YNH Property 2QFY2010 (ECM Libra) hold; target price RM1.58

2QFY10 : Better earnings outlook

• Within expectations
1HFY10 results came in within house and market expectations as net profit of RM30.8m achieved 52.7% and 50.0% of house and consensus full-year estimates respectively. An interim net DPS of 3 sen was declared which is positive and suggests that our full-year net DPS estimate of 4.3 sen may be exceeded.

•  Lower revenue y-o-y and q-o-q, but margin improved
2QFY10 revenue has decreased by 12.0% y-o-y, 30.6% q-o-q to RM16.0m. Earnings were contributed by recognition of progressive sales of development projects in Lot 163 Suites, Ceriaan Kiara, Taman Manjung Baru, Taman Singa Baru, Taman Pegawai, Taman Emas and sales of completed properties and development land. However, higher EBIT margin of 39.3% (2Q09: 32.0%, 1Q10: 25.3%) in current quarter resulted in net profit increasing by 3.8% y-o-y and 8.6% q-o-q.

• 2H10 earnings to be sustained by unbilled sales
We see little potential for 2H10 earnings to surprise on the upside as Ceriaan Kiara and Lot 163 Suites have already been completed. 2H10 earnings will be sustained by existing unbilled sales of around RM800m, of which RM600m relates to projects which may not commence construction in FY10 such as Kiara 163 and Menara YNH.

• Fraser Residence finally off the ground
On the bright side, the much awaited Fraser Residence (GDV RM550m) is finally off the ground as piling works have already commenced while bookings for about 100 units out of 446 units have been received. However, earnings contribution is likely to commence in FY11 as we expect signing of SPAs will take awhile to complete. On Kiara 163 (GDV RM875m), while we do not expect this project to be launched this year, management is currently reviewing its serviced apartments’ indicative selling price of RM600-700 psf following Mah Sing’s Icon Mont Kiara launch at RM1,100 psf recently. If launched at similar price, GDV of this project may be raised to RM1.2bn.

• Upgrade to HOLD
We raised our FY11 and FY12 estimates by 26.3% and 9.0% respectively on improving earnings outlook. We also upgraded our sell call to a HOLD while target price is revised to  RM1.58 from RM1.40 as we continue to peg historical average 10x P/E to mid-FY11 EPS. Further re-rating catalysts include (1) stronger than expected sales, and (2) GDV enhancement of Kiara 163.