Results

1Q13 core PAT rose 31% yoy to RM11.0m, making up 12.6% and 13.3% of HLIB and consensus estimates.

Deviations

Due to slower than expected earnings contribution from Menara YNH and lack of other projects to pick up the earnings slack.

Dividends

None

Highlights

Still reliant on incumbent projects… In 1Q, the key earnings contributors included Fraser Residence Kuala Lumpur and properties in Seri Manjung, Perak.

Trimming our estimates… While there was 31% yoy growth in PAT, the progress billing for its flagship Fraser Residence Kuala Lumpur remains slower than expected, with no other significant high-value projects to pick up the slack. Hence we have trimmed our FY13-15 estimates accordingly.

No updates on Menara YNH… Recall that back in Aug 2012, YNH publicly declared its intention to kickstart its flagship RM2.3bn Menara YNH project by early 2013. Thus far, the company has yet to make its move. Its cautious stances come as no surprise to us, given the challenging outlook for the commercial office space in downtown KL.

Limited balance sheet strength… At the same time, net gearing has now crept up from 0.45x in 4Q12 to 0.48x in 1Q13, while its cash hoard has stayed relatively unchanged at RM24m. Therefore, we maintain our view that it would be challenging for YNH to “go it alone” on the Menara YNH project.

Risks

• Concentration risk from very few active projects; vulnerable to cost escalation and work disruption.
• Lack of liquidity.

Forecasts

Reduce FY13-15 earnings forecast by 50-78% until YNH starts seeing meaningful earnings contribution from new key projects apart from Fraser Residence.

Rating

HOLD

• Positives: Above-industry-average gross margins; sizeable, low-cost, sizeable and fully paid-for landbank.
• Negatives: Concentration risk from very few active projects, vulnerable to cost escalation; lack of earnings visibility down the road.

Valuation

• Reduce TP from RM1.82 to RM2.05 (reduce discount to RNAV from 60% to 40%.
• Given the recent run-up in share price, as well as our expectations of a path of declining earnings (due to lack of new launches to sustain earnings), we consider YNH to be a HOLD at best.
• A successful launch of Menara YNH in FY13-14, though challenging, would be the key re-rating catalyst for YNH, in our view.

Source: Hong Leong Investment Bank Research - 29 May 2013