What’s New

• Proposed acquisition of Apple 99 to increase effective stake in The Apple project to 60%
• Proposed acquisition of 70% stake in 1.08-acre development in Bukit Bintang, KL
• Proposed JV to develop 1.2-acre site in Jalan UThant, KL
• Reiterate BUY and RM2.10 TP – our sector top pick

Massive value creation. Yong Tai has successfully transformed into a Melaka-centric township property developer via its integrated 138-acre Impression City (RM7.7bn GDV), featuring the first-of-its-kind Impression Melaka – an iconic tourist landmark that showcases large- scale live cultural music performances.

Best proxy to booming Chinese tourism. As the first Impression Series outside China, the Melaka Straits-fronting Impression Melaka is poised to be a resounding success by tapping into the booming Chinese tourism in Malaysia which has seen an impressive 11% tourist arrivals CAGR over 2000-2016 (vs 1% for Malaysia’s overall tourist arrivals), making it the third-largest tourist source market.

Emerging cash cow. Impression Melaka offers compelling value proposition given its estimated ~20% IRR over the 30-year concession, thus transforming Yong Tai into an emerging cash cow with strong recurring income.

Under-appreciated Melaka property market. There is immense potential in the Melaka property market which is targeting not just its 0.9m local population but also >16m tourists that visit the World Heritage City annually. Yong Tai’s impressive unbilled sales of RM990m – anchored by en-bloc sales of 262 retail lot units in Impression City for RM873m – will underpin strong earnings visibility over the next two years. We believe Impression City’s attractive investment merit is under-appreciated by investors, and the official opening of Impression Melaka in Feb 2018 will be a major catalyst.

Valuation:

Given Yong Tai’s unrivalled competitive advantages arising from its unique tourism appeal and synergistic property product offerings, it is expected to deliver exponential EPS CAGR of 57% over FY16-19F. We envisage long-term earnings visibility for Yong Tai as its value-adding Impression City and Impression Melaka ride on booming Chinese tourism, reflecting the unprecedented close Malaysia-China ties. We reiterate our BUY rating and SOP-derived TP of RM2.10 which implies FY18 PE of 13x.

Key Risks to Our View:

Weaker tourist arrivals. Slower-than-expected tourist arrivals will negatively affect Impression Melaka’s ticket sales, given that tourists are its main target markets.

Source: Alliance Research - 10 Apr 2017