Results

3Q13 core PAT declined 9.4% yoy to RM10.6m, making up 65% and 62% of HLIB and consensus estimates respectively.

Deviations

Earnings contribution from Frasier Residence did not pick up in 3Q, thus causing revenue and net profit to underperform HLIB and street expectations.

Dividends

1.5 sen DPS was declared in 3Q13, bringing YTD DPS to 4 sen, which fulfils our 4.0 sen DPS forecast.

Highlights

Still reliant on incumbent projects. Revenue was 29% lower both qoq and yoy due to slower progress billing recognition in 3Q, 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 25th June, 2013.

Updates on 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, YNH has not proceeded as it has yet to secure anchor tenants, and is still in the midst of obtaining approvals for change in product mix from purely commercial to an integrated development. We opine that management is unlikely to initiate the development before securing an anchor tenant, given its high net gearing ratio of 0.58x.

Risks

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

Forecasts

Given slower earnings recognition from Frasier Residence, we reduce FY13 net profit forecast by 7.7%.

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

Share price has retraced 29% since May 2013. While valuations now appear reasonable (12.2x FY14 P/E), we believe YNH will be a long-term story given the gestation period of Menara YNH and its slow earnings recognition. This is on top of the sector headwinds it faces. We increase our discount to RNAV from 50% to 60% and trim our TP from RM2.21 to RM1.76.

Source: Hong Leong Investment Bank Research - 29 Nov 2013