Ying Li

UOBKayhian on 16 May 2013

Valuation

·      Maintain BUY but with a reduced target price of S$0.64, pegged at a 23.5% discount to our RNAV of S$0.83/share. This is in line with the average discount for Chinese developers under our coverage.

·      We lower our plot ratio assumption for the San Ya Wan project to 2.2x from 3x but increase the ASP assumption to account for the change of use to higher-value commercial/residential mixed development.

·      Potential catalysts include the monetisation of its retail assets as well as new growth initiatives from its new CEO.

1Q13 Financial Highlights

·      Net profit more than doubled yoy to Rmb7.5m in 1Q13 despite a 14.6% yoy decline in revenue as the group recognised less property sales during the quarter. Gross profit increased 20.2% yoy to Rmb60.7m with gross margin improving to 58.6% on a larger proportion of higher-margin rental income.

·      Selling expenses declined 16.9% yoy to Rmb8.2m as most of the initial operating costs for International Finance Centre (IFC) mall have stabilised. Finance cost jumped to Rmb20.9m from Rmb8.0m in 1Q12 as the group has completed the IFC project and hence, most of the interest cost had to be expensed in the P&L instead of capitalising it into the developing properties.

·      As at 31 Mar 13, the group’s net gearing ratio fell from 54.5% in 2012 to 49.5% after redeeming its S$195m convertible bond but had drawn down more construction loans.   

Our View

·      Results were within expectations as Ying Li can only recognised the sale of its properties upon completion. We see strong earnings growth for the year as the group has collected more than Rmb956m of pre-sales proceeds from theInternational Plaza last year.

·      According to management, the main super-structure for most of blocks of the InternationalPlaza has been completed and the retail mall has also secured 56.2% of contracted lease as of 1Q13. Ying Li is confident of launching the mall this year.

·      For the San Ya Wan project, the company has gotten approval to increase the plot ratio from 1.6x to 2.2x but is awaiting the change of use from industrial to commercial/ residential mixed development. Piling and construction works will start by 3Q13.

·      Although the new CEO Mr Ko has yet to reveal the strategic outline for Ying Li's future growth, he reassured analysts during the meeting that he is currently fine tuning the details before presenting to the new board of directors and will share with the public in due time.

Ying Li International

Kim Eng on 1 Apr 2013

Relatively unscathed by China property tightening. Ying Li’s share price dropped to SGD0.42 from the peak of SGD0.53 after the Chinese government announced the latest round of property cooling measures including a 20 percent capital gains tax and higher downpayments for second-time home buyers. In our view, the market’s negative reaction is overdone because we believe Ying Li will be less affected by the recent
property cooling measures. Reiterate BUY with target price of SGD0.61, pegged to 25% discount to RNAV.

Ying Li’s residential property portfolio. China announced further residential property curbs on 1 March 2013. Ying Li’s residential portfolio mainly includes Ying Li International Plaza Block 2 to 5 and San Ya Wan Phase 2, which only accounts for a small proportion of the total portfolio. Among these, Ying Li International Plaza Block 2 to 5 have been largely sold out and San Ya Wan Phase 2 will only be delivered after 2015. In our view, there will be very little immediate effect from the latest property cooling measures.

New CEO, new opportunities. Ying Li recently appointed Mr Ko Kheng Hwa as CEO. Mr Ko’s rich experience in Singapore and China could open up new opportunities for Ying Li. It is possible to even explore other business models such as the integrated township projects that Mr Ko used to lead in his previous company. We note that there are several township projects currently under planning in Chongqing Liangjiang New Area, that Ying Li could participate in.

Reiterate BUY for robust growth. We are projecting an average 40% EPS growth in the next three years on the back of strong pipeline of assets. We like Ying Li’s prime asset quality and its exposure to highend commercial property sector in Chongqing. We believe that Ying Li offers the most direct exposure to Chongqing’s fast-growing economy and stands to benefit from Chongqing’s ambition to be a commercial and manufacturing hub in west China. Maintain BUY and target price of SGD0.61, pegged to 25% discount to RNAV.

Ying Li International Real Estate

UOBKayhian on 26 Mar 2013

Valuation

·      Maintain BUY with a target price of S$0.65, pegged at a 21.8% discount to our RNAV of S$0.83/share, in line with the average discount for Chinese developers under our coverage.

Investment Highlights

·      Sell-down unwarranted due to Ying Li’s limited exposure to residential properties.Ying Li’s share price has declined 9% after Chinaannounced several cooling measures for its residential property sector. These measures include higher downpayment, increase in residential land supply and accelerated development of social housing. The company’s current portfolio of developing properties comprises less than 15% in residential properties (mainly International Plaza, where more than 95% is sold in all the four phases); the policy risk to Ying Li is considered low.

