YONGTAI-PA : Handsome gains await ?

Written by Editor

The share price of Yong Tai Berhad has been one of the worst performing stocks in Bursa Malaysia over the last one year.  From a 52-week high of RM1.59 recorded on 1st March 2018, the stock fell as much as 81% to a low of 30 sen in the middle of December 2018.  After rebounding to a high of 44.5 sen in mid-January 2019, the share price is weakening again.  Besides the mother share, Yong Tai’s irredeemable convertible preference shares (YONGTAI-PA) and warrant (YONGTAI-WA) also suffered hefty losses during this period of time.  

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Yong Tai is originally involved in garment manufacturing.  The company has since diversified into property development and investment.  The crown jewel of Yong Tai is its “Impression City” project, a cultural tourism property development in the historic Melaka with a RM7 billion gross development value (GDV), which consists of Encore Melaka theatre, shopping malls, educational and wellness facilities, hotels, serviced apartments and offices.  Amongst the projects undertaken by Yong Tai are The Apple, Amber Cove, The Dawn and Impression U-Thant. 

In the first quarter of FYE6/19 which ended on 30th September 2018, Yong Tai suffered a net loss of RM5.22 million as compared to net profit of RM2.70 million achieved in the corresponding period a year ago.  This is despite the revenue rising just under 10% to RM29.15 million from RM26.53 million in the first quarter of FYE6/18.  Yong Tai actually suffered a slight drop in revenue from its property development segment in the first quarter as the growth in revenue was mainly attributed to ticket sales from The Encore Melaka theatre which opened to the public since 1 July 2018.  However, the lower than expected ticket sales resulting from drop in tourist arrivals in Malaysia, in particular the Chinese market, coupled with depreciation and interest charges which is no longer capitalised post commencement of theatre operation, has resulted in this property investment division suffering significant losses.

Commenting on future prospects in its first quarter report, Yong Tai is expecting ticket sales for Encore Melaka to grow when market sentiment recovers in the near future. The projected growth was also premised on year-end festive seasons and school holidays. The Group will also stay focused on developing its ongoing development projects, namely The Apple, Terra Square, Amber Cove, The Dawn and Impression U-Thant. All these projects will begin contributing to the Group’s financial results in FYE 6/19 as and when they move into an advanced stage of development.

With the mother share fallen off the cliff to significantly below the exercise price, the out-of-money YONGTAI-WA is currently trading at a hefty premium of 82% with the warrant expiring in about 16 months.  On the other hand, YONGTAI-PA is looking attractive in comparison as it is trading at a discount of 31%.  The holders of YONGTAI-PA can start converting their preference share to mother share beginning from 28 November 2019 which is about 9 months’ away.  If the battered down mother share is able to recover or hold on to its current price level, buyers of YONGTAI-PA at this level should gain handsomely when conversion to mother share takes place at the end of year.

   

YONGTAI-WA

YONGTAI-PA

Warrant Price

:

RM0.145

RM0.245

Share Price

:

RM0.355

RM0.355

Exercise Price/Conversion Ratio

:

RM0.500

1 for 1

Warrants Expiry Date

:

24/6/2020

27/11/2026

Premium

:

81.7%

-31.0%

Gearing

:

2.45x

1.45x

Underlying Historical Volatility

 

58.2%

n/a

Warrant’s Implied Volatility

:

112.3%

n/a

Delta

:

0.66

n/a

Effective Gearing

:

1.63x

n/a

Alan Voon

22 Feb 2019

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