Highlights

After a recent corporate luncheon, we came away feeling more positive about YNH’s future earnings outlook, as it is embarking on three new projects:

(1) Puchong South: A high-rise, mid-end project, to ride on the thriving Seri Kembangan suburb. YNH is targeting the mass market (with average pricing of RM480 psf or

(2) Bangsar South: This RM650m GDV high-rise project is located next to the University LRT station, with good access to public transport and Petaling Jaya.

(3) Genting Highlands: With a low land cost of below RM4 psf, Phase 1 of this 100-acre development (located just 3 minutes from the peak) is expected to yield more than RM1bn in GDV on 16 acres. We expect strong pricing, due to lack of competition in the vicinity and thanks to the popularity of the Genting Highlands casino / resort.

Cashflow strategy… We also gather that YNH’s strategy will involve reinvesting cashflow from its projects into a potential launch of Menara YNH, which can be either kept for investment income, or for a potential REIT listing.

Potential REIT… YNH could potentially offer three assets for a commercial REIT listing, namely Menara YNH, AEON Manjung and Pantai Manjung. However, we opine it would not happen anytime soon, given the long gestation period for Menara YNH.

Catalysts

Earnings contribution from new GKL projects; a successful re-launch of Menara YNH.

Risks

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

Forecasts

Raise FY13-15 forecasts by 26-62% to factor in new projects earnings contribution and future investment income from Sitiawan. We now expect earnings growth, vs. our earlier expectation of an earnings contraction, but we are keeping out forecasts conservative relative to consensus estimates, until earnings clarity improves.

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.

Valuation

Post earnings upgrade, we raise our TP from RM2.05 to RM2.21 to factor in the new projects and future investment income. However, we raise our discount to RNAV from 40% to 50% to factor in potential negative impact from potential future cooling measures.

Source:Hong Leong Investment Bank Research - 25 Jun 2013