Following the release of Yanlord Land Group's 1HYFY2021 ended June results on August 12, OCBC Investment Research has reiterated its 'hold' rating on the counter with an unchanged target price of $1.20.
In an August 17 research note, OCBC’s research team notes that Yanlord’s 1HFY2021 results were in line with its expectations, with the group reporting PATMI of RMB823.4 million ($172.9 million), up 67.1% y-o-y.
While revenue for the 1HFY2021 jumped 44.7% y-o-y to RMB13.2 billion, gross profit grew only 7.5% y-o-y as margins were compressed by 9.2 percentage points y-o-y to 26.7%. While management has guided that higher margin projects will be delivered in the 2HFY2021, the OCBC team highlights that the group’s overall gross margin for FY2021 is expected to decline.
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Contract sales are also expected to fall in FY2021, after Yandlord reported an 11.5% decline y-o-y for 7M2021. “Management reiterated its full-year contracted sales target of RMB70 billion, which implies an expected dip of [approximately] 11% from FY2020,” the team says.
Nonetheless, the team points out that Yanlord’s financial position remains 'healthy', allowing it to mitigate industry headwinds. Net gearing ratio improved to 49.9% as at June 30, compared to 63.2% as at end-FY2020. “Its total cash over short-term debt was 2.8 times, and total liabilities (less contract liabilities) over total assets (less contract liabilities) was 66%, based on our calculations,” they add.
To that end, they have kept their forecasts unchanged.
The team notes that potential catalysts for Yanlord include the easing of price caps in key cities which Yanlord has exposure to, stronger-than-expected pre-sales, and a boost in dividends per share.
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Meanwhile, investment risks include further property cooling measures which could impact earnings, rising offshore funding costs and foreign exchange risks and overspending on land bank acquisitions.
As at 3.05pm, shares in Yanlord are trading flat at $1.19.