Results

• Below expectations: 2QFY15 profit fell by 81% YoY, bringing 1H profit to RM7.6m, accounting for only 14% of ours and consensus estimates.

Deviations

• Lower-than-expected property development revenue.

Highlights

• 2QFY15. YNH saw its earnings fell by 81% YoY and 53% QoQ mainly due to completion of project Fraser Residence KL, softer take up rate in the on-going projects coupled with lack of new launches.

• FY15 earnings drivers. YNH’s FY15 performance wil l be mainly derived from progressive sales of uns old units in Fraser Residence Kuala Lumpur, progressive profit recognition from Taman Desa Manjung and sales of development land.

• Kiara 163. In view of the challenging environment, YNH is cautiously optimistic on the Kiara 163 project in Mont Kiara. This is a mixed development RM1bn GDV project with 60% comprising of service apartments which are planned to be sold fully furnished. The retail shopping mall will also be one of the main attractions.

• Sfera Residensi (GDV: RM418m) located in Puchong South, is expected to contribute over the next 3 years. With piling and substructure al ready commenced, the group is expecting the project to contribute positively for the next three years.

• Menara YNH with GDV of RM2.1bn has already obtained development order, which will comprise of office tower and shopping mall.

Risks

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

Forecasts

• FY15 and FY16 earnings reduced by 50% and 25% respectively after factored in lower progress of sales and lack of new launches.

Rating

SELL

• Posi tives: Above-industry-average gross margins; low-cost, sizeable and fully paid-for landbank.

Negatives

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

Valuation

• Our RNAV reduced by 6% after taking into account lower take up rate and defer launches.
• TP adjusted from RM1.58 to RM1.49 based on unchanged 60% discount to RNAV post earnings downgrade. Given total potential downside is still more than 10%, along with its continuous quarters of disappointing results, we are maintaining our SELL call on the stock.

Source: Hong Leong Investment Bank Research - 28 Aug 2015