This article first appeared in The Edge Financial Daily on September 12, 2018

KUALA LUMPUR: Yong Tai Bhd is optimistic that its Impression Series — Encore Melaka, a live performance highlighting the city’s rich history and cultural heritage will successfully deliver on its ticket sales target of 85,000 a month, over the next six to nine months.

According to Yong Tai chief executive officer (CEO) Datuk Wira Boo Kuang Loon, investors have to allow Encore Melaka some time to impress audiences as the live showcase debuted only recently in July.

“It needs a bit of time ... just like any other tourism project. Every year, we want to do one million [ticket sales]. A million means about 85,000 [ticket sales] a month. Of course, for the first few months, we cannot straight away hit 85,000 a month. If you look at the first two months of about 50,000 ticket sales, it was around 30% of what we had projected,” Boo said during a briefing with investors recently, adding that it reflected the the group’s forecast for the domestic market.

The group’s forecast of expected sales of 85,000 tickets, 30% will be from local visitors, tourists from China (40%), Asean visitors (20%) and 10% from other markets.

“We need about six to nine months to hit 85,000 a month [in ticket sales]. We’re not being over optimistic. I think the time frame of six to nine months is reasonable to hit the 85,000 target. Upon achieving that, we can easily hit the one million per year target,” he added.

With total ticket sales of about 50,000 in July and August, this translated into about 25,000 tickets per month in the first two months.

Based on projections by the travel agencies which signed the offtake agreements for the one million Encore Melaka tickets in January, ticket sales are expected to grow to 38,000 in September, 48,000 in October and 51,000 in November.

The average selling ticket price, based on ticket sales in July and August, is at RM126 per ticket. However, the management is expecting the average selling price in the long term to be at around RM120 per ticket.

While Boo did not give a breakdown of the operating costs for Encore Melaka, he said at 50% of the targeted ticket sales per month, it would be profitable for Yong Tai.

He added that about RM6 million had been allocated for promotional activities annually and the group will look at the adjustment of the content in six months.

“Based on our two months’ operational expenses of about 30%, we can sustain all of our operating expenses. At 45%, we are already at a breakeven level. Whatever that is above 50% will translate into profit.”

Boo said the group is expecting Encore Melaka to turn profitable by October or November as ticket sales hit more than 50% of the targeted 85,000 monthly.

He also said there is an upside to the group’s ticket sales of one million as the current projection is based on the showcase currently held twice on a daily basis.

“We can increase the number of shows during the peak season if the twice-a-day shows have been filled. In addition, the one million ticket sales represent about 70% occupancy of the annual full capacity, based on two shows per day. There’s still a 30% upside in ticket sales via online travel agencies and the group’s own online ticketing platform.”

Assuming Yong Tai only achieved 60% of the targeted ticket sales for the financial year ending June 30, 2019 (FY19), Encore Melaka would have added about RM12 million to the group’s bottom line, which is 77% of Yong Tai’s net profit of RM15.5 million in FY18.

This justified the optimism seen by Boo, expecting the tourism segment to contribute about 60% of the group’s net profit, and the remaining 40% from its property segment moving forward.

As for revenue, only 30% is expected from the tourism segment and the remaining 70% from the property segment.

Malaysia-China friction not a concern for ticket sales projection

With a forecast of about 40% or 400,000 ticket sales from Chinese tourists in FY19, some of the friction between Malaysia and China could pose a downside risk to the group’s projection.

However, Boo is unperturbed and remains optimistic that the target is achievable for now and that a decline from Chinese tourists could be replaced by tourist from other markets.

“For now, we are still expecting to achieve that (400,000 ticket sales from Chinese tourists). [However,] this group of people can be interchangeable. For example, if Chinese visitors drop, we will work harder in Asean or other Asia-Pacific countries through tourism promotional activities,” he said.

The Malaysia-China relationship has seen roadblocks after Prime Minister Tun Dr Mahathir Mohamad’s return to power following the change in government during the 14th general election (GE14). Dr Mahathir has pushed back some of the investments entered into between China and Malaysia during the previous administration under Datuk Seri Najib Razak.

The importance of tourists from China is reflected by increasing tourist arrivals by 7.4% to 2.28 million, despite the overall decline of 3% to 25.95 million tourists in 2017. Based on the latest available statistics, tourist arrivals from China surged 37.2% to one million in the first four months of 2018, while the total number of tourists arriving in Malaysia has fallen 3.4% to 8.48 million.

Yong Tai shares tumbled recently following the announcement of its proposed acceleration of the conversion of irredeemable convertible preference shares (ICPS) on Aug 1. The share price has fallen 41% from its closing of RM1.33 on Aug 1 to a one-year low of 78.5 sen last week, before rebounding at 80 sen last Friday. The management has since decided to not proceed with the proposed acceleration of ICPS following the sharp decline in its share price. Its market capitalisation stood at RM388.52 million.