Menara YNH to kick off by 2014

YNH Property Bhd will start work on the much-awaited Menara YNH in Kuala Lumpur as soon as it secures anchor tenants for the planned office and shopping mall project with RM2.1 billion gross development value (GDV) — which is 2.6 times its current market capitalisation — its top officials say.

"We're in no hurry to start the development of this project. Normally, we only build or develop projects to meet demand," YNH chairman Datuk Dr Yu Kuan Chon tells The Edge.

"The Menara YNH land [with 320ft or 98m frontage along Jalan Sultan Ismail] was purchased during the Asian financial crisis, so our costs are low," he says, while remaining tight-lipped on the plans for what is arguably the group's most-watched development that had seen two erstwhile partners — Singapore's CapitaLand Ltd and Kuwait Finance House — drop out in 2007 and 2009 respectively.

"We're keeping our options open. If there's a right partner, we can consider working together, if not, YNH can develop this project on its own," Yu says.

The plan is to have Menara YNH kick off by 2014 or earlier if an anchor tenant is secured before then. "We're trying to secure an anchor tenant before work begins," YNH head of corporate services Daniel Chan says.

YNH intends to keep at least 50% of Menara YNH as investment property as well as for its corporate headquarters.

To be sure, with properties on Jalan Sultan Ismail fetching some RM2,000 psf, the RM400 psf YNH paid is a steal. Yet Hong Leong Investment Bank Research analyst Sean Lim, for one, reckons that YNH's 0.45 times net gearing makes it "challenging for YNH to go it alone".

In a note in March, Lim commended YNH's "above industry gross margins and sizeable, low-cost and fully paid-for landbank", but concluded that it lacked near-term excitement and may be vulnerable to concentration risk from very few active projects. He has a "hold" call and a target price of RM1.82 for YNH, which is a 60% discount to its RNAV (revised net asset value) of RM4.54.

YNH's Chan, however, says the group has sufficient funds for all its planned developments as they are well paced out. "We normally have two developments in Manjung, Perak, and two developments in KL running concurrently," he explains.

While capital needs could rise when larger projects such as Menara YNH kick off, Yu says YNH normally pays at least 30% of profits as dividends "and will continue to do so".

"They are quite conservative and will never overpay for anything … there's no tie-up yet but Jalan Sultan Ismail is a very strategic part of Kuala Lumpur [so] there's a lot of value in a three-acre land they can turn into a property with stable cash flow," says Bharat Joshi, investment manager at Aberdeen Asset Management, who can see the land from his office. "You should come to town more and take a look at how things are changing."

Aberdeen had 14.35% of YNH as at April 30, compared with 13.17% as at end-2012, making it the second largest shareholder after the Yu brothers, who own about one-third of YNH.

Besides Menara YNH, the group is planning mixed-use developments in Genting Highlands, Bangsar South and Puchong South in the next three to five years, but it has no plans to venture into Johor. "We have sufficient landbank to last us another 30 years in the Klang Valley and Manjung," Yu says.

The group's total planned GDV currently stands at about RM1.6 billion in Kuala Lumpur (Fraser Residence and Kiara 163] and about RM500 million at its Manjung township where YNH still has over 800 acres of land.

"Prices of shoplots have doubled in Manjung and land prices have quadrupled … We will slowly develop our Manjung township to meet demand. Normally, we develop 40 to 50 acres of land a year for residential and commercial development," Yu says.

Also in the pipeline is a mixed-use development in Genting Highlands with a GDV of RM800 million, starting with a five-acre tract of its total 95 acres. According to Chan, the land is next to First World Resort and three minutes' drive from Genting Highlands Resort and Casino.

Meanwhile, Pantai Hospital Manjung (GDV: RM80 million) is expected to be completed by year-end, and rental income is expected to start in 2014. This will be on top of the rent received for AEON shopping mall in Manjung, which is on a 10-year lease. Rental income is estimated at RM9.4 million a year, based on disclosures in the notes accompanying its 2012 accounts.

This may partly be why HLIB's Lee expects YNH's 2013 earnings to rise 75.6% year-on-year to RM87.1 million on the back of 51.7% higher revenue of RM426.9 million, according to his note in March.

YNH's share price closed at RM1.89 on May 9, being 0.94 times its net asset of RM2.02 per share as at end-December 2012. Its 52-week high was RM2 on Jan 14.

This story first appeared in The Edge weekly edition of May 13-19, 2013.

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