What Would Warren Buffett Make Of Yanlord Land Group?

Property is not a taboo investment as far as Warren Buffett is concerned. He simply wants to be able to estimate the yield on an investment over the lifetime of the investment. With Yanlord Land Group (SGX: Z25) he might just have that.

The company is a Singapore-listed Chinese property developer. It builds high-end residential and commercial property, which it subsequently holds for long-term for their recurring revenues.

Buffett likes companies with low earnings volatility. Since 2004, the Yanlord has generated around S$299 million in earnings every year. Last year, the property developer reported a bottom-line profit of S$321 million.

On average Yanlord’s Net Income Margin is around 17%, which is quite high. It has been as high as 26% in 2010, though last year it dropped to around 9%.

Buffett also wants his companies to sweat their assets. Even though Yanlord is asset-heavy, it makes good use of what it has.

Over the last decade, it generated around S$23 of sales on every S$100 of asset at its disposal. Last year’s Asset Turnover was in line with its long-term average of 0.23. What’s more, turnover has increased steadily from S$361 million in 2004 to S$3.6 billion last year.

Yanlord does make use of leverage. Last year it reported Total Assets of S$85.9 billion and Total Liabilities of S$55.9 billion, which equates to a Leverage Ratio of 2.8.

That could be an area of concern, given that nearly a quarter of the liabilities are comprised of both long and short-term loans. Exposure to debt could make the company vulnerable to macroeconomic risks, such as unwanted interest-rate movements.

As a final check, Buffett likes stocks that are cheap compared to their book values. Currently, shares in Yanlord Land cost around S$1.28 a piece, while its book value per share is S$2.14. A price-to-book of just 0.6 might appeal to Buffett’s yearning for value.

Yanlord ticks many of the boxes that Buffett would look for in a good investment. He might just run his slide rule over the company a couple more times, just to make sure he is getting good value for his money.

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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 Director David Kuo doesn’t own shares in any companies mentioned.