Maintain HOLD Call But Cut TP to MYR0.16 (-27%)

We are positive on the news that YTB will build its own international cruise terminal. The latter ought to boost Encore Melaka’s utilisation rate and sale of Impression City properties. That said, we are wary that YTB may have to issue more new shares to finance construction given its weak earnings generation and balance sheet. We leave our earnings estimates unchanged but ascribe a wider 55% (40% previously) discount to our end-FY20E NTA/shr to cut our TP to MYR0.16 (MYR0.22 previously).

YTB to Build Its Own Cruise Terminal…

YTB accepted a letter of approval from the Government Of Melaka to build an international cruise terminal (ICT) within Impression City. YTB will bear the cost to develop the ICT, which was not disclosed. It also entered into a MOU with Singapore Cruise Centre Pte. Ltd. (SCC, Not Listed) to engage the latter as the operator and manager of the ICT. For its initial services (e.g. advice on operating and managing the ICT), SCC will charge YTB SGD120k (MYR362m).

… But Early Days Yet Though

YTB and SCC need to obtain approval from their boards of directors and shareholders for the former to engage the latter and YTB needs to obtain the approval of the Ministry of Transport and Ministry of Home Affairs. YTB intends to obtain the aforementioned approvals within twelve months. If the aforementioned conditions precedent are fulfilled, YTB and SCC will enter into a definitive agreement to govern the relationship between them.

Key Concern Is Construction Financing

If the ICT can attract close to the 450k passengers that arrived at Swettenham Pier Cruise Terminal in CY19, there is a chance that Encore Melaka’s utilisation rate could be improved from ~10% in FY19 and sale of Impression City properties (Terra Square, AmberCove and The Dawn) could accelerate. That said, we are wary that YTB may have to issue more shares to finance the construction of the ICT as it is struggling to generate profits and net gearing as at end-1QFY6/20 is high-ish at 43%.

Wider Discount to NTA/shr Warranted, in Our View

To date, our filings indicate that YTB has raised MYR68.8m from issuing 329m new ordinary shares at an average share price of MYR0.21. It obtained approval from Bursa Malaysia and Securities Commission to raise another 71m new shares. Assuming these new shares are priced at MYR0.17 (the latest tranche of new shares issued were priced at MYR0.17), YTB could raise another MYR12.1m only. We gather that this is insufficient to build the ICT. Therefore, we ascribe a wider discount of 55% (40% previously) to our end-FY20E NTA/shr because we posit that YTB may have to issue many more new shares than the 400m already planned.

Source: Maybank Research - 22 Jan 2020