Yong Tai is set to see the critically-acclaimed Encore Melaka’s maiden performance on 1 July. Tickets are already on sale and one daily show is expected to be hosted in the first month of operations and the frequency will increase into two shows daily in the subsequent month. We continue to like Yong Tai’s business model as earnings are secured as 70% of its annual capacity has been locked by travel agents. Maintain BUY and target price of RM2.36, based on a 30% discount to its SOTP.

WHAT’S NEW

• Ready to go. Yong Tai arranged a site visit to its critically-acclaimed Encore Melaka. While the majority of the external works for the theatre has been completed, the group is commited to run its maiden show on 1 July and tickets are already on sale. The official opening is scheduled for 7 July to commemorate the 10th anniversary of Melaka’s listing as a UNESCO World Heritage City.
• Unperturbed with change of government. Despite the change in government, tourism will still be among the key economic drivers in Melaka. We understand that the new state assembly representative who is in charge of tourism had visited Encore Melaka and is satisfied with the development at the site.

ESSENTIALS

• Show to start on Jul 18. After a few months of delay, Encore Melaka is finally ready to run the show with its first performance scheduled for 1 July. The official launch however, is targeted for 7 July which is in conjunction with the 10-year anniversary since the recognition of Melaka as a UNESCO World Heritage City. We also gathered that Yong Tai has already hosted a trial run performance for business partners and friends on 28 May and received strong positive reviews.
• Starting with one show a day and to gradually ramp-up frequency. In the first month of operations, Yong Tai aims to air one show per day during the weekdays and two shows a day during the weekend. Subsequently, the number of shows will increase to two shows daily from August onwards. More shows might be added, should demand be encouraging, especially for chartered shows which have started to receive interest from big corporations and institutions. We understand that the 2,014-seat theatre can run up to 4 shows daily with a duration of 70-90 minutes/per show and expected average ticket price of RM120/person.
• Upside from cruise liners. Yong Tai is currently still in negotiations with cruise liners that dock in Melaka. Currently, two cruise liners dock in Melaka every week, carrying about 3,000 passengers per ship. Assuming Yong Tai can entice half of the passengers to watch its show, it could add up 156,000 in audience attendence p.a.
• Tickets already on sale. We were guided that the tickets for the show are already on sale and online bookings have been strong since the release this week. To recap, out of 1.4m seats p.a. capacity, 1m tickets have been secured as Yong Tai entered into offtake agreements with six local and foreign travel agents over the next three years. The 1m tickets represent a 70% occupancy rate of the theatre based on two shows daily. While ticket prices were not revealed, we understand that they are above our assumption of RM120 each. The agents are – Majestic Express Holidays (500,000 tickets targetting mainland China), Apple Impression Holiday (200,000 tickets targetting Malaysians), Levingo Travel (100,000 tickets targetting Malaysian), Coachliner 707 Travel & Tour (50,000 tickets targetting Singaporeans), WTS Travel & Tours (50,000 tickets targetting Singaporeans) and Shanghai Ctrip International Travel Service Co (1000,000 tickets targetting mainland China)
• Show will still go on despite change in government. With the recent election resulting in a changing state government in Melaka, we were assured that business will be as usual for Yong Tai. We understand that the new state assembly representative who is in charge or tourism had visited Encore Melaka and is satisfied with the development of the project. Yong Tai stressed that Encore Melaka is poised to help the local economy as its employs 100% local talent (except for the performance director who is from China).

EARNINGS REVISION/RISK

None.

VALUATION/RECOMMENDATION

Maintain BUY and target price of RM2.36. Our target price is based on a 30% discount to our SOTP valuation of RM3.30/share. Our target price implies 10.6x FY19F PE. We expect no dividend payout in the first two financial years, but as operating cash flow improves, there could be dividends distributed.

Source: UOB Kay Hian Research - 31 May 2018