Yong Tai Bhd. Malaysia Company Guide

Transcription

1 Malaysia Company Guide Version 3 Bloomberg: YTB MK Reuters: YONG.KL Refer to important disclosures at the end of this report DBS Group Research. Equity 17 Jul 2017 BUY Last Traded Price ( 14 Jul 2017): RM1.40 (KLCI : 1,755.00) Price Target 12-mth: RM2.10 (50% upside) (Prev RM2.10) Analyst QUAH He Wei, CFA hewei@alliancedbs.com What s New Advanced progress of Impression Melaka on track for completion by 4QCY17 Prized commercial asset, Terra Square to be completed by 4QCY18 Opening of Impression Melaka in Feb 2018 to be key re-rating catalyst Maintain high conviction BUY and RM2.10 TP Price Relative RM Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 (LHS) Relative KLCI (RHS) Relative Index Forecasts and Valuation FY Jun (RM m) 2016A 2017F 2018F 2019F Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) Net Pft Gth (Pre-ex) (%) (42.7) , EPS (sen) EPS Pre Ex. (sen) EPS Gth Pre Ex (%) (85) 17 1, Diluted EPS (sen) Net DPS (sen) BV Per Share (sen) PE (X) PE Pre Ex. (X) P/Cash Flow (X) nm nm nm nm EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) CASH CASH ROAE (%) Earnings Rev (%): Consensus EPS (sen): Other Broker Recs: B: 1 S: 0 H: 0 Source of all data on this page: Company, AllianceDBS, DBS Bank, Bloomberg Finance L.P Diamond in the rough High conviction BUY. Yong Tai has successfully transformed into a Melaka-centric township property developer via its integrated 138-acre Impression City (RM7.7bn GDV), featuring the first-ofits-kind Impression Melaka an iconic tourist landmark that showcases large-scale live cultural music performances. Best proxy to booming Chinese tourism. As the first Impression Series project outside China, the Melaka Straits-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 arrivals CAGR of 11% over (vs 1% for Malaysia s overall tourist arrivals), making it the third-largest tourist source market. Where we differ. We are the sole broker covering Yong Tai. We believe the 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 ~20% IRR over the 30-year concession, which will transform Yong Tai into an emerging cash cow with strong recurring income. Potential catalyst. The official opening of Impression Melaka in February 2018 will be a major catalyst. In addition, there is immense potential in the Melaka property market which is targeting not just its 0.9m local population but also 16m tourists that visit the World Heritage City annually. Yong Tai s impressive unbilled sales of RM881m anchored by en-bloc sales of 262 retail lot units in Impression City for RM873m will underpin strong earnings visibility over the next two years. Valuation: 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 EPS CAGR of 57% over FY16-19F. We envisage long-term earnings visibility for Yong Tai as its value-adding Impression City and Impression Melaka ride on booming Chinese tourism, reflecting the unprecedented close Malaysia-China ties. We reiterate our high conviction BUY and SOP-derived TP of RM2.10 which implies an FY18 PE of 13x. Key Risks to Our View: Weaker tourist arrivals. Slower-than-expected tourist arrivals will negatively affect Impression Melaka s ticket sales, given that tourists are its main target market. At A Glance Issued Capital (m shrs) 436 Mkt. Cap (RMm/US$m) 610 / 142 Major Shareholders (%) Full Winning Development Ltd 24.6 Datuk Wira Boo Kuang Loon 14.2 Dato Sri Lee Ee Hoe 7.1 Free Float (%) 41 3m Avg. Daily Val (US$m) 0.42 ICB Industry : Financials / Real Estate Investment & Services ed: CK / sa:wmt, PY

