Yong Tai Bhd (May 8, RM1.53)

Maintain buy call with an unchanged target price of RM2.10: During Yong Tai Bhd’s two-day non-deal roadshow in Singapore on May 2 and 3, 2017, investors were largely drawn to the potential of the first-of-its-kind Impression Melaka, given that it will be the first Impression Series outside China.

Born from the initial idea of having a complementary product to boost Melaka tourism, Impression Melaka offers an estimated 20% internal rate of return over the 30-year concession. It is projected to have a five-year payback period which is relatively conservative given that the Impression Series in China could have a payback period of three years.

Impression Melaka costs approximately RM300 million, of which RM37 million is for land acquisition of a 17-acre (6.88ha) site. It will mainly target tourists from China (40%), Asean (20%) and Malaysia (30%) for Impression Melaka, collectively contributing 90% of its ticket sales.

Judging from Melaka tourist arrivals which grew by leaps and bounds at a compound annual growth rate (CAGR) of 11% over the 2008 to 2016 period, versus 2% for overall tourist arrivals to Malaysia, filling up the seats should not be an issue. 

The Melaka market is growing steadily and healthily, given the absence of large developers that may distort the supply-demand dynamics. In addition, Melaka is the state with one of the lowest unemployment rates at 0.9%, compared with 3.5% for the country.

While the overall property market in Malaysia remains challenging, Yong Tai’s 138-acre flagship Impression City development is an integrated tourism destination that is likely to appeal to genuine homebuyers and investors. The cultural and tourist-centric mixed development is also strategically located 2.5km to the south-west of Melaka’s Unesco World Heritage Zone and the renowned Jonker Street.

Yong Tai’s first phase of retail properties in Impression City has been sold en bloc to Orient Venture Properties Bhd for RM873 million. Impression City’s latest launch of RM260 million serviced apartments Amber Covein in April 2017 has also received overwhelming response from local buyers with a 92% take-up rate for a total of 838 units. Its launch pipeline remains healthy as it is set to launch its 648-room condominium hotel in July 2017.

Near-term earnings visibility will be anchored by its RM1.1 billion unbilled sales which will be recognised over the next three years. Also, Impression Melaka will provide strong recurring income once it commences performance in February 2018.

The group is also in the midst of acquiring a 1.078-acre land in the famous tourism belt in Bukit Bintang which has an estimated RM1.2 billon gross development value (GDV). Also on the list is a 1.2-acre land (RM180 million GDV) in Jalan U-Thant, Kuala Lumpur.

We are projecting an exponential earnings per share CAGR of 57% between financial year 2016 (FY16) and FY19, given Yong Tai’s unrivalled competitive advantages arising from its unique tourism appeal and synergistic property product offerings. It also has a strong balance sheet with a net cash position of RM287 million (66 sen a share), having raised RM355 million from its fundraising exercise in 2016.

At this juncture, Yong Tai will focus on executing Impression Melaka. Regardless, it could expand its Impression Series franchise beyond Malaysia as it also holds exclusivity rights for the live music performances in Singapore, Indonesia, Thailand and the Philippines.

Yong Tai remains our top pick for the sector. We envisage long-term earnings visibility for Yong Tai as its Impression City and Impression Melaka ride on booming Chinese tourism, reflecting the unprecedented close Malaysia-China ties. It is trading at an undemanding 10 times FY18 price-earnings ratio, which is grossly unjustified, in our view. — AllianceDBS Research, May 8

This article first appeared in The Edge Financial Daily, on May 9, 2017.

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