Yong Tai continued to bleed financially, its plight made worse by the Movement Control Order (MCO) which halted operations at its property site and curtailed visitor arrival to its Encore Melaka Theatre. A widened 3QFY20 net loss of RM11.4m (+116.4% YoY, +88.4% QoQ) was reported, though cumulative 9MFY20 net loss of RM17.2m (+5.2% YoY) is above our expectations at 50% of full-year net loss estimates. We expect a sequentially weaker 4QFY20 however, with the Group’s operations experiencing the full brunt of the MCO whereas 3QFY20 only saw a 2-week effect. We keep earnings estimates unchanged at this juncture. While the Group continues to hold longer-term promise particularly with the planned development of an international cruise terminal in Impression City playing a significant part in the turnaround of the Encore Melaka theatre, near-term prospects are muted. Property-related contributions will likely continue to be overwhelmed by theatre-related losses. We retain our Neutral call with a lowered target price of RM0.09 as we tag a higher 85% discount to our sum-of-parts valuation amid the lack of re-rating catalysts.

• Property development saw pre-tax profit contributions reduce to RM5.4m (-54.2% YoY) for 9MFY20 as an RM3.2m pre-tax loss was booked in for 3QFY20 owing to a revision in costing for its development projects. Near-term focus of the Group continues to be on the clearing of its unsold inventories as prudence on launches is maintained in light of the currently-challenging market conditions. Earnings will still be underpinned by its four on-going projects, with medium to longer-term prospects lifted by the planned development of the international cruise terminal and the Terra Square mall. Total unbilled sales as at March are RM366m. Status of the Group’s projects:
  
  
• Encore Melaka, despite its vast potential, continues to bleed financially. Still plagued by low ticket sales, depreciation and finance costs, the theatre reported an RM22.4m pretax loss for 9MFY20, though improving from the previous corresponding period’s RM26.7m net loss due to cost rationalization efforts. Domestic movement and foreign travel restrictions will be a major impediment to the Group’s near-term prospects, in addition to the fact that the theater will remain shuttered indefinitely given that it falls under “prohibited activities” as classified by the government.

Source: PublicInvest Research - 30 Jun 2020