KUALA LUMPUR (Dec 13): Malaysian developer Yong Tai Bhd expects a Zhang Yimou theater project to boost profit when it opens next year, helping to counter the cyclical real-estate business and an indefinite government freeze on luxury property sales.
The show in the state of Malacca could improve earnings by 60 million ringgit (US$14.7 million) in a full year of operations, Chief Executive Officer Boo Kuang Loon said in an interview last week. Yong Tai will start staging the show in the second quarter next year once construction of the theater is completed as part of a 138-acre development fronting the Malacca Straits, he said.
Developers in Malaysia are adjusting to a government decision last month to indefinitely halt new approvals of luxury condominiums, offices and malls to address a market glut and protect the banking system from excessive risks. For Yong Tai, the freeze justifies its strategy to diversify its business into the tourism sector.
“I don’t want to be a pure developer because you are always in a cycle — you climb, climb, climb and then someone will come knock you down,” Boo said in his office near Kuala Lumpur.
“Tourism is a good hedge against recession.”
Yong Tai’s planned township is being built in stages and will eventually house a shopping centre, serviced residences, office buildings and a yacht club. The company is using the theater project as a catalyst to help sell the development which has a projected sales value of 7 billion ringgit.
The Impression Melaka performance is an extension of a well-known series in China that’s sometimes staged outdoors with mountains and waters as background to tell the story of its host city, directed by Zhang who also choreographed the opening and closing ceremonies of the 2008 Olympic Games in Beijing.
Investors in the same theater in China have taken about three years to recoup their respective investments and each project is profitable, Boo said.
Yong Tai’s shares have climbed 13.5% this year to 1.43 ringgit, outperforming a 5.4% gain in the benchmark FTSE Bursa Malaysia KLCI Index. All three analysts covering Yong Tai rate it a buy, with price targets ranging from 2.10 ringgit to 2.25 ringgit.
While the outlook for Yong Tai’s growth is strong for the next two years, it needs to show a sustainable track record, said Mohd Fauzi Mohd Tahir, chief investment officer for equities at RHB Asset Management Sdn Bhd. He helps manage about 43 billion ringgit and said RHB sold some Yong Tai shares recently, after first-quarter earnings missed its expectations.
“Valuations wise I think the analysts are perhaps too bullish with the target price,” Mohd Fauzi said.