Yanlord Land Group

[cfa]

On 12 August 2015, Yanlord Land (YLLGSP rated Ba3/B+) announced a strong set of

1H15 results. Driven by the delivery of Nanjing Yanlord Yangtze Riverbay Town (Phase

3), which generated gross margin of 50% and accounts for 57% of the group&rsquo s recognised

property sales its profitability as reflected by gross and EBITDA margin stood at one of

the highest among peers- at 37% and 25% respectively, in 1H15. Contracted sales of the

group were up by more than 150% y-o-y to RMB11bn in 1H15, representing 61% of its

full year contracted sales target of RMB18bn. This, together with lack of new land

purchases, led to meaningful balance sheet de-leveraging. To be specific, the group&rsquo s net

debt was down 13% from end 2014 level to RMB11.5bn with net gearing down to 39%

as of end June 2015 from 45% as of end 2014. Cash on hand reached all time high level of

RMB8bn, which comfortably covers short-term debt of RMB4.5bn, inclusive of RMB2bn

YLLGSP&rsquo 16 (due in May 2016). Debt-to-capitalisation was held steady at 40%.

Looking into 2H15e, Yanlord Land has various new launches in Shanghai and Nanjing, and should

continue to capitalise on the strong sales momentum in these cities. On 8 August 2015, the group

launched the latest batch of apartment units for sale at Nanjing Yangtze Riverbay Town (Phase 4), and

fetched RMB2.3bn subscription sales (on gross floor area 58,600 sq m or average selling price

RMB40,000 per sq m) on the launch project day. These shall bring the group&rsquo s subscription sales pending

conversion to RMB4.7bn, in addition to RMB13bn contracted sales from January to July 2015.

With new batches of units to be launched from Shanghai Yanlord Sunland Garden, Eastern Garden and

Western Garden Nanjing Yanlord Yangtze Riverbay Town as well as debut launch of Shanghai Yanlord

on the Park and Nanjing Eco Hi-Tech Island project, we expect Yanlord Land&rsquo s contracted sales for 2015

to reach RMB28-30bn, substantially above its RMB18bn contracted sales target for the year. In such

context, we expect the group to actively look for land replenishment opportunities in 2H15e. In our base

case, we assume the group to earmark RMB10bn for land activities, which is substantially above the

RMB4-5bn guidance. That said, the group should still be free cash flow breakeven in 2015e (see Table 3).

With the delivery of Phase 1 for Shenzhen Yanlord Yosemite and Tianjin Yanlord projects, which

generated lower gross margin, we expect the group&rsquo s gross margin normalising to 30% towards 2015e.