DBS analysts Jason Lam, Dexter Chun and Ben Wong have downgraded Yanlord Land Group Z25 to “hold” on from “buy” previously, while lifting their target price to 70 cents from 67 cents.
According to the analysts, Yanlord has had continually weak presales performance, with a 52% decrease y-o-y in 1HFY2024 ended June and thinning unbooked sales, as evidenced by a 21% h-o-h decrease to RMB53.6 billion ($9.87 billion).
“Development margin will also remain pressured amidst the ongoing property downcycle as projects presold at lower margins (10%-15%) enter its profit and loss (P&L) statement and further inventory impairments are expected up ahead,” the analysts add.
As such, the analysts expect Yanlord to record net losses in FY2024 to FY2025 forecasts.
Furthermore, the analysts state that the recent share price rally reduces any incentives to consider value-unlocking options. Yanlord’s share price is up about 13% year-to-date.
The analysts have identified Yanlord’s asset-heavy business portfolio as having meaningful value, with assessed net value reaching approximately $1.13 per share as of June 2024, incentivising its major shareholder to consider full or partial privatisation.
However, they are of the opinion that the window for unlocking value has narrowed, as the potential upside may not be as strong following the company’s recent share price rally following China’s shift in policy tone.
Additionally, the analysts state that Yanlord’s conservative investment strategy has enabled it to safeguard its cash-flow performance, but is disadvantageous in its ability to adjust project launches to benefit from the potential recovery in market sentiment.
China’s recent stimulus measures have improved market sentiments, which have been priced into the analysts’ upgraded target price.
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The analysts’ target price is pegged to a 0.2 times 1-year forward price-to-book ratio (P/B), equivalent to the average level that Yanlord has traded at during 3QFY2023.
As at 3.06pm, units in Yanlord are trading 7 cents lower or 9.66% down at 65.5 cents.
