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.