profit also fell by 18% and 13% y-o-y to RMB28.7 billion and RMB7.8 billion respectively.

 

&ldquo This was due to a dip in gross floor area (GFA) delivered as a result of Covid-19 related lockdowns, but partially offset by higher average selling prices recognised,&rdquo the team writes in its report dated March 10.

 

However, the real surprise came from the lack of a dividend for the FY2022, compared to the 6.8 cents paid out in the FY2021, adds the team. In its results announcement, Yanlord had attributed its decision to conserve cash as they expect to repay debt in the FY2023 and FY2024.

 

In addition, Yanlord&rsquo s management had provided a weak guidance for its contracted sales target for the FY2023 despite its gross contracted sales rising 14% y-o-y to RMB68.1 billion in FY2022 and outperforming its industry peers.

 

On this, the team has cut its FY2023 core patmi forecast by 23.8%, which leads to a lowered fair value estimate or target price of 97 cents from $1.28 previously. The new fair value estimate is still pegged to a P/E target multiple of 4.5x, says the team.

 

Moody&rsquo s Investors Service has also lowered its rating outlooks on Yanlord Land Group Limited (Yanlord) and Yanlord Land (HK) Co., Limited to &ldquo negative&rdquo from &ldquo stable&rdquo previously. Yanlord Land (HK) Co. Limited is a wholly-owned subsidiary of Yanlord.

 

" The negative outlook reflects our expectation that Yanlord' s contracted sales will decline and its credit metrics will worsen over the next 12-18 months," says Cedric Lai, a Moody' s vice president and senior analyst.

 

" The affirmation of the ratings reflects our expectation that Yanlord will maintain good liquidity and a disciplined approach toward business expansion and financial management," he adds.

 

In its report on March 10, Moody&rsquo s estimates that Yanlord&rsquo s contracted sales will decline by around 20% to 25% y-o-y in FY2023, underperforming the national market.

 

&ldquo The weakening sales performance reflects the company' s moderate business scale and significant slowdown in land replenishment over the past 12-18 months. The sales decline will weaken the company' s operating cash flow and credit metrics over the next 12-18 months,&rdquo reads the report.

 

Further to its report, Moody&rsquo s is projecting Yanlord&rsquo s credit metrics to weaken with its ev/ebitda deteriorating to around 6.8x over the next 12 to 18 months, compared to FY2022&rsquo s 6.4x. Yanlord&rsquo s ebit/interest coverage is also expected to decline to around 2.6x over the same period from FY2022&rsquo s 2.8x.

 

&ldquo These forecasts, which are weak for the company' s &lsquo Ba2&rsquo CFR, incorporate Moody' s expectation that the company will face a decline in its profit margin to around 22% from 27% in FY2022 during the same period,&rdquo reads the report.

 

&ldquo However, Moody' s expects Yanlord' s liquidity to remain good, given that the company has maintained good access to both onshore and offshore financing. Its unrestricted cash of RMB20.7 billion as of the end of FY2022 and projected operating cash flow will be sufficient to cover its maturing debt over the next 12-18 months, although the expected use of internal resources to repay maturing debt will likely reduce its liquidity buffer over time,&rdquo adds the report.

 

That said, Moody&rsquo s expects the group&rsquo s rental income/interest coverage to improve slightly to around 45% in the next 12 to 18 months from FY2022&rsquo s 43%. This will be supported by steady rental income growth in China and Singapore, notes the firm.

 

Moody&rsquo s has kept its &ldquo Ba2&rdquo corporate family rating (CFR) for Yanlord and its &ldquo Ba3&rdquo rating for the senior unsecured rating on the bonds issued by Yanlord Land (HK) Co., Limited. The bonds are guaranteed by Yanlord. The &ldquo Ba2&rdquo CFR reflects Yanlord&rsquo s &ldquo established brand name and high-quality products&rdquo although this is constrained by the group&rsquo s &ldquo volatile operating performance, geographic concentration and moderate debt leverage&rdquo .

 

In its report, Moody&rsquo s notes that a ratings upgrade is &ldquo unlikely&rdquo in the near term given the group&rsquo s negative outlook.

 

&ldquo However, Moody' s could revise Yanlord' s rating outlook to stable if the company improves its sales and credit metrics, strengthens its access to long-term funding, and maintains sufficient liquidity,&rdquo reads the report. &ldquo Credit metrics that could indicate a stable rating outlook include ebit/interest coverage above 3.0x - 3.5x and debt/ebitda below 6.0x - 6.5x on a sustained basis.&rdquo

 

&ldquo Moody' s could downgrade Yanlord' s ratings if the company' s sales, credit metrics and its liquidity weakens, or if the company pursues aggressive expansion. Credit metrics indicating a downgrade include ebit/interest coverage falling below 2.5x or debt/ebitda above 6.8x - 7.0x, both on a sustained basis,&rdquo adds the report.

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