Results

2Q13 core earnings declined 22.9% yoy to RM14.3m, while 1H net profit was RM25m, making up 46% and 41% of HLIB and consensus estimates respectively.

Deviations

Due to timing differences, but we believe 2H will be able to make up for the shortfall as progress billing for Frasier Residence picks up momentum.

Dividends

1.5 sen DPS was declared in 2Q13, bringing YTD DPS to 1.5 sen, or 38% of our 4 sen DPS forecast.

Highlights

Still reliant on incumbent projects. Revenue was 1.4% lower qoq and 7.8% lower yoy due to slower progress billing recognition in 2Q, with the key earnings contributors still being Fraser Residence in Kuala Lumpur and properties in Seri Manjung, Perak.

Future earnings yet to come through. YNH has yet to see earnings contribution from its three upcoming projects, namely Bangsar South, Puchong South and Genting Highlands, which we estimate to have a combined GDV of circa RM2bn. For more details, please refer to our report dated June 25th, 2013.

Not quite ready for Menara YNH. Recall that in Aug 2012, YNH was quoted in the press saying it was committed to kick-starting its flagship RM2.3bn Menara YNH by early 2013. However, there has been no news thus far, we believe due to balance sheet constraints and impending oversupply of office. Of note, net gearing remains fairly elevated at 0.42x, affording YNH just RM70m of gearing headroom before net gearing hits 0.5x. We opine that at this juncture, YNH is still not ready to internally fund Menara YNH.

Risks

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

Forecasts

Maintained, given our expectations of stronger earnings to come though in 2H as Fraser Residence enters the later stages of development.

Rating

BUY

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

Share price has retraced 22% since May 2013, but we continue to believe in its long term story, underpinned by its low land holding cost and solid pipeline of projects. Therefore, we are keeping to our RM2.21 TP at this juncture (maintain 50% discount to RNAV) as we believe YNH remains deep in value.

Source: Hong Leong Investment Bank Research - 29 Aug 2013