Saturday 4 November 2023

Yanlord Land: Would I invest in it?

Yanlord Land is a China developer where a large percentage of its business is in China's property developement. I know what a few of you are thinking: why bottom fish in a troubled sector. To me, I am thinking to capitalise on the recovery of the troubled real estate sector and the balance sheet value of the companies when the sector recovers. Yes, my foray into Country Garden ended up as a failure because the company has defaulted. However, this is part of the risk/reward decision- if a China property developer survives, market will appreciate to a higher P/B value and shareholders benefit; default and investors lose their money (like what has happened at China Evergrande and Country Garden)

Yanlord's Debt Profile

Yanlord has RMB 19 billion in cash and generates about RMB$1 billion cash annually. This means it is able to repay one year worth of debt without anymore further contracted sales.

If we are to factor in pre-sales and how the Chinese system collects 100% of cash upfront instead of stages of completion, Yanlord's approximate RMB11 billion in pre sales each year will give the company a sufficient lifeline to sustain ifor about 5 years. Its current NAV is priced at 0.2 times which is much higher (in a good way) than other distressed China property developers who seem to have only a year of cash left to cover their liabilites

Risk- Growing Unsold Properties

A risk of Yanlord is how completed proeprties for sale has grown to RMB 15.7 billion from RMB 10.7 billion in 6 months, indiciating a rise in unsold properties. There is a need to sell these assets to monetise them. Monetising just half of this properties will grant Yanlord the ability to weather the China storm no matter how long it goes.

Same too for is "Properties under developement for sale" (aka uncompleted properties for sale). It seems Yanlord has a large supply of unsold units where if sold will unlock a large amount of cash

My View

If the balance sheet shows the reality of the company, Yanlord does look strong on its balance sheet front and would be able to withstand the current crisis. This makes me wonder should I rotate out my country garden investments into Yanlord because the thesis was to ride on the China property recovery such that balance sheet value will be realised. Yanlord seems to be the stronger candidate now.

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<Author is not invested in Yanlord at time of writing>

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