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.
Not much affected by latest property tightening policies. The Chinese government recently announced property cooling measures such as a 20 percent capital gains tax and higher downpayments for second-time home buyers. Ying Li’s share price has pulled back by 20% following this announcement. However we do not see this new policy will affect Ying Li much and we think the market reaction was overdone. Ying Li’s residential portfolio mainly includes Ying Li International Plaza Block 2 to 5 and San Ya Wan Phase 2. Residential projects account for around 22% by GFA and 13% by value of Ying Li’s portfolio.
Among these residential projects, 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. Ying Li’s San Ya Wan project is at a prime location in the Chongqing Liangjiang New Area which is attracting more and more residents. The selling price there is still conservative and the good location can protect it from any significant future price drop. Going forward, we believe that the main focus of the company is still in commercial property sector thus we believe the effect of residential property tightening policy will not be significant on Ying Li.
Stronger balance sheet offers more flexibility going forward. Ying Li announced earlier this month that it has fully redeemed its SGD195m outstanding convertible bonds. Following this exercise, Ying Li’s balance sheet will comprise of only plain vanilla equity and bank borrowings. This offers Ying Li more flexibility in dealing with its IFC units. It can retain more office units for rental which would give it more recurring income sources. We also expect better cash flow in FY13 onwards on the back of higher sales from its pipeline, which could give Ying Li some room for new land bids.
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