This article first appeared in The Edge Financial Daily on March 12, 2019
Yong Tai Bhd
(March 11, 34.5 sen)
Maintain hold with an unchanged target price (TP) of 37 sen: Yong Tai Bhd has proposed a private placement of new shares of less or about 10% of its issued shares, which we estimate will raise less or about RM16 million. While this will not aid Yong Tai’s net debt position by much, neither will it dilute its fully diluted (FD) earnings per share (EPS) and net tangible assets (NTA) per share by much as well. We maintained our earnings estimates, “hold” call and TP of 37 sen based on a 30% discount to FD NTA per share. While investors may not view this development positively, we gather there could be a positive near-term catalyst in the sale of Terra Square mall.
Currently, Yong Tai has 485.6 million issued shares, 32.6 million warrants with an exercise price of 50 sen per warrant, and 216 million irredeemable convertible preference shares (ICPS). As the warrants are “out of the money” and Yong Tai plans to complete the proposed private placement in the second quarter of 2019 (2Q19) or before the ICPS convertibility begins on Nov 28, 2019, we estimate Yong Tai will issue less or about 48.6 million new shares, or less or about 10% of its current issued shares. Yong Tai has proposed to issue the new shares to third-party investors — ex-management and major shareholders.
The issue price of the new placement shares has not been fixed but assuming they are issued at 33 sen per share or an 8% discount to the five-day volume weighted average market price of Yong Tai shares of 36 sen per share, Yong Tai may raise less or about RM16 million. On the proposed utilisation of proceeds, RM8 million is for the completion of the Courtyard By Marriott, RM4.9 million to fund the infrastructure cost for Impression City, RM3 million for working capital, and RM90,000 to defray estimated expenses.
Assuming net proceeds of RM16 million, Yong Tai will see a net debt of RM 241.1 million at end-2Q of the cumulative six months of financial year 2019 (FY19), trimmed by only 7%. That said, it will leave our FY20 FD EPS estimate little changed at 0.5 sen (-6%) and trim our end-FY19 estimate FD NTA per share by only one sen to 52 sen. Based on an unchanged 30% discount to FD NTA per share, our TP may be trimmed one sen only to 36 sen.
There are several risks for our earnings estimates, TP and rating for Yong Tai. Fewer-than-expected tourist arrivals, especially from China, could lead to a lower-than-expected Encore Melaka utilisation rate. Additionally, the Malaysian government could impose more macro-prudential curbs to control property prices and cause property sales to decline. — Maybank IB Research, March 11