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.