2 WHAT S NEW Steady progress on site Impression Melaka construction on track: The construction of Impression Melaka has been running full steam and the structure is expected to be ready by Oct 2017 before the official opening in Feb 2018, in tandem with the Chinese New Year festival. We understand that its contractor for the theatre, China State Construction Engineering Corporation one of the largest construction companies in the world has been doing a decent job in carrying out the construction works. Piling works for Terra Square next to Impression Melaka in progress Aerial view of Impression Melaka in Apr 2017 Source: Company, AllianceDBS Source: Company, AllianceDBS Aerial view of Impression Melaka in Jul 2017 Overwhelming response for maiden launch. Impression City s latest launch of RM260m serviced apartments, Amber Cove in Apr 2017, has also received overwhelming response from local buyers with 100% take-up (bookings and signed SPAs) for a total of 838 units. Including the successful sales of Amber Cove, Yong Tai s unbilled sales would have hit RM1.1bn, which provides strong earnings visibility over the next three years. Meanwhile, its launch pipeline remains healthy as it is set to launch its 648-room condominium hotel, The Dawn Residence in Jul Given the selling price of less than RM400k for The Dawn Residence, we expect the response to be strong as well. Strong earnings ahead. Yong Tai s earnings are expected to pick up strongly in the coming quarters, driven by its RM881m unbilled sales anchored by en-bloc sales of 262 retail lot units in Impression City for RM873m. We expect exponential EPS CAGR of 57% over FY16-19F. FY18 will be an exciting year for Yong Tai as it starts with a clean slate as a full-fledged tourism-related property developer following the disposal of its textile business. Source: Company, AllianceDBS Commercial mall still in early stage: Meanwhile, Terra Square, the prized mall which is located next to the Melaka straitsfronting Impression Melaka is still in the early stage of construction as piling works have yet to be completed. We understand that the first payment from Orient Venture Properties Bhd which has purchased 262 retail lot units in Terra Square for RM873m is expected by Aug 2017 upon completion of the piling works. Nevertheless, the 700k sq ft mall is expected to be completed by the end of CY2018. Counting on Impression Melaka. The much-anticipated iconic tourism landmark, Impression Melaka is set to be officially opened in Feb We are optimistic on the potential of Impression Melaka given its compelling value proposition with an estimated ~20% IRR over the 30-year concession, which will transform Yong Tai into an emerging cash cow with strong recurring income. Please refer to our initiation report dated 5 Apr 2017 which explained in detail on the potential success of Impression Melaka, riding on the first-mover advantage as the first Impression Series outside China. Page 2

3 CRITICAL DATA POINTS TO WATCH Critical Factors Attractive value proposition for Impression Melaka. We estimate that Impression Melaka offers compelling value proposition given its estimated ~20% IRR over the 30-year concession, which will transform Yong Tai into an emerging cash cow with strong recurring income. The total cost for Impression Melaka is approximately RM303m (RM37m is for land acquisition) which could be easily funded by Yong Tai s strong balance sheet with a net cash position of RM194m (RM0.45/share). First-mover advantage. Being the first Impression Series project outside China, Impression Melaka will have the firstmover advantage to gain competitive advantages in the Melaka tourism market. Yong Tai is targeting to stage two shows/day, translating into annual sales of 1.1m tickets (based on 75% utilisation) which could contribute ~RM50m earnings annually (vs FY17 earnings of RM6m). This assumption is reasonable after taking into account foreign tourist arrivals of more than 26m, which is further underpinned by the local population of 32m. Best proxy to booming Chinese tourism. We understand that Yong Tai will be mainly targeting tourists from China (40%), ASEAN (20%) and Malaysia (30%) for Impression Melaka, which are expected to contribute 90% of its ticket sales collectively. We believe Impression Melaka is poised to be a resounding success by tapping into the booming Chinese tourism in Malaysia which has seen an impressive tourist arrivals CAGR of 11% over (vs a mere 1% for Malaysia s total tourist arrivals). Yong Tai will also collaborate with travel agencies to sell more than half of the total Impression Melaka show tickets. Tapping into under-appreciated Melaka property market. In October 2016, Yong Tai sold en-bloc RM461m worth of retail properties in phase 1A of Impression City to Orient Venture Properties Bhd and locked in a fit-out contract worth RM412m with Orient Venture Properties to carry out renovation works on the 262 units of retail lots. This has boosted Yong Tai s unbilled sales to RM881m, which will lead to strong earnings visibility over the next two years Property sales (RMm) F 2018F 2019F Ticket sales (mil) F 2019F Property EBIT margin (%) F 2018F 2019F Theater EBIT margin (%) F 2018F 2019F Source: Company, AllianceDBS, DBS Bank Page 3

