Yanlord Land started at Buy by OCBC as undervalued play on high-end China property

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OCBC started Yanlord Land at Buy with a fair value of S$2.24, saying it’s an “attractively undervalued” play on a leading China high-end developer.

“We believe Yanlord has established a strong branding in the high-end segment of the PRC real estate market. The group’s focus is on prime
locations which are near city centres with good accessibility to transportation hubs and attractive views,” it said in a note on Wednesday.

It noted most of Yanlord’s land bank is in the Yangtze River Delta, Bahai Rim and the Greater Bay area, areas that OCBC is positive on. Yanlord’s “prudent” land acquisition strategies and its “superior” product quality allow it to reach an average land cost to average selling price percentage of around 25.0 percent last year, comparing favorably with its peers, OCBC said.

It forecast Yanlord’s profit after tax and minority interests (PATMI) would grow 9.2 percent this year and 8.6 percent next year.

At the same time, it estimated the stock is trading at a 2018 price-to-earnings ratio of 4.5 times and price-to-book ratio of 0.62 times, steep discounts of 42.3 percent and 60.9 percent to its peers’ weighted average respectively.

“While we acknowledge that Yanlord should be trading at a discount to its peers given its smaller size (market capitalisation and asset base), we opine that this sharp discount is unwarranted given Yanlord’s superior product quality and healthier balance sheet,” OCBC said.

The stock ended Thursday flat at S$1.74.

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