Yong Tai’s unbilled sales will underpin strong earnings visibility

Yong Tai Bhd (April 25, RM1.55)

Reiterate buy with an unchanged target price 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 (RM7.7 billion gross development value), featuring the first-of-its-kind Impression 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 Impression Melaka is poised to be a resounding success by tapping booming Chinese tourism in Malaysia which saw an impressive 11% tourist arrival compound annual growth rate (CAGR) over 2000 to 2016 (versus 1% for Malaysia’s overall tourist arrivals), making it the third-largest tourist source market.

Impression Melaka offers a compelling value proposition given its estimated internal rate of return of approximately 20% over the 30-year concession, thus transforming Yong Tai into an emerging cash cow with strong recurring income.

There is immense potential in the Melaka property market which is targeting not just its 900,000 local population but also more than 16 million tourists that visit the World Heritage City annually. Yong Tai’s impressive unbilled sales of RM990 million — anchored by en bloc sales of 262 retail lot units in Impression City for RM873 million — will underpin strong earnings visibility over the next two years. 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.

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 CAGR of 57% over financial year 2016 (FY16) to FY19. 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. — AllianceDBS Research, April 25

This article first appeared in The Edge Financial Daily, on April 26, 2017.

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