·      New CEO to raise the profile of Ying Li. We are excited about the company’s recent appointment of Mr Ko Kheng Hwa as Group CEO. Mr Ko was previously the CEO of Singbridge International Singapore Pte Ltd, which is wholly-owned by Temasek Holdings and invests in and master-develops large-scale integrated townships in China. Currently, he remains as the Senior Advisor of Singbridge Corporate Pte Ltd, advising the company on the Guangzhou Knowledge City and the TianjinEco-city projects. With such deep experience inChina, we believe Mr Ko can assist Ying Li to pursue new opportunities in China perhaps out ofChongqing.  

·      We expect share price to be driven by strong earnings. Ying Li will recognise the entire sales proceeds from International Plaza and book in the profits this year. Currently, more than 96% of all four phases have been sold with pre-sales proceeds of Rmb914m as of 31 Dec 12. With the possible sale of more office units in Ying Li International Financial Centre, we expect the company to record revenue of Rmb1,475m and core earnings of Rmb309m excluding revaluation gains.

·      Spin-off of the retail malls into a REIT to recycle capital. Ying Li has plans to transfer its retail malls into a trust vehicle for listing to monetise the assets and recycle the capital. Management believes in the long-term growth prospect of Chongqing and sees several opportunities in securing good land parcels for commercial property developments.

·      RNAV surprises will come from Wuyi Rdproject and San Ya Wan phase 2. We have yet to receive the breakdown in the type of properties in Wuyi Rd project from management. As a recap, Ying Li bought a plot of land adjacent to their Wuyi Rd project in Dec 11 and boosted the project GFA from 160,000 sqm to 240,000 sqm. Depending on the type of properties in the project configuration, Ying Li may be able to build a greater portion of higher value retail component. Similarly for San Ya Wan, pending final approval from local authorities, the plot ratio for the entire project (Phase 1, 1A and 2) may increase from 1.5x to 1.9x. This will lift the undeveloped phase 2 plot ratio to 3x from 1.5x previously.

Ying Li International Real Estate

UOBKayhian on 19 Feb 2013

Valuation

·      Maintain BUY with a higher target price of S$0.65, pegged at a 21.8% discount to our RNAV of S$0.83/share, in line with the average discount for Chinese developers under our coverage. We raise our RNAV to S$0.83/share as we input a higher plot ratio for San Ya Wan in our forecast.

·      Although share price has gained 50% since our last report dated 20 Nov 12, we believe this run still has got legs.

Investment highlights

·      Revision of San Yan Wan’s (SYW) plot ratio could be the kicker. Currently, the land is zoned commercial with a plot ratio of 1.5x. In 2010, Ying Li’s original intention was to develop this 89,700sqm site into a commercial property with a GFA of 140,000sqm. However, since 2010, there have been a lot of redevelopments in the area with the government committed to develop the Liangjiang New Area (两江新区) to house a new city centre,Cuntan Bonded Port and an industrial base for airport electromechanical exports. In short, thisarea will be the new growth engine for westernChina.

·      Management has been tight-lipped on the SYW project as it is negotiating with the local government on the change of use of the property from commercial to residential with a subsequent upgrade on the plot ratio. Talks have been in place since 2010 and we believe a decision will be announced by this year. We conservatively upgrade the plot ratio from 1.6x to 3.2x in our earnings model. Our sensitivity analysis suggests that our RNAV will increase 3.6% if we input a higher plot ratio of 4x. 

·      Near-term catalyst will be the repayment of the S$200m convertible bonds (CB) due next month. As a recap, Ying Li issued the CB to finance the purchase of a plot of land for the Chongqing Financial Street project. The bond holders have a put option for the company to redeem. With the cash in hand, a S$100m loan facility by Standard Chartered Bank and trade receivables of Rmb278m, Ying Li has more than adequate cash to redeem this CB.

Earnings Review

·      Ying Li will announce 2012 results on 26 February. We expect revenue of Rmb651.5m and core profit of Rmb125.0m, excluding non-recurring property revaluation gains. This will be driven by strong sales of office units in the IFC and retail units in SYW. Ying Li remains focused on developing the retail mall in Ying Li International Plaza and with the retail malls from IFC and Future International, the group may launch these assets into a commercial REIT in 2014. This corporate action will be a medium-term catalyst for the stock price to re-rate towards our target price.

