This article first appeared in The Edge Malaysia Weekly on July 9, 2018 - July 15, 2018

IT is set to be a big year for Yong Tai Bhd as the curtain goes up on its live performance, Encore Melaka. If everything goes to plan, the group could see a tenfold jump in profit with revenue potentially growing as much as six to seven times in the financial year ending June 30, 2019 (FY2019).

The Melaka-based tourism- themed developer has finally placed the jewel in the crown at its signature project, Impression City, with the much-anticipated Encore Melaka live performance having premiered at its new theatre last Sunday.

According to Yong Tai CEO Datuk Wira Boo Kuang Loon, from FY2019, the show is projected to generate ticket sales and merchandise income of about RM140 million and a net profit of RM50 million to RM60 million a year.

“Conservatively, we think RM60 million [net profit] is achievable. I don’t think we are being overly optimistic because our costs — which mainly consist of the salaries of the performers and production crew, royalty fees and utility bills — are manageable,” he tells The Edge in an interview.

Yong Tai holds a 30-year concession to stage the Impression Series — Encore Melaka, a show that highlights the city’s rich history and cultural heritage. It is derived from a popular series of outdoor live musical performances in China. The company employs more than 200 performers and 200 production crew — almost all Malaysians — on a permanent basis.

Although Yong Tai reported a net profit of only RM10 million for the nine months ended March 31, on revenue of RM101 million, Boo is not shy about the group’s ambitious net profit target of RM80 million to RM100 million in FY2019, on revenue of RM600 million to RM700 million, driven by Encore Melaka and progress billings on property sales.

“It is going to be a huge jump in FY2019. Our property segment will contribute 60% to 70% of revenue while the remaining [will be] from [the] theatre business. Profit-wise, both segments will contribute evenly.”

Boo adds that Yong Tai should be able to start paying cash dividends in FY2019 — its first since the company transformed itself from a textile manufacturer into a property developer about three years ago.

Boo, who hails from Melaka, emerged as a substantial shareholder in the company in June 2015, with a 7.16% stake, and was appointed executive director four months later. He is now the second largest shareholder with 14.59% equity interest. Full Winning Developments Ltd, an offshore unit of Hong Kong-listed Asia Television Holdings Ltd (formerly known as Co-Prosperity Holdings Ltd), is the single largest shareholder with a 31.21% stake.

It is worth noting that travel mogul Datuk Seri Lee Ee Hoe — co-founder of travel agency Apple Vacations & Conventions Sdn Bhd — is Yong Tai’s third largest shareholder with a 7.46% stake.

Boo points to the synergy between Yong Tai and Apple Vacations as the latter could promote Encore Melaka by including the show in its travel packages.

“If I do everything by myself, I need to recruit a big sales and marketing team to build the network with all the travel agencies around the world. But with Lee as a partner, I can tap his networks and experience.”

Currently, about 30% of Encore Melaka’s ticket sales are contributed by Apple Vacations.

To put things into perspective, most of Yong Tai’s property projects in Melaka are situated within Impression City, a 138-acre integrated mixed-use development in Kota Laksamana with an estimated gross development value of RM7 billion.

The tourist-centric cultural development comprises hotels and serviced apartments, commercial complexes, office towers, educational and wellness facilities, retail and shopping centres and a yacht club. It is expected to be completed over the next 8 to 10 years.

But the most iconic component is the Encore Melaka theatre, which occupies about 15 acres on the waterfront. It is learnt that the return on investment for the theatre with 2,000 rotating seats — the world’s third largest by seating capacity — is estimated at about 18%.

Boo highlights that, based on the progress billings of its ongoing projects — The Apple and Courtyard by Marriott (luxury serviced apartments and international hotel), Amber Cove (exclusive serviced apartments), The Dawn (condominium) and U-Thant (high-end condominium in Kuala Lumpur) — the projects will start to contribute to Yong Tai’s profit in FY2019.

Utilising the jewel in the crown

Encore Melaka is the first Impression Series live musical show outside of China. Apart from Malaysia, Yong Tai holds 30-year concessions to stage the shows in Singapore, Thailand, Indonesia and the Philippines. Boo says Chiang Mai, Thailand, and Bali, Indonesia, are likely to be the next destinations as these places have interesting stories to tell. More importantly, Chiang Mai and Bali are popular holiday destinations with stable tourist arrivals. “The whole idea is quite similar to Impression City in Melaka. One day, we might even replicate this in Kuala Lumpur, Penang or Kota Kinabalu, Sabah.

“But the Impression Series show is a jewel that must be utilised well to make a difference. It is supposed to draw in the crowd. We should put this jewel in another country. If one jewel is not shiny in one country, we have another jewel to shine in another,” Boo says, adding that there are no immediate plans to venture abroad, at least in the next two years.

“We have invested RM300 million to RM400 million in the new theatre at Impression City. We need to recoup our investment before we can even think about going overseas. Let us stabilise ourselves here first.”

To recap, Yong Tai had raised over RM400 million via special and private placement exercises for the development of the Encore Melaka theatre. Its priority now is to monetise the asset.

“We have to use some recurring income from the theatre to undertake our projects in the next phase. Right now, we don’t plan to make a cash call,” says Boo.

He believes that Yong Tai still has the capacity to gear up, as its gearing level remains low at 0.3 times. “We could gear up to 0.7 times, which we think is still a healthy level. In other words, we could gear up another 0.4 times our equity, that is easily about RM200 million to RM300 million.”

In addition, the company could further tap the bond market, having recently launched a 10-year Islamic sukuk programme worth RM1 billion.

Year to date, Yong Tai’s share price has declined 5% to RM1.46 as at last Wednesday, for a market capitalisation of RM705 million. The stock is currently trading at a historical price-earnings ratio (PER) of 31 times.

Boo says the current share price has yet to fully reflect Yong Tai’s value and that it is backed by strong assets. Based on its net asset per share of RM1.14, the counter is trading at a price-to-book value of 1.3 times.

“Most analysts project that our shares should be worth at least RM2. If you put in the RM50 million profit from the theatre business alone, our PER is already down to 14 to 15 times,” he says. “Our target market capitalisation by the end of this calendar year is RM1 billion. Then, we should no longer be a small-cap company.”

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.