4 Jan11 May11 Sep11 Jan12 May12 Sep12 Jan13 May13 Sep13 Jan14 May14 Sep14 Jan15 May15 Sep15 Jan16 May16 Sep16 Jan17 May17 Company Guide Appendix 1: A look at Company's listed history what drives its share price? Yong Tai s share price performance RM A B C D E F G H Source: Bloomberg L.P., AllianceDBS A On 15 May 2013, Yong Tai announced that it is incorporating a new wholly-owned subsidiary known as YTB Development Sdn Bhd which will undertake property development and construction. B On 29 Apr 2014, Yong Tai entered into a project collaboration agreement with PTS Properties Sdn Bhd for the development of a 29-storey condominium hotel, The Pines in Melaka which will result in Yong Tai diversifying its textile business into property development business. C On 4 Dec 2014, Yong Tai proposed a renounceable rights issue on the basis of 2 rights shares for every 1 share held together with one free warrant for every 2 rights shares subscribed, which will result in significant expansion of its share base. D On 3 Aug 2015, Yong Tai announced Memorandum of Understanding for the proposed acquisition/joint venture of Impression City land amounting to 117 acres in Melaka. E On 26 Oct 2016, Yong Tai entered into conditional sale and purchase agreement and joint development agreement to formalise its proposed developments of Impression City and Impression Melaka. F On 5 Feb 2016, Yong Tai announced the entry of Sino Haijing as its substantial shareholder with a proposed special issue to raise funds for the company to undertake the development of Impression City and Impression Melaka. G On 15 Nov 2016, Yong Tai completed the special issue of shares to Sino Haijing. H On 8 Dec 2016, Yong completed a private placement that facilitated the entry of institutional investors. Page 4

5 Strong launch pipeline. Yong Tai launched its serviced apartments (Amber Cove) in Apr 2017 and set to launch its hotel (The Dawn) in 3QCY17. Both projects will have a combined GDV of RM500m. We believe both projects will receive overwhelming response given their affordable price range of RM300, ,000. The neighbourhood mall, located next to Impression Melaka, will be retained by Yong Tai and will provide recurring cash flow in the future. We believe the much-coveted retail space will be a prized asset when it is completed by the end of 2018, given the high commercial value of such properties. Balance Sheet: Yong Tai currently is in a net cash position of RM194m (RM0.45/share) which will be deployed for its mixed developments in Impression City as well as for the construction of Impression Melaka. Leverage & Asset Turnover (x) A 2016A 2017F 2018F 2019F Gross Debt to Equity (LHS) Asset Turnover (RHS) RMm Capital Expenditure Share Price Drivers: Opening of Impression Melaka in February As Impression Melaka is the first Impression Series project outside China, some quarters may be sceptical of the true potential of Impression Melaka. However, we believe the strong track record of various Impression shows in China will lend credence to the future success of Impression Melaka % 20.0% 2015A 2016A 2017F 2018F 2019F Capital Expenditure (-) ROE (%) Strong demand for properties in Impression City. There is immense potential in the Melaka property market which is targeting not just its 0.9m local population but also 16m tourists that visit the World Heritage City annually. We believe Impression City s attractive investment merit is underappreciated by investors, and the official opening of Impression Melaka in February 2018 will be a major catalyst. Key Risks: Weaker tourist arrivals. Slower-than-expected tourist arrivals will negatively affect Impression Melaka s ticket sales, given that tourists are its main target market. Therefore, collaboration with travel agencies to market the tickets will help to mitigate the risk. Slowing sales. Property sales may slow down in certain locations as property buyers could be deterred by the high entry price as well as the tightening measures, where banks have adopted more cautious lending practices for mortgage loans. 15.0% 10.0% 5.0% 0.0% 2015A 2016A 2017F 2018F 2019F PB Band (x) (x) sd: 2.54x sd: 1.9x 1.5 Avg: 1.25x sd: 0.61x 0.0 Jul-13 Jul-14 Jul-15 Jul-16 Source: Company, AllianceDBS, DBS Bank Company Background Yong Tai has successfully transformed into a Melaka-based township property developer and operator of the Impression Melaka performance via a 30-year licensing agreement after disposing of its garment manufacturing business. Page 5

