Results

4Q13 core PAT declined 34.7% yoy to RM7.2m, making up 84% and 74% of HLIB and consensus estimates respectively.

Deviations

Although we had cut our FY13 net profit forecast by 7.7% in 3Q, earnings for YNH continued to deteriorate for a second straight quarter. Of note, 4Q13 net profit of RM7.2m is just half of 2Q13’s RM14.3m. YNH attributes this to weaker sales of commercial properties in the Manjung Point township.

Dividends

2 sen DPS was declared in 4Q13, bringing YTD DPS to 6 sen, or 150% of our 4 sen DPS forecast. Highlights

Still reliant on incumbent projects. Its existing projects continue to generate a healthy topline, with 4Q revenue rising 39% yoy and 55% qoq. Key earnings contributors include Fraser Residence in Kuala Lumpur and properties in Seri Manjung, Perak. However, GP margin sharply contracted in 4Q13 (27%, compared to 59% for 4Q12), which YNH attributes to product mix.

Future earnings yet to come through. YNH has yet to see earnings contributions 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.

No new developments for Menara YNH. YNH has stated that it will only proceed with development of Menara YNH after securing anchor tenants first. However, we do not believe this will materialise in the near term, given the softening rental market for commercial office spaces in KL CBD.

Risks

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

Forecasts

After rolling over our numbers and reducing our forecast, FY14-15 forecasts are reduced by 8.8-9.1%.

Rating

HOLD

Positives: Above-industry-average gross margins; lowcost, sizeable and fully paid-for landbank.

Negatives: Concentration risk from very few active projects, vulnerable to cost escalation.

Valuation

Given YNH is lacking in earnings catalysts in the near term, we are unexcited about its prospects. We maintain our TP at RM1.76 (60% discount to RNAV), which translates to 13.2x FY15E earnings. Our steep 60% discount to RNAV reflects its undervalued land bank which we believe will not be monetised in the near term.

Source: Hong Leong Investment Bank Research - 26 Feb 2014