KUALA LUMPUR: Maybank Investment Bank has started coverage of Yong Tai -- a tourism-related property developer -- with a 12-month target price (TP) of RM1.75, which is 18% above the previous day’s closing price of RM1.49.
The research house said on Wednesday Yong Tai also holds a 30-year concession to stage Encore Melaka, a show that retells the rich history of Melaka.
“We forecast core earnings to surge from less than RM1mil in FY6/16 to more than RM150mil by FY6/20. With 17% upside to our sum-of-parts TP, we initiate coverage with a buy.
“We believe not much value has been ascribed to its active property developments and investment properties.
“We also see added upside of up to 61 sen a share to our TP if its remaining land bank is developed. We also note that entertainment shares performed well ahead of the opening of their major attractions,” it said.
Maybank Research said from 2000 to 2016, tourist arrivals to Melaka and tourism receipts earned in Melaka grew by an impressive compounded annual growth rate (CAGR) of 13% and 19%, respectively.
With hotel room inventory in Melaka set to grow by 29% and rapid infrastructure development, it is optimistic about Melaka’s tourism outlook.
With Encore Melaka, the 10th instalment of the Impression Series, a popular series of live musical shows in China co-founded by Zhang Yimou, Yong Tai is the best proxy for this growth story.
The research house also noted Yong Tai will also develop properties around Encore Melaka in Impression City.
In the medium term, we estimate Encore Melaka will contribute a third to group earnings (RM49m), while property development will account for two-thirds of group earnings (FY19/20E).
In terms of growth, Maybank Research forecasts group earnings will reach RM120mil in FY6/19 and then RM155mil in FY6/20.
“Thanks to its much higher profitability, we expect Yong Tai to attract even more investor interest.
“Yong Tai still has 102.5 acres or 72% of undeveloped Impression City land bank that it intends to extract GDV of RM5.6b. Our calculations indicate the undeveloped land is worth 61 sen a share.
“That said, note that the additional upside will not be realised for several years to come and the take-up rate of future developments is subject to risks like negative regulatory changes and Chinese capital controls,” it said.