6 Key Assumptions FY Jun 2015A 2016A 2017F 2018F 2019F Property sales (RMm) n.a. n.a Ticket sales (mil) n.a. n.a. n.a Property EBIT margin (%) n.a. n.a Theater EBIT margin (%) n.a. n.a Segmental Breakdown FY Jun 2015A 2016A 2017F 2018F 2019F Revenues (RMm) Property development Impression Melaka Dyeing Others Total EBIT (RMm) Property development Impression Melaka (10.0) Dyeing Others (0.7) (4.5) (3.0) (3.0) (3.0) Total EBIT Margins (%) Property development Impression Melaka N/A N/A N/A Dyeing En-bloc sales to Orient Venture Properties Bhd Driven by unbilled sales from The Apple and Impression City 5-month contribution in FY18 Total Income Statement (RMm) FY Jun 2015A 2016A 2017F 2018F 2019F Revenue Cost of Goods Sold (57.2) (17.1) (88.9) (354) (605) Gross Profit Other Opng (Exp)/Inc (5.6) (10.1) (10.8) (11.5) (12.3) Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (0.5) (0.2) (1.8) (8.9) (14.2) Exceptional Gain/(Loss) Pre-tax Profit Tax (1.3) (1.6) (1.9) (19.5) (47.2) Minority Interest Preference Dividend Net Profit Net Profit before Except EBITDA Growth Revenue Gth (%) 37.1 (54.6) EBITDA Gth (%) 2,848.3 (25.8) , Opg Profit Gth (%) (363.6) (21.0) , Net Profit Gth (Pre-ex) (%) nm (42.7) , Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Source: Company, AllianceDBS, DBS Bank Page 6

7 Quarterly / Interim Income Statement (RMm) FY Jun 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 Revenue Cost of Goods Sold (6.1) (3.3) (1.5) (2.0) (8.3) Gross Profit Other Oper. (Exp)/Inc 0.22 (0.8) (2.0) (0.8) (4.3) Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc (3.0) Net Interest (Exp)/Inc (0.1) 0.0 (0.1) (0.1) (0.1) Exceptional Gain/(Loss) Pre-tax Profit Tax (1.1) 0.83 (0.4) 0.19 (0.4) Minority Interest Net Profit Net profit bef Except EBITDA Driven by The Apple which will be completed by end of 2018 Growth Revenue Gth (%) 10.7 (59.5) (3.6) (28.1) EBITDA Gth (%) (85.5) (65.3) Opg Profit Gth (%) (96.0) (65.3) Net Profit Gth (Pre-ex) (%) (95.1) 37.8 (23.0) Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) Balance Sheet (RMm) FY Jun 2015A 2016A 2017F 2018F 2019F Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ,206 ST Debt Creditor Other Current Liab LT Debt Other LT Liabilities Shareholder s Equity Minority Interests Total Cap. & Liab ,206 Non-Cash Wkg. Capital (2.3) Net Cash/(Debt) (72.6) (140) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH Capex to Debt (%) (786.2) Z-Score (X) Clean balance sheet Source: Company, AllianceDBS, DBS Bank Page 7

8 Cash Flow Statement (RMm) FY Jun 2015A 2016A 2017F 2018F 2019F Pre-Tax Profit Dep. & Amort Tax Paid (0.9) (1.5) (1.0) (1.9) (19.5) Assoc. & JV Inc/(loss) Chg in Wkg.Cap (44.8) (11.8) (213) (202) Other Operating CF 1.27 (12.1) Net Operating CF 22.6 (45.9) (4.3) (125) (6.1) Capital Exp.(net) (38.4) 17.3 (100.0) (200) (50.0) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF (0.1) Net Investing CF (38.6) 18.2 (100.0) (200) (50.0) Div Paid (11.7) Chg in Gross Debt (2.2) (7.3) Capital Issues Other Financing CF (0.1) (0.2) Net Financing CF 58.5 (7.4) (11.7) Currency Adjustments (1.0) (3.6) Chg in Cash 41.5 (38.7) 301 (175) (67.8) Opg CFPS (sen) 12.1 (0.6) Free CFPS (sen) (38.2) (17.8) (24.0) (74.6) (8.1) Capex for Impression Melaka and land acquisition Capital Injection by Sino Haijing Source: Company, AllianceDBS, DBS Bank Target Price & Ratings History RM S.No. Date of Report Closing Price 12-mth T arget Price Rating 1: 05 Apr BUY 2: 10 Apr BUY 3: 25 Apr BUY 4: 05 May BUY 5: 08 May BUY 6: 16 May BUY 7: 30 May BUY 8: 02 Jun BUY 9: 13 Jun BUY 10: 07 Jul BUY 0.99 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Note : Share price and Target price are adjusted for corporate actions. Source: AllianceDBS, DBS Bank Analyst: QUAH He Wei, CFA Page 8

9 AllianceDBS, DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends Completed Date: 17 Jul :08:22 (MYT) Dissemination Date: 17 Jul :11:20 (MYT) Sources for all charts and tables are AllianceDBS, DBS Bank unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by AllianceDBS Research Sdn Bhd (''AllianceDBS''), DBS Bank Ltd. 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