• Share price declined 2.7% year-to-date (YTD) and 15.6% from YTD peak
• Relatively high exposure to Shanghai
• Lower fair value from SGD1.44 to SGD1.37
Recent weakness in share price performance and soft contracted sales momentum – Yanlord’s share price has declined 2.7% YTD and 15.6% from its YTD peak. We believe this weakness can be attributed to two main reasons. First, it traded ex-dividend on 18 May 2022 (6.8 Singapore cents per share of dividends). Second, the Covid-19 resurgence, especially in Shanghai, has dampened investor sentiment and raised concerns over the impact on Yanlord. This is because Shanghai is a key city for Yanlord. In FY21, 16.8% of Yanlord’s property contracted pre-sales came from Shanghai, and lockdowns could result in construction delays and project deliveries to its customers. From our checks with Yanlord, its construction sites in Shanghai, Suzhou, and Nanjing were suspended for 60, 35, and 30 days, respectively, though the latter two have since resumed to normal construction status. Management expects to progressively resume
construction work in Shanghai from early Jun. For 2022, Yanlord had set a contracted sales target of
CNY75b, and this was to be supported by saleable resources of CNY120b, of which close to CNY40b was from Shanghai. The Covid-19 situation would likely have impacted management’s pre-sales efforts, although the recent relaxation of stringent measures should provide some reprieve and allow Yanlord to play catch-up. From our understanding, Yanlord is keeping to its full-year contracted sales target for now. We are maintaining our CNY68.5b forecast, which is more conservative as compared to Yanlord’s target. To mitigate the impact of control measures in place, Yanlord launched its enhanced ‘Yanlord Cloud Sales Center’, which is a web-based sales centre and property viewing portal for all of its developments in China. Furthermore, the Shanghai government is providing stimulus policies to promote the healthy development of the real estate sector and is also looking to fast-track pre-sales launches to ensure that new supply of residential properties can enter the market. Based on what Yanlord has announced, its Apr and May 2022 contracted presales (together with its joint ventures and associates) slumped 80.8% and 70.0% year-on-year (YoY) to CNY1.47b and CNY1.14b, while contracted gross floor area (GFA) sold fell 81.8% and 62.5% YoY to 40.8k and 47.7k square metres (sqm), respectively. This culminated in 5M22 contracted pre-sales and GFA sold declining by 23.2% and 45.3% YoY to CNY18.8b and 410.2k sqm, respectively.
Firmer policy easing signals – We had highlighted in our previous sector report on the Chinese property sector that although the physical Chinese real estate market remained under stress due to the impact from Covid-19 related lockdowns and continued weak consumer sentiment, there have been firmer industry policy easing signals, including from key government agencies and city-level policy relaxations. This should hopefully help to spur the sector’s recovery. We lower our FY22 core profit after tax and minority interests forecasts on slower GFA delivery assumptions. As we also factor in Yanlord’s upgraded ESG rating, our fair value estimate decreases from SGD1.44 to SD1.37.
Yanlord’s ESG rating was upgraded in Mar 2022. The upgrade was driven largely by Yanlord’s improved worker safety initiatives and formal whistle-blower protection system. Yanlord’s corporate governance practices are also on par with its global and home market peers, and most of its directors on its board and audit and pay committees are independent. However, on the other hand, only 4.1% of Yanlord’s portfolio (based on number of completed properties) was certified to green building standards in 2020, which was lower than the industry average of 10.9%. BUY. (Research Team)