Yong Tai Bhd
(Jan 9, RM1.65)
Maintain buy with an unchanged target price (TP) 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 which has RM7.7 billion gross development value and features the first-of-its-kind theatre, the Encore 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 Encore Melaka is poised to be a resounding success by tapping into the booming Chinese tourism market in Malaysia which has seen an impressive China tourist arrivals’ compound annual growth rate (CAGR) of 11% from 2000 to 2016 (versus 1% for Malaysia’s overall tourist arrivals), making it the third-largest tourist source market.
We are the first broker to cover Yong Tai. We believe its investment merit is underappreciated by investors given the unique tourism-centric development in Melaka. Encore Melaka offers a compelling value proposition given its estimated around 20% investment return rate over the 30-year concession period, which will transform Yong Tai into an emerging cash cow with strong recurring income.
The official opening of Encore Melaka by May 2018 will be a major catalyst. In addition, there is immense potential in the Melaka property market which is targeting not just its 0.9 million local population but also 16 million tourists who visit the Unesco World Heritage City annually. Yong Tai’s impressive unbilled sales of RM1 billion 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 (EPS) CAGR of 87% over the financial year 2017 (FY17) to FY20 period. We envisage long-term earnings visibility for Yong Tai as its value-adding Impression City and Encore Melaka ride on booming Chinese tourism, reflecting the unprecedented close Malaysia-China ties. — AllianceDBS Research, Jan 9