Yanlord shares rise on the back of positive report from Moody's

SINGAPORE - Shares of Yanlord Land Group rose after Moody's Investors Service issued a report noting that the Chinese property developer's strong profit margin and liquidity supported its Ba2 corporate family rating and stable outlook.

Shares of Yanlord rose 1.1 per cent to S$1.78 this morning. As of 2.40 pm, the stock was trading at S$1.765 - 0.5 cents higher on the day.

Yanlord on Monday posted net profit of 462.5 million yuan for the second quarter ended June 30, up 43 per cent from a year earlier owing to a larger share of projects with higher profit margins, as well as a revenue increase from car park sales.

"Yanlord's credit profile supports its Ba2 rating, and reflects the company's above-peer profit margin and interest coverage, as well as its strong liquidity profile," Mr Anthony Lee, Moody's lead analyst for Yanlord said on Wednesday.

Moody's last upgraded the Chinese developer's rating from Ba3 to Ba2 on April 25 as its earnings drew strength from the robust Chinese property market in 2016.

Its cash balance totalled 16 billion yuan, covering 2.6 times its short-term debt, as of the end of June, Mr Lee noted. On the other hand, Moody's noted that the company's debt leverage has risen, because of the high level of spending on land acquisitions.

"Nevertheless, we expect that Yanlord's high debt leverage as at June 2017 is temporary, and will return to a level commensurate with its Ba2 rating, based on the fact that we expect to see some moderation in its landbanking activities, and an acceleration in revenue growth over the next 6-12 months," he added.

Moody's expects that Yanlord will keep its total spending on land this year to within the company's budget of 15 to 20 billion yuan, which will in turn control debt growth in the second half.

The Chinese property developer will likely post higher revenue growth over the next 12 months, supported by a large amount of unrecognised revenue of 27.8 billion yuan as at the end of June, Mr Lee said.

Macquarie, which has an outperform call on the counter, said share buybacks may resume after the close of the takeover bid for United Engineers by a consortium led by Yanlord and Perennial Real Estate Holdings.

"According to SGX listing rules, share buybacks are not allowed during the period of making a general offer. As such, there have been no share buyback since March 28. We believe the company may resume buybacks once the deal completes," Macquarie analyst Wilson Ho said.

SAC Capital, the independent financial adviser to UE, said earlier this week that the takeover bid for UE is "fair and reasonable." Holders of UE's common stock and preference shares should accept the bidding group's offer - S$2.60 per common share and S$2.60 per preference share - unless they can get a better price on the open market, SAC said.

The offer closes on Aug 29.