At $1.11, Yanlord Land Group is at a one-year low. During the Covid-19 sell down in March last year, Yanlord fell to as low as 91 cents. At its current level, Yanlord is trading at a fraction of its net asset value (NAV) at 0.33 times. Even allowing for its assets being mainly in China (except for its Tulip Garden-Leedon Green development in Singapore) and ownership of United Engineers, Yanlord is trading at a hefty discount. However, trading at a hefty discount may also imply a value trap. Has Yanlord always traded at a discount?

Yes, most property stocks trade at discounts to book or to NAV (P/NAV). To distinguish between a value trap and undervalued, the company’s return on equity (ROE) needs to be higher than its cost of capital. This is a very high bar. Out of 165 companies with price to book ratios of below 0.6 times, barely seven have ROEs above their cost of capital. This could also be because FY2020 was a year dominated by Covid-19 and nothing was normal.

Interestingly, Yanlord’s ROE is higher than its weighted average cost of capital (WACC), defined as the cost of debt plus cost of equity plus cost of preferred stock. This makes Yanlord interesting. Of all the property developers with P/NAVs below 0.6 times, including the likes of Hong Fok Corp and Tuan Sing Holdings, only Yanlord’s ROE is above is WACC. In fact, only 13 companies have ROE higher than WACC among stocks with P/NAV at 0.6 times or lower.

To continue reading,

Sign in to access this Premium article.

Subscription entitlements:

Less than $9 per month
3 Simultaneous logins across all devices
Unlimited access to latest and premium articles
Bonus unlimited access to online articles and virtual newspaper on The Edge Malaysia (single login)

Stay updated with Singapore corporate news stories for FREE

Follow our Telegram | Facebook