Friday, November 18, 2011

Yanlord's hidden treasures may lie beyond stormy sea

Published November 18, 2011


RECENT exuberance about Yanlord Land Group Ltd following the emergence of prominent investors needs to be tempered by the possibility that the new substantial shareholders may be looking at a longer horizon than most.

Shares of Yanlord, the China luxury real estate developer, shot up by 12.7 per cent on Wednesday after billionaire Peter Lim, Wilmar International chairman Kuok Khoon Hong and UOB Kay Hian chairman Wee Ee Chao emerged as deemed substantial shareholders.

The company said after the close yesterday that Wilmar executive director Martua Sitorus is also deemed to hold more than 5 per cent of the company's stock.

Yesterday, the shares eased by just half-a-cent to close at $1.19. Between Aug 4 and Nov 16, when word about the tycoons' stake emerged, the stock had not closed above $1.17 even once.

Because the recent stock purchases were done through investment vehicles that have some degree of joint control between the four men, it remains unclear how much stake in Yanlord they actually own.

But the fact that such successful investors are adding to their holdings of Yanlord stock at all suggests that they must see value in the company.

The question is what value they might perceive. As one dealer said, Yanlord's shares had been 'battered' before the substantial shareholdings were announced.

One analyst told BT that the stock was trading at a discount of about 60 per cent to revised net asset value, which tries to adjust for the market value of the company's property assets.

Of course, that discount was largely because of a string of negative events.

On Oct 24, Yanlord said it would pay about 1.8 billion yuan (S$365 million) for a 60 per cent stake in two Zhuhai residential sites.

On Nov 4, the company said it would spend 1.7 billion yuan for a half stake in a Shanghai development.

It followed those heavy spending plans with disappointing third-quarter results on Nov 9, reporting a 99 per cent drop in profit attributable to equity holders because of global economic uncertainties and cooling measures by the Chinese government.

The weak earnings outlook and the aggressive spending have led to credit downgrades for the company. And three out of five analysts polled by Bloomberg in November had sell recommendations on the stock. The other two were neutral.

Do the tycoons see something that the analysts are missing? The answer is probably that they are looking at different things - Yanlord next year versus Yanlord after many years.

Carol Wu, an analyst at DBS Vickers Securities who has a hold call on Yanlord, said the short- to medium-term risks to the company are significant, but the longer-term prospects are actually positive.

'Next year whether they can do well depends on the performance of the luxury segment in China,' Ms Wu said. 'As long as the recession is in place, it's really challenging...

'But for those guys, they are quite long term, so at this level maybe you can hold for very long.'

That is a very important distinction that investors have to understand before jumping on the rally bandwagon.

Sure, the stock is cheap compared to underlying assets, but in order to unlock the value of those assets, investors may need to weather some rough waters in the short term.

As another analyst said, 'If it goes down 20 per cent tomorrow, Peter Lim doesn't mind.'

But investors who might need liquidity in the short term or are looking for a quick profit may want to think twice. - BT

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