Yanlord

Yanlord - These are my thoughts on Yanlord Land.

NAV $2.252 PE of 5.735x dividend of 6.8 cents.XD 18th May

Yield is about 4%

Current price $1.67

YANLORD PROFIT FOR THE PERIOD RISES 22.4% TO RMB1.796 BILLION

 Revenue in 1Q 2018 rose 13.7% to RMB7.188 billion on higher average selling price (“ASP”) achieved. Underscored by the continued delivery of higher grossprofit-margin projects across the Group’s core markets, gross profit in 1Q 2018 rose 28.1% to RMB4.004 billion while gross profit margin expanded to 55.7% in 1Q 2018 compared to 49.5% in 1Q 2017.



 Healthy market sentiments in the PRC propelled the Group’s pre-sale accumulation in 1Q 2018. Accumulated pre-sale pending recognition as at 31 March 2018 was RMB18.197 billion with advances received for pre-sales properties of RMB16.602 billion.

 The Group continues to maintain a healthy financial position with cash and cash equivalents position of RMB16.235 billion as at 31 March 2018.



 Subsequent to the end of the period, Yanlord announced its homecoming to Singapore with the successful joint bid for the freehold Tulip Garden development for S$906.9 million. The Group has also entered into a strategic collaboration with a state owned enterprise to oversee the project management of approximately 1,740 rental housing units in Shanghai.

Yanlord Land is moving towards retaining more properties they have developed for recurring rental income. This should help to stabilize their profitability better over time as property developers tend to experience lumpy revenues and earnings due to the timing of recognition of revenues and earnings on developed properties.

I looked at the growth of Yanlord over the past 6 years period from 2011 to 2017. The revenues have grown at a CAGR of 19.09% over this period.

The operating profits have grown at a CAGR of 23.31% over this period. The diluted EPS have grown at a CAGR of 15.34% over this period.

 The various profit margins have fluctuated through the period under consideration. However, last year 2017 was a good year for Yanlord with high margins property projects locked in their sales and thus the various margins have improved significantly y-o-y.

The challenge is whether such high profit margins done last year can be repeated this year as well or not. They do have many property projects on hand this year and their chairman guided this year they should be able to perform well too with the current growth in the property development industry in China with many cities in China still undergoing development.



Yanlord Land is also moving into more property projects in tier-1 and tier-2 China cities where these projects carry higher profit margins.( quote : jeremyowtaip)

 I shall not look at the cashflows trend as the cashflows can swing between positive and negative in any single year due to the movement of cash according to the amount of cash outflows on properties under development in any year and amount of cash inflows from sales of completed properties which either item could be a huge amount affecting the cashflows significantly in any single year.

 This makes determining an accurate growth for the cashflows difficult. However, generally speaking, the amounts of net operating cashflows and free cashflows have grown over this period. Yanlord had a debt to equity ratio of 70% in 2011. Their debt to equity ratio is 105% in 2017.

 They seem to have geared up for last year. However, if we look at their net debt to equity ratio, it was 52% in 2011 and in 2017 was 51%. They seem to have maintained their net debt to equity ratio at about this level. Perhaps this is a good safe level to them to maintain their net debt to equity with some cash and equivalents on hand despite taking on a higher debt position in 2017 for expansion and growth.



 The average asset turnover for Yanlord has improved from about 0.19 to 0.26 over this past 6 years period. The returns on assets were maintained at slightly over 3%, returns on equity improved from 10 over % to 14 over % while returns on invested capital have improved marginally from slightly over 6% to now about close to 7%.

 If we just look at Yanlord alone as it is, it seems that it has performed well over the past 6 years with double digits CAGR in revenues, operating profits and diluted EPS. I shall compare Yanlord with two other China property developers on some of the metrics

I use above over the same past 6 years period.



 The two other China property developers are China Vanke and China Overseas Land & Investment Ltd.

 Selected comparison metrics between Yanlord Land (YL), China Vanke (CV) and China Overseas Land & Investment Ltd (COLI)

Revenue CAGR = YL (19.09%), CV (22.53%), COLI (20.77%)

 Operating profit CAGR = YL (23.31%), CV (20.54%), COLI (16.25%)

 Diluted EPS CAGR = YL (15.34%), CV (19.3%), COLI (13.76%)

 Debt to equity ratio (FY17) = YL (105%), CV (102%),



COLI (65%) Average asset turnover (FY17) = YL (0.26), CV (0.24), COLI (0.27)

 ROA (FY17) = YL (3.22%), CV (2.81%), COLI (6.7%)

 ROE (FY17) = YL (14.69%), CV (22.8%), COLl (16.71%)

 ROIC (FY17) = YL (6.67%), CV (10.2%), COLI (9.91%)



 Yanlord Land seems to stack up well against the other two well known reputable China developers even though the former maybe much smaller in scale of operations. The only thing Yanlord Land seems to fall behind is the return on equity and return on invested capital.



However, Yanlord Land has improved it's returns on equity and returns on invested capital over the past few years. This seems to suggest it has shown an ability to generate improving returns over the past few years to catch up with other larger competitors in China. In conclusion, I find Yanlord Land is worth considering as an investment in China property industry.

The growth in China property market seems evident as these few China property developers are enjoying good double digits CAGR in their profitability and generating good returns. Based on last closed share price of $1.68, Yanlord Land is now at EV/EBITDA of about 3.6x which is undervalued (Any value 5x and below is cheaply attractive).



 It's P/B ratio is about 0.7. Since Yanlord Land has already improved it's ROE from single digits to above 10% since 2016 and 2017, trading at a P/B ratio of 0.7 is pricing it too cheap. Therefore, I think at current share price of $1.68, Yanlord Land could be viewed as undervalue. This is especially true should it continue to produce a good set of results this year same as last year too. Not a call to buy or sell. Please do your own due diligence.



 Yanlord Land Group Limited, an investment holding company, engages in the property development activities in the People's Republic of China. The company operates through Property Development, Property Investment, and Others segments. It develops residential properties comprising apartment complexes and villas; and commercial and integrated properties, such as offices, serviced apartments, and shopping malls for sale and lease.



The company also offers property management services for residential properties, including security, building, equipment maintenance and repair, facilities management, child-care, and other ancillary services, as well as organizes social and residential community functions. In addition, it is involved in the management of hotels and serviced apartments; trading of building materials and hardware; operation of restaurants and Kindergarten; and installation, maintenance, sale, and repair of elevators. Further, the company engages in the provision of landscaping and gardening, management and investment, city redevelopment, food and beverage, tourism investment, asset management, leisure and fitness, education and training, and construction engineering services, as well as tourism and travel services. Yanlord Land Group Limited was founded in 1993 and is based in Singapore.