Moderate results won't hurt Yanlord Land's credit ratings: Moody's

Given its high rebound potential.

Moody's Investors Service says that Yanlord Land Group Limited's moderate financial results for 1H 2013 will not have any impact on its Ba3 corporate family and senior unsecured ratings and
stable outlook.

"Despite a 4% year-on-year decline in revenue and lower profit margins in 1H 2013, we expect Yanlord's overall financial profile to remain consistent with its Ba3 rating over the next 12 to 18 months, given an expected rebound of its performance in 2H 2013 and its reasonable financial cushion," says Lina Choi, a Moody's Vice President and Senior Analyst.

Yanlord's weaker revenue growth in 1H 2013 was mainly due to the slowdown in the delivery of projects that it had pre-sold. Still, its gross margin increased slightly to 35.8% in 1H 2013 from 35.1% in 1H 2012 as a result of a favorable change in its product mix.

Moody's expects the company's revenue to grow in the low to mid-single digits for full-year 2013, owing to the likely robust delivery of projects in 2H 2013 based on strong contract sales of about RMB12 billion in 2012. Moreover, its gross margin is unlikely to decline considerably, given the stable average selling prices for its contract sales in 1H 2013.

In addition, although its adjusted EBITDA/interest fell to about 2.6x for the 12 months to 30 June 2013 from 3.1x in 2012, this level remains in line with its Ba3 rating.

Yanlord issued RMB2 billion three-year CNH bonds in May 2013 to replenish its land bank, thereby increasing its total debt to RMB16.2 billion at end-June 2013 from RMB13.6 billion at end-2012. Accordingly, adjusted debt/capitalization increased to around 39% from 34.6% during the same periods.

Nonetheless, Moody's expects Yanlord to remain prudent in its financial management. Its key credit metrics -- adjusted EBITDA/interest of 2.5x-3.0x and adjusted debt/total capitalization of 40%-45% -- for the next 12-18 months will remain consistent with its Ba3 rating level.

Yanlord also has adequate liquidity, as its cash on hand of RMB4.3 billion is sufficient to cover short-term maturing debt of RMB3.1 billion and unpaid land premium of RMB460 million.