The show must go on for Yong Tai
Company still optimistic despite lower-than-expected visitor traffic to Encore Melaka
IN just nine months, garment maker-turned-property developer Yong Tai Bhd’s share price has tumbled by nearly 54%, wiping out the entire gains made since November 2015.
In comparison, over the same period, the FBM Small Cap Index has declined by only 16%
Now a penny stock at 69 sen, Yong Tai’s share price fall began to accelerate sharply from July, the same month its multi-million Encore Melaka theatre opened its door to visitors.
Touted as the centrepiece of Yong Tai’s ongoing iconic Impression City development, Encore Melaka is a 360-degree rotating theatre that seats 2,007, where a 75-minute play depicts the history of Melaka.
Encore Melaka stages a folk musical show, which is part of the renowned Impression Series in mainland China. It is worth noting that Encore Melaka is also the first of the series to be based outside of China.
Initially anticipated to become an instant hit among tourists, the Encore Melaka’s visitor traffic in the last three months have been substantially lower than expected.
In September, ticket sales were only about 25,000 to 30,000 compared with Yong Tai’s initial target of 39,000.
The Yong Tai management claims the decline in Chinese tourist arrivals since May as the reason for the poor ticket sales, although the latest Tourism Malaysia data for January to April shows a 37% increase.
According to a UOB Kay Hian Research note, with ticket sales expected to be low in the near term, Yong Tai has revised down ticket sales forecast for October and November from 48,000 and 60,000 respectively to 30,000 each for the two months.
As for the financial year of 2019 (FY19), the property developer has slashed its ticket sales target by 50% to only 500,000 tickets for the full year.
UOB Kay Hian has cautioned that Yong Tai’s earnings will be hit significantly, in the event of continuing low ticket sales.
“In the worst-case scenario, assuming ticket sales do not improve with a monthly run rate of 30,000, our FY19 net profit estimate would decline 32% year-on-year to RM24.5mil. Correspondingly, our target price would also decline to 75 sen (from 85 sen currently),” it says.
Meanwhile, AllianceDBS Research revised down its FY19 earnings forecast by 56%, given the lower ticket sales expectation and Yong Tai’s decision to suspend property launches in FY19 to focus on existing projects and marketing activities for Encore Melaka.
“We learn that the one million off-take agreement with six preferred travel sales agencies (PTSA) is unlikely to be fulfilled as the PTSAs are still clearing off their old tour packages that have yet to include Encore Melaka in their itinerary,” says the research house.
Yong Tai entered into offtake agreements with six local and foreign travel agents for one million tickets, representing some 70% of occupancy of Encore Melaka’s yearly capacity, over the next three years.
Despite the murky outlook, Yong Tai chief executive officer Datuk Wira Boo Kuang Loon remains optimistic on the prospects of Encore Melaka, as he expects ticket sales to pick up gradually going forward.
“Although ticket sales at the moment are lower than projected, we only need 30% occupancy rate to break even,” he tells StarBizWeek.
Boo is Yong Tai’s second largest shareholder, with an equity interest of 14.2%. He first made his entrance into Yong Tai as a shareholder in June 2015 with a 7.16% stake.
Yong Tai undertook its first development project through a joint venture with Boo’s private company, PTS Properties Sdn Bhd, which also saw Yong Tai turning around for its financial year ended June 30, 2015 after seven years of making losses.
On the company’s share price, Boo described it as “not justified” and “hugely discounted”.
Sharing a similar sentiment, PublicInvest Research also says that Yong Tai’s recent share price fall, is largely unnecessary and overdone.
“Encore Melaka is certainly not flawed, only the delivery on it being slightly delayed. But surely is a RM539mil market capitalisation loss (from peak share price of RM1.75 to 64 sen currently) for delays in delivery on an RM360mil investment overdone?” it asks in an earlier note.
Boo believes that the sentiment among Chinese tourists will recover in the near future and in turn, benefit Encore Melaka.
“China is still our target market but for the time being, we are exploring other countries to fill the gap. For simple reason, Singapore and Indonesia is our neighbouring countries and Melaka is always a popular destination for them.
“So far, most of our ticket sales are from Malaysians and they are amazed by the 360 degree rotating auditorium and latest visual technology used during the show – something different and unique in this region,” he says.
Among Yong Tai’s other strategies to ramp up visitor traffic to Encore Melaka are signing up over 300 tour guides to bring in tour groups as well as partnering with international cruise ships and hotels.
When asked whether the lower ticket sales would cause difficulties in repaying Yong Tai’s RM100mil loan facility from the Bank of China, Boo says it is unlikely.
Yong Tai took the financing option from the Bank of China after a hard time securing loans from the local banks for the Encore Melaka project. The loan facility was supposed to be paid using the proceeds from the ticket sales.
About RM90mil of the facility was to be used to finance the Encore Melaka theatre while the remaining RM10mil for operation expenditure, including salaries of performers.
“Based on current sales and we are expecting the sales to increase steadily in the future, there is no concern on the repayment. The repayment period of five years provides sufficient time for us to work on increasing the occupancy rate. Like most of new tourism destinations, Encore Melaka would need some time to build its popularity,” he says.
Boo also commented about the larger Impression City that houses the Encore Melaka.
Currently, there are two ongoing projects, namely the Amber Cove serviced apartments as well as The Dawn condotel and the Terra Square retail mall.
The project, which has an estimated gross development value of RM7bil, is expected to be completed over the next eight to 10 years.
“We are not in the hurry as the land are signed on joint development basis with landowner without financial pressure (land holding cost). We will progressively roll out our projects in response to market conditions and they will be funded by combination of bridging financing and internally generated fund,” says Boo.
Considering the currently-soft property development market, Yong Tai has no plans to resume launches or acquire new landbank for its future projects.
“Our focus is to clear off the balance property stock, develop our flagship project ‘Impression City’ and work on the Encore Melaka audience occupancy,” he says.
On whether Yong Tai will start paying dividends in FY19 as reported earlier in the media, he says: “Paying dividends and rewarding shareholders are always our plan. However, the priority now is to focus on our operation and generate sufficient profits so as to enable the company to be in a position to pay dividends.”