Asked on 30 Mar 2019
Hi guys! I am vested in the above due to:
1) High land bank in 1st-tier cities
2) Low dividend payout ratio (17%)
3) Low PB
PE Value (0.5
4) Low float (~30%), majority of stock ownership with CEO
5) Decreasing expenses
I'm wondering when will Yanlord see it's true potential & if or when the CEO would privatise the company? Looking at the above reasons, it seems to be relatively undervalued and despite the recent news about sold-out units, it still doesn't spur the price. Many thanks!
Business Profile: Yanlord is a real estate development company focusing on high-end and luxury residential developments throughout 14 major cities in China and has a very established landbank. It has a market cap of over $2.73 Bn, and has been getting quite a lot of attention for potential high growth rates.
Financials: Revenue decreased from FY17 to FY18 by almost 4%. Overall Profit Before Tax had also fallen because of increases in financing costs, selling & admin expenses despite increases in Other Opearting Income and gains. Current ratio seems quite healthy at almost 1.5. FY18 also seems like the year where they paid off the rest of their short-term debt, with no new short-term debt due this current FY. Cashflow from operating activities had also turned a positive since last FY, due to a significant decrease in cash outflow for properties in development and improved working capital.
Valuation: Based on analysis from DBS and Simply WallSt, it seems that this share is undervalued. This is based both on intrinsic valuation from forward earnings, but also a comparison with Yanlord's current P/E ratio of 3.81X which is lower than their historical average of 5X. Although target price has fallen, it seems that the undervalued stock may be a good buy.
Risks: Many of Yanlord's projects which perform well are situated in Tier 1/2 cities in China. However, these areas are still tightly controlled by the central government and there is a risk that changes in policies and regulations could affect how businesses are operated there. A slowing down of the Chinese economy could also lead to slower growth rates and opportunities in the future.
Growth Opportunities: Yanlord will likely reduce their acquisitions of new land and properties, due to the higher gearing ratio that they have and lower pre-sales. Yanlord has more incentive to launch projects at government guided price.