DBS Group Research downgraded Yanlord Land to “hold” from “buy” following the stock’s share price rally, as the research house believes positive investor sentiment is now priced in.
It nonetheless raised its target price on the stock to S$0.70 versus S$0.67 previously, which values Yanlord at 0.2 times the one-year forward price-to-book ratio.
In a report on Monday (Oct 14), DBS analysts noted that this is equivalent to the average level at which Yanlord traded during the third quarter of 2023 – which they consider to be a “logical reference point for developers”.
This is in view of China’s new economic policy measures proposed in an Oct 12 meeting, which include increased debt as well as reduced interest rates on existing mortgages.
Noting that Yanlord’s stock has rallied more than 60 per cent since the end of September, DBS said it believes near-term catalysts are limited considering the counter’s low flexibility on adjusting project launches.
“Yanlord’s conservative investment strategy since the property sector downcycle has allowed it to safeguard its cash-flow performance, but came with a disadvantage in its ability to adjust project launches for it to benefit from the potential recovery in market sentiment,” said the research house.
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The window to unlock value in Yanlord’s asset-heavy business portfolio may be narrowing, added its analysts, as the potential upside “may not be as attractive” after the company’s recent share price rally subsequent to China’s shift in policy tone.
Yanlord Land recently reversed into the red with a loss of 486 million yuan (S$89.3 million) for the six months ended Jun 30, compared with net profit of 1.1 billion yuan in the year-ago period.
Looking ahead, DBS expects the Chinese real estate developer to record net losses for FY2024/25 due to ongoing pressure on its development earnings.
Noting continually weak pre-sales performance in the developer’s latest set of results for the first half-year, DBS believes the group’s near-term development revenue and margins will remain pressured amid China’s ongoing property downcycle.
The research team further believes that Yanlord’s ability to capitalise on a potential recovery in market sentiment may be hindered by maintaining a defensive stance.
Shares of Yanlord Land were trading down 6.9 per cent or S$0.05 at S$0.675 as at 11.43 am on Tuesday.
