Yanlord Land Group Limited’s Financial Strength Gets A Thumbs-up

China-based real estate developer Yanlord Land Group Limited (SGX: Z25) saw its revenue in 2015 jump by 41%. In addition, the company had also dramatically improved its balance sheet over the year, reducing its net debt of RMB 13.3 billion at the end of 2014 to just RMB 871 million at the end of 2015.

These – and more – are why credit ratings agencies Standard & Poor’s and Moody’s had given Yanlord Land’s credit profile a thumbs-up last week. In a Friday statement, Moody’s said that the company’s credit profile had improved; this follows a Thursday announcement by Standard & Poor’s that Yanlord Land’s credit rating had been pushed up to BB- from B+.

Moody’s announcement also stated that Yanlord Land has RMB 22 billion in unrecognized revenue which will be recognized over the next 12 to 18 months. With the company’s increase in sales, higher cash level, and lower debt in 2015, it is clearly in a much stronger financial position as compared to a year ago.

The report from Moody’s also stated that the company’s cash balance of RMB17.6 billion at the end of 2015 is more than three times the firm’s RM 5.8 billion in short-term debt. Yanlord has RMB 2 billion in bonds maturing in May 2016 and its strong cash position would also come in handy at that point in time.

But despite what we’ve seen from Moody’s and Standard & Poor’s, there are still risks with Yanlord Land that investors may want to note. Given the company’s record revenue last year and possibly this year as well, there is a need for the company to restock its land bank soon. If and when this happens, investors might see the debt levels of Yanlord Land rising again.

The company’s share price has increased by 17% year-to-date, even as the Straits Times Index (SGX: ^STI) has declined by around 2%. It appears that investors are becoming more optimistic about Yanlord Land’s prospects. That said, despite the run-up in the company’s shares, it still has valuations that look low. To the point, Yanlord Land is valued at just 0.5 times its book value and has a price-to-earnings ratio of just 7.

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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.