Yong Tai Bhd
(July 17, RM1.40)
Reiterate high conviction buy with a target price of RM2.10: Yong Tai Bhd has successfully transformed into a Melaka-centric township property developer via its integrated 138-acre (55.85ha) Impression City (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 project outside China, the Strait of Malacca-fronting Impression Melaka is poised to be a resounding success by tapping into the booming Chinese tourism in Malaysia which has seen an impressive tourist arrival compound annual growth rate (CAGR) of 11% over 2000 to 2016 (versus 1% for Malaysia’s overall tourist arrivals).
We believe Yong Tai’s investment merit is under-appreciated by investors given the unique tourism-centric development in Melaka. Impression Melaka offers a compelling value proposition given its estimated internal rate of return of about 20% over a 30-year concession, which will transform Yong Tai into an emerging cash cow with strong recurring income.
The official opening of Impression Melaka in February 2018 will be a major catalyst. There is immense potential in the Melaka property market which is targeting not just its 900,000 local population, but also 16 million tourists that visit the city annually.
Yong Tai’s unbilled sales of RM881 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.
Given Yong Tai’s unrivalled competitive advantages arising from its unique tourism appeal and synergistic property product offerings, it is expected to deliver an exponential earnings per share CAGR of 57% over financial year 2016 (FY16) to FY19 forecasts.
We envisage long-term earnings visibility for Yong Tai as its value-adding Impression City and Impression Melaka ride on booming Chinese tourism.
A key risk to our view would be weaker tourist arrivals. Slower-than-expected tourist arrivals will negatively affect Impression Melaka’s ticket sales, given that tourists are its main target market. — AllianceDBS Research, July 17