Results

• Below expectations: 3QFY15 core profit fell by 50% YoY bringing 9M profit to RM15m, accounting for only 56% and 25% of ours and consensus estimates respectively.

Deviations

• Lower revenue recognition from property development and higher expenses arising from provision for guarantee return scheme for Fraser Residence KL.

Highlights

• 3QFY15. YNH’s core PAT (excluded RM5.6m forex losses arising from US dollar borrowing) plunged by 50% YoY mainly due to provision for guarantee return scheme for Fraser Residence KL coupled with softer take up rate in on-going projects.

• Excluded from Nov 15 syariah compliant list. YNH was reclassified as Shariah non-compliant in Nov 15 mainly due to failure to meet debt to asset ratio.

• 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 7% and 19% respectively after factored in lower development margin.

Rating

SELL

• Positives: 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

• TP adjusted slightly from RM1.49 to RM1.48 based on unchanged 60% discount to RNAV post earnings downgrade. Maintain SELL.

Source: Hong Leong Investment Bank Research - 1 Dec 2015