Yong Tai Bhd (April 6, RM1.55)

Initiate buy with a target price (TP) of RM2.10: Yong Tai Bhd has successfully transformed into a Melaka-centric township property developer via its integrated 138-acre (56.25ha) Impression City with a RM7.7 billion gross development value, featuring the first-of-its-kind Impression Melaka — an iconic tourist landmark that showcases large-scale live cultural music performances.

As the first Impression Series outside China, the Strait of Melaka-fronting Impression Melaka is poised to be a resounding success by tapping into the booming Chinese tourism in Malaysia, which has seen an impressive 11% tourist arrivals compound annual growth rate (CAGR) from 2000 to 2016 (against 1% CAGR for Malaysia’s overall tourist arrivals), making it the third-largest tourist source market.  Also, Impression Melaka offers compelling value proposition given its estimated 20% internal rate of return over the 30-year concession, thus transforming Yong Tai into an emerging cash cow with a strong recurring income.

There is great potential in the Melaka property market, which is targeting not just its 900,000 local population, but also over 16 million tourists that visit the World Heritage City annually. Yong Tai’s impressive unbilled sales of RM990 million — anchored by en bloc sales of 262 retail lot units in Impression City for RM873 million — will underpin strong earnings visibility over the next two years. We believe Impression City’s attractive investment merit is under-appreciated by investors, and the official opening of Impression Melaka in February 2018 will be a major catalyst.

Given Yong Tai’s unrivalled competitive advantages arising from its unique tourism appeal and synergistic property product offerings, it is expected to deliver exponential earnings per share CAGR of 57% over its financial year ended June 30, 2016 (FY16) to FY19F (forecast). We envisage long-term earnings visibility for Yong Tai, reflecting the increasingly close Malaysia-China ties. — AllianceDBS Research, April 5

This article first appeared in The Edge Financial Daily, on April 7, 2017.

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