Ying Li International Real Estate

UOBKayhian on 20 Nov 2012

Valuation
·      Maintain BUY and target price of S$0.42, pegged at a 35% discount to our RNAV of S$0.65/share, larger than the 24.1% average discount of Chinese developers under our coverage.

9M12 Results
·      Ying Li posted a net profit of Rmb54.6m for 9M12, reversing from a loss of Rmb33.4m in 9M11, as revenue rose on strong property sales. Revenue jumped more than three- fold yoy to Rmb426.4m mainly due to sales from the IFC office space and several investment property units. Gross margin improved from 33.2% in 9M11 to 44.0% due to its low-cost structure coupled with strong demand for its Grade A office units.
·      Selling expenses escalated to Rmb31.2m (+156.7% yoy) on higher sales and marketing costs for Ying Li International Plaza. Cash level rose to Rmb484.4m from Rmb342.8m in 9M11 as the group collected presales from Ying Li International Plaza and rental deposits.

Our view
·      2012 earnings to fall but cash flow to improve. We postpone the profit recognition of Ying Li’s International Plaza to 2013-14 as the group intends to accelerate its construction for presales instead of handing over and booking in the profit this year. Currently, more than 95% of all four phases have been sold with pre-sales proceeds of Rmb717m. With the cash in hand, a S$100m loan facility by Standard Chartered Bank and trade receivables of Rmb278m, Ying Li has more than adequate cash to refinance its S$200m convertible bonds (CB) due Mar 13, if necessary.
·      As a recap, Ying Li issued the CB to buy a plot of land for the Chongqing Financial Street project. The CB holders have a put option for the company to redeem in Mar 13. Along with the sales of the IFC office space, Ying Li can generate over Rmb1b in cash in 2013. We view the postponement of profit recognition as positive, despite taking a hit in the P&L statement, as it will alleviate concerns over whether the company can refinance these bonds.
·      We expect revenue of Rmb651.5m for 2012 with a core profit of Rmb125.0m if we exclude non-recurring property revaluation gains. This is driven by strong sales of the office units in the IFC and retail units in San Ya Wan. Ying Li remains focused on developing the retail mall in Ying Li International Plaza and with the retail malls from IFC and Future International, the group may launch these assets into a commercial REIT.

Ying Li International

Kim Eng on 16 Nov 2012

Strong yoy growth. 3QFY12 results were largely in line with consensus. Net profit came in at RMB54.6m in 9M12 vs a loss of RMB33.4m in 9M11. The growth is mainly driven by the sale of IFC office units and rental income growth. Sufficient revenue contributors in pipeline, including IFC, Yingli International Plaza, Financial Street project and San Ya Wan Phase 2, give clear earnings visibility for the next three years. Maintain BUY with RNAV derived target price of SGD0.50.

RNAV estimate intact despite slightly slower revenue recognition. Ying Li’s property sales are slightly slower than we expected. But the cash flow from pre-contract sales is largely in line. We believe Ying Li are on the track to meet its pre-sales target for this year, thus the delay in revenue recognition will not significantly impact our RNAV estimate.

Recent SGD100m bank facility provides more flexibility. Ying Li secured SGD100m bank facility from SCB and OCBC in October. This largely eased the potential redemption pressure of its convertible bonds in March 2013. The new bank facility together with existing undrawn loan commitments of RMB521m is sufficient to meet the CB redemption requirements. Thus Ying Li will have more flexibility to keep its IFC offices for rental purpose instead of for sale. With more office units being booked under “investment properties” category, we are likely to see higher revaluation gain in 4Q12.

Deep discount to RNAV. We derived our target price based on 40% discount to our RNAV forecast. Big proportion of Ying Li’s property assets located in the center of Chongqing Jiefangbei CBD and its IFC office is currently still the only new international Grade A office within the Chongqing “Jiefangbei” CBD. Given the prime location and very high-end profile of Ying Li’s assets, we believe this stock deserve a higher valuation than current level.

Ying Li International

Kim Eng on 15 Aug 2012

Strong yoy growth as expected. Ying Li International announced its 2QFY12 results yesterday. Net profit came in at RMB40m in 2Q12 vs a loss of RMB17m in 2Q11. The growth is mainly driven by the sale of IFC office units as well as rental income growth. 2H revenue will continue to be supported by IFC. Earnings visibility is good for the next two years given the pre-sales base from its Ying Li International Plaza. Maintain BUY with target price of SGD0.50.

