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PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 19 Sep 2018, 09:44 AM

 

Yong Tai Berhad - No Major Concerns

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The management of Yong Tai met up with the investment fraternity to provide current updates on the Encore Melaka theatre while also fielding questions on various other issues, one of which included the recent announcement on the early conversion of preference shares and subsequent share price weakness. While certain operational challenges were acknowledged, the long-term intrinsic value of the Group’s undertakings remains unchanged. We opine that the market should not be too perturbed by the near-term earnings-dilutive effects of the early conversion, an occurrence bound to happen a year plus from now in any case, but to focus instead on the earnings growth trajectory and long term value creation. We see the recent share price weakness as an opportune time to further accumulate a stock currently deeply undervalued. Our Outperform call is affirmed, with an unchanged sum-of-parts based target price of RM2.25.

  • To recap, the Encore Melaka Theater has an annual capacity of 1,465,000 seats based on 2 shows per day from a total of 2,007 seats. With an estimated target of 1mn ticket sales annually (~70% utilization), revenue is estimated at RM130m based on average ticket prices of RM130.
    As at 5 August, a month after its official opening, a total of 32,413 tickets have been sold, the bulk of which (~57%) coming from walk-ins and online purchases. While some way short of a pro-rated monthly target of 83,333 tickets, the lower-than-expected numbers are within expectations as the “high-season” for tourist arrivals are only anticipated sometime late September/early-October. Recall that the Group had previously announced annual offtake agreements with 6 different agencies, totaling 1m tickets. Management also stressed they continue to make efforts in securing fresh sales, not relying wholly on the offtake agreements.
  • Construction on the Terra Square development has been halted temporarily owing to funding-related issues, principally China’s capital controls which have stymied repatriation of funds. Management is currently in talks with various other parties for the possible acquisition of the entire project from the current owners should this deal fall through. Alternatively, management also indicated the possibility of drawing from its sukuk issue to fund the construction of the project, if need be. We keep earnings estimates unchanged for now, having already lowered it in the recent result review.
  • Plans for early conversion of the preference shares have been met with consternation by certain quarters troubled by the near-tern dilutive impacts, also amid rumours of the major shareholders planning to cash out and/or illness. All these were categorically denied, with management reaffirming their long-term commitments to the Group and eye on value creation.

Source: PublicInvest Research - 14 Aug 2018

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