Brokers’ take: OCBC cuts Yanlord Land target to S$1.37 on Shanghai exposure

OCBC Investment Research on Thursday (Jun 9) lowered its fair-value estimates for Yanlord Land Group : Z25 0% to S$1.37 from S$1.44, amid worries about the Chinese developer’s exposure to the Shanghai market.

The research team cautioned that Covid-19-related lockdowns in Shanghai could result in construction delays and affect project deliveries to its customers.

Its new target implies a potential upside of 28 per cent from Yanlord’s Thursday trading price of S$1.07 as at 4.33 pm. Yanlord was trading 0.9 per cent or S$0.01 lower at the time.

Shanghai was the top contributor to the group’s contracted pre-sales in May 2022, driving 43.9 per cent of the pre-sales, according to its unaudited key operating figures released on Jun 6. Other key contributing cities are Suzhou (17.5 per cent), Singapore (9.2 per cent), Hangzhou (6.2 per cent), and Haikou (4.5 per cent).

Although Yanlord is targeting a rebound in contracted sales in 2022, OCBC Investment Research believes there is a possibility of a miss given the resurgence of Covid-19 in Shanghai.

That being said, the research team believes that Yanlord’s solid balance sheet would allow the group to weather industry headwinds. It maintains its 68.5 billion yuan (S$14.1 billion) forecast for the group’s full-year contracted sales target, which is more conservative compared with Yanlord’s 75 billion yuan forecast.

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The group’s contracted GFA sold fell 81.8 per cent year on year in April 2022 to 40,803 square metres (sq m) and dropped 62.5 per cent in May 2022 to 47,695 sq m.

Contracted pre-sales, together with the group’s joint ventures and associates, tumbled 80.8 per cent year on year to 1.5 billion yuan in April 2022, while May 2022 contracted pre-sales slumped 70 per cent to 1.1 billion yuan.

OCBC Investment Research has also lowered its estimates on FY2022 core profit after tax and minority interests on slower gross floor area (GFA) delivery assumptions.

Even though China’s real estate market remained under stress due to the impact of lockdowns and continued weak consumer sentiment, there have been firmer industry policy easing signals, including key government agencies and city-level policy relaxations, the research team said.

“This should hopefully help spur the sector’s recovery,” OCBC Investment Research added.