Saturday 30 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on January 24, 2020

Yong Tai Bhd
(Jan 23, 15 sen)
Maintain hold with a lower target price (TP) of 16 sen:
We are positive on the news that Yong Tai Bhd will build its own international cruise terminal (ICT), which ought to boost Encore Melaka’s utilisation rate and sale of Impression City properties. That said, we are wary that Yong Tai may have to issue more new shares to finance construction given its weak earnings generation and balance sheet. We leave our earnings estimates unchanged but ascribe a wider 55% discount, from 40% previously, to our end-financial year 2020 (FY20) net tangible assets (NTA) per share to cut our TP from 22 sen to 16 sen.

Yong Tai accepted a letter of approval from the Melaka state government to build the ICT within Impression City. Yong Tai will bear the cost to develop the ICT, which was not disclosed. It also entered into a memorandum of understanding with Singapore Cruise Centre Pte Ltd (SCC) to be the operator and manager of the ICT. For its initial services, such as advice on operating and managing the ICT, SCC will charge Yong Tai S$120,000 (RM362,000), though Yong Tai and SCC need to obtain approvals from their respective boards and shareholders on the contract. Yong Tai also needs to obtain the approvals of the ministry of transport and home ministry. Yong Tai intends to obtain the necessary approvals within 12 months. If these conditions precedent are fulfilled, Yong Tai and SCC will enter into a definitive agreement to govern the relationship between them.

If the ICT can attract close to the 450,000 passengers arriving at Swettenham Pier Cruise Terminal in calendar year 2019, there is a chance that Encore Melaka’s utilisation rate could be improved from about 10% in FY19 and sale of Impression City properties — Terra Square, Amber Cove and The Dawn — could accelerate. That said, we are wary that Yong Tai may have to issue more shares to finance the construction of the ICT as it is struggling to generate profits and net gearing as at the end of the first quarter of FY20 is somewhat high at 43%.

To date, our filings indicate that Yong Tai has raised RM68.8 million from issuing 329 million new ordinary shares at an average share price of 21 sen. It obtained approval from Bursa Malaysia and the Securities Commission Malaysia to raise another 71 million new shares. Assuming these new shares are priced at 17 sen — similar to the latest tranche of new shares issued — Yong Tai can only raise another RM12.1 million. We gather this is insufficient to build the ICT. Therefore, we ascribe a wider discount of 55%, from 40% previously, to our end-FY20 estimated NTA per share because we posit that the company may have to issue many more new shares than the 400 million already planned. — Maybank IB Research, Jan 22

      Print
      Text Size
      Share