Sale of office units at IFC. RMB125m of revenue was recognized from the sale of IFC office units in 2Q12 vs RMB108m in 1Q12. Ying Li is on the track of meeting its sales target of 20,000 sqm in this year with ASP expected to be around RMB25,000/sqm.

On Track, on target. 1) Ying Li IFC’s leasing activity is also going smoothly. It has already secured several big international and domestic tenants such as Deloitte, CapitaLand, DBS, GIC, Goldman Sachs, Kang Tai Insurance. 2) Construction on International Plaza is on schedule and the whole project expected to complete in 2014. Block 3 was launched for sales in late July and well-received by the market. 75% of total units have been sold and RMB200m pre-sales have achieved already. Their remaining Block 1 and 2 will be open to market in 4Q12. Pre-sales from International Plaza will support the revenue for 2013 and 2014.

Future sales proceeds to boost cash flow. Although net gearing rose to 58% in 2Q12 mainly due to the borrowing for International Plaza project and loan repayment, we are confident that the continuous sales of IFC and launch of International Plaza Block 1, 2 and 3 will generate sufficient cash flow to cover the debt burden.

Deep discount to RNAV. We derived our target price based on 40% discount to our RNAV forecast. Given the prime location and very high-end profile of Ying Li’s assets, we believe this stock deserve a higher valuation than current level.

Ying Li International

Kim Eng on 10 Jul 2012

Biggest winner in Chongqing CBD renewal development. Over the years, Ying Li has proven to be the leading Chongqing CBD urban renewal developer. A track record for high-quality delivery will help Ying Li continue to win urban renewal projects in the future, in our view. We reiterate our BUY call on Ying Li International with target price unchanged at SGD0.50 based on 40% to RNAV post our company visit.

Sentiment will improve on China’s policy easing. A series of recent moves by Chinese government, including cuts in interest rates and bank reserve requirement ratios (RRR) as well as the acceleration of the approval process for infrastructure projects, suggest that China is loosening policy, and there could more measures along these lines to come in the future. This will boost sentiment for developers and marginally lower borrowing costs for the sector, in our view.

Well-positioned to benefit from “Go West” policy. Ying Li will continue to benefit from the Chinese government’s “Go West” policy. The Chongqing municipal government has been very proactive in developing the city into a financial center and trading hub for western China, which will support demand for office, commercial and residential buildings.

Long-term catalyst. Ying Li currently has three main projects, namely Ying Li International Plaza, Wu Yi Road Project and Lu Zu Project, under construction, with total GFA of around 778,000sq m. Around 200,000sq m in total of above-mentioned three projects will be used for commercial malls. Ying Li plans to spin off its investment properties (mainly commercial malls) into a REIT once the portfolio size reaches USD1b. We expect this to materialise in 2014.

Ying Li International

Kim Eng on 28 Feb 2012

Maintain Buy. Ying Li’s 4Q11 recurring net profit was largely within our expectations, after excluding the RMB230m gain from the fair value revaluation of its investment properties. Revenue of RMB495.4m (+1,286.1% YoY) was mainly boosted by the recognition of 15,000 sq m of International Financial Centre (IFC) office space, with the remaining 5,000 sq m to be recognised this year. Maintain Buy.

More office space for sale. On the flip side, gross profit margins for 4Q11 and FY11 narrowed by 14.1ppt and 26.7ppt, respectively, to 40.9% and 39.6%. This was due to sales of revalued investment properties yielding lower margins and an absence of consultancy income. To enhance cash flow, management plans to sell another 20,000-25,000 sq m of office space at about RMB25,000 psm.

Balance sheet in comfortable position. Ying Li’s net gearing rose to 56.9%, from 41.1% last year, due to new borrowings for the incremental project cost incurred for IFC and Daping. However, finance costs were lower as interest income received from the buyback portion of its convertible bonds (CB) was offset against the bonds’ interest expense. Moreover, part of the interest expense was capitalised as project cost.

Project execution on track. With the completion of its office building, Ying Li has leased out 22% of the total space to international and domestic clients, including DBS Bank, JCDecaux, Heidrick & Struggles, CBRE and Taikang Insurance. It is also in advanced negotiations with other potential tenants. Management has noted a strong response to the launch of Ying Li International Plaza Phase 1 residential units last December. The project is expected to be fully completed in 2014.

Still has 32% upside potential. Even though Ying Li’s share price has gained 29% since our report last month, we are maintaining our Buy recommendation and target price of $0.50, which is pegged at a 40% discount to the stock’s RNAV per share of $0.83. Our target price still offers 32% upside potential. One positive catalyst is successful refinancing for its early redemption of CB due March 2013.