Ying Li results within expectations; new strategy to be unveiled soon

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

Ying Li little affected y cooling measures

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