Is This Property Company Undervalued?

The property sector has been unimpressive for the past few years.

After the implementation of cooling measures in the property sector by both the Singapore government and the Chinese government, many property-related companies have seen their share prices decline over the past 3 years. However, has the prices of these companies fallen so far that they might actually be undervalued?

For example one of major property developers listed here in Singapore is currently trading at a price to its tangible book value of below 0.5 times! This means that in theory, investors are paying just 50 cents for every dollar of tangible equity the company holds. Does that make it a great investment?

Yanlord Land Group Limited

The company is Yanlord Land Group Limited (SGX: Z25). Trading at S$1.08 per share now, it has a price-to-earnings of only 7.6 times, and a price to tangible book value of 0.5 times.

The company mainly invests and develops properties in China. Yanlord also has a strong base of investment properties. In fact, 15% of its assets are its investment properties. The company seems to have a reasonable and manageable debt level as well. Its net debt-to-equity stood at 39.6% during its last quarterly reporting in June 2015.

It also has an interest coverage ratio (EBIT/Interest Expense) of 12.5 times currently. So, is its “low valuation” justified?


For one, there are risks of the slowing economy in China. If the economy slows down in China, its people will accumulate wealth at a slower rate and that might directly impact the sales of properties in the mainland.

Moreover, there continues to be pressure for the Chinese government to depreciate the Renminbi. For investors in Singapore, investing into a company that generates revenues in Renminbi, that might depreciate against the Singapore dollar, might not be ideal.

Foolish Summary

Metrics such as price-to-book ratio or price-to-earnings ratio give us a good sense of where undervalued companies might be. However, they do not tell the whole story. The future of these companies are what will determine how the investment will do going forward.

For example, Yanlord Land certainly looks “cheap”. Yet, whether the company will be a great investment in the future depends on how the business will continue to perform, and not because it seems “cheap” compared to its past performance.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any company mentioned.