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Monday 1 December 2008
Yanlord A Sell On Slowing China Property Market
Analysts are split on whether China-based property developer Yanlord Land shares have fallen far enough already to price in the cooling China property market, or whether they still have further to fall.
SINGAPORE (Dow Jones) – Analysts are split on whether China-based property developer Yanlord Land shares have fallen far enough already to price in the cooling China property market, or whether they still have further to fall.
But they agree that the outlook for the Chinese property market is weak with Credit Suisse, who has no rating on the stock, expecting China home prices to fall by 10-15% next year. The prospect of further negative news flow on the China property market means the shares are best avoided for now.
A year ago, China-based property developer Yanlord Land’s shares were trading at S$3.22 and the main risk to a booming China property market was believed to be government efforts to cool rampant speculation. The shares are now trading at just S$0.605 but China’s slowing economy and a battered property sector don’t leave much scope for value in the stock.
Of the nine analysts that cover the stock, three have a Buy rating, three a Hold and three a Sell.
Yanlord, which focuses on high-end properties in cities such as Shanghai, is already facing tougher trading conditions. Recent third quarter results were weak, with the company reporting a 75% on-year drop in net profit to S$8.8 million as a result of slowing home sales.
While analysts still expect net profit to rise for the full year as more home sales are due to complete during the fourth quarter, they expect profits to fall next year as the China property market slowdown bites.
JPMorgan analyst Joy Wang, who has a Neutral rating and S$1.10 target price, is forecasting full year 2008 net profit to rise 3% on-year to S$229 million, but for 2009 net profit to fall 46% on-year to S$122 million.
The company’s balance sheet has also been taking a marked turn for the worse. Gearing rose to 59% in the third quarter from 42% in the preceding quarter due to land acquisition and construction capital expenditure and analysts expect gearing to continue creeping up.
“We believe the upward trend is likely to accelerate in the next 18 months given a much slower turnover going forward,” said Wang in a recent note.
She is forecasting the company’s gearing to hit 106% by the end of next year.
Another concern is that the exercise of a put option on Yanlord’s convertible bond may require the company to find another S$318 million of capital by February 2010 and there are worries over potential provisions for land that the developer bought at high prices in the past.
“The market is concerned on whether the company is required to make a potential provision to allow for any cost discrepancy between the current market price and its book cost,” said Macquarie analyst Chris Cheng, who has an Underperform rating and S$0.67 target price.
The company said in its third quarter results statement that it expects the Chinese government’s stimulatory measures to provide a boost to the property sector, but analysts are not so sure.
“The stimulus package is targeted more towards low-cost housing, so it won’t really help high-end developers like Yanlord,” said DBS Vickers analyst Adrian Chua, who has a Hold rating with a S$1.00 target price.
Yanlord, trading on a 2009 price/earnings ratio of 5 based on consensus estimates, looks cheap compared to other blue-chip Singapore property developers, which trade on an average P/E ratio of 8.
But it is more meaningful to compare Yanlord to other high-end Chinese property developers that are listed in Hong Kong and that suggests further downside risk for Yanlord’s valuation as their average P/E ratio is only 3.
Yanlord’s premium rating looks unjustified given that analysts say the company’s heavy reliance on cities in the Yangtze River Delta area such as Shanghai and Nanjing where demand is slowing put it in a weaker position.
“We believe that the stock could underperform its peers listed in Hong Kong given still-weak sentiment in the market, especially in the Yangtze River Delta region and the group’s significant reliance on Yanlord Riverside City project in Shanghai, which has experienced substantial slowdown in sales,” said Wang.
1 comment:
Yanlord A Sell On Slowing China Property Market
By Kirsty Green, DJ
1 December 2008
SINGAPORE (Dow Jones) – Analysts are split on whether China-based property developer Yanlord Land shares have fallen far enough already to price in the cooling China property market, or whether they still have further to fall.
But they agree that the outlook for the Chinese property market is weak with Credit Suisse, who has no rating on the stock, expecting China home prices to fall by 10-15% next year. The prospect of further negative news flow on the China property market means the shares are best avoided for now.
A year ago, China-based property developer Yanlord Land’s shares were trading at S$3.22 and the main risk to a booming China property market was believed to be government efforts to cool rampant speculation. The shares are now trading at just S$0.605 but China’s slowing economy and a battered property sector don’t leave much scope for value in the stock.
Of the nine analysts that cover the stock, three have a Buy rating, three a Hold and three a Sell.
Yanlord, which focuses on high-end properties in cities such as Shanghai, is already facing tougher trading conditions. Recent third quarter results were weak, with the company reporting a 75% on-year drop in net profit to S$8.8 million as a result of slowing home sales.
While analysts still expect net profit to rise for the full year as more home sales are due to complete during the fourth quarter, they expect profits to fall next year as the China property market slowdown bites.
JPMorgan analyst Joy Wang, who has a Neutral rating and S$1.10 target price, is forecasting full year 2008 net profit to rise 3% on-year to S$229 million, but for 2009 net profit to fall 46% on-year to S$122 million.
The company’s balance sheet has also been taking a marked turn for the worse. Gearing rose to 59% in the third quarter from 42% in the preceding quarter due to land acquisition and construction capital expenditure and analysts expect gearing to continue creeping up.
“We believe the upward trend is likely to accelerate in the next 18 months given a much slower turnover going forward,” said Wang in a recent note.
She is forecasting the company’s gearing to hit 106% by the end of next year.
Another concern is that the exercise of a put option on Yanlord’s convertible bond may require the company to find another S$318 million of capital by February 2010 and there are worries over potential provisions for land that the developer bought at high prices in the past.
“The market is concerned on whether the company is required to make a potential provision to allow for any cost discrepancy between the current market price and its book cost,” said Macquarie analyst Chris Cheng, who has an Underperform rating and S$0.67 target price.
The company said in its third quarter results statement that it expects the Chinese government’s stimulatory measures to provide a boost to the property sector, but analysts are not so sure.
“The stimulus package is targeted more towards low-cost housing, so it won’t really help high-end developers like Yanlord,” said DBS Vickers analyst Adrian Chua, who has a Hold rating with a S$1.00 target price.
Yanlord, trading on a 2009 price/earnings ratio of 5 based on consensus estimates, looks cheap compared to other blue-chip Singapore property developers, which trade on an average P/E ratio of 8.
But it is more meaningful to compare Yanlord to other high-end Chinese property developers that are listed in Hong Kong and that suggests further downside risk for Yanlord’s valuation as their average P/E ratio is only 3.
Yanlord’s premium rating looks unjustified given that analysts say the company’s heavy reliance on cities in the Yangtze River Delta area such as Shanghai and Nanjing where demand is slowing put it in a weaker position.
“We believe that the stock could underperform its peers listed in Hong Kong given still-weak sentiment in the market, especially in the Yangtze River Delta region and the group’s significant reliance on Yanlord Riverside City project in Shanghai, which has experienced substantial slowdown in sales,” said Wang.
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