ECM Libra Investment Bank Bhd has initiated a buy call on YNH Property Bhd with a realised net asset value (RNAV) based target price of RM3.80, underpinned by its increasing exposure to the upper mid-to-high-end residential and office subsectors in the Klang Valley.

"This valuation is undemanding, as it only implies a price-earnings ratio (PER) of 11.7 times and 8.2 times, based on fiscal years 2008 (FY08) and 2009 (FY09) fully diluted earnings per share (FD EPS) respectively," it said.

YNH's historical PER band of 7.6 times to 17.4 times over the last three years had lent support to its target price, supported by its aggressive share buyback exercise, more land acquisition or joint ventures, acceleration of property sales and higher selling price.

ECM Research said: "YNH is attractive at current valuation as it is currently trading at 8.2 times FY08 FD EPS, which is at 19% discount to its mid cap peers and 50% discount to large cap property developers."

Additionally, YNH would increase its landbank in the Klang Valley, especially on prime areas in the Golden Triangle, Mont' Kiara and Sri Hartamas, as part of its key strategy moving forward.

The research house said the existing nine parcels of prime landbank in Klang Valley with a combined gross development value (GDV) of RM3.9 billion would provide excellent earnings visibility from FY05 to FY13 period.

YNH would underpin a strong earnings per share (EPS) compound annual growth rate (CAGR) of 42% over the FY07-FY09 period, on the back of its iconic RM1.8 billion Grade A office project, known as Menara YNH.

With more than 50% of Menara YNH sold to Kuwait Finance House for RM920 million, which worked out to be RM1,226 per sq ft, YNH had set a new benchmark price in Grade A office space, ECM Research said.

The sale had put YNH as having one of the largest unbilled sales in the country at RM1.2 billion, which was more than four times of its FY07 revenue. This would mean that 40% to 50% of FY08 and FY09 EBIT was already locked in. "This provides earnings certainty in the near term and all YNH has to do is construct the building to recognise the profits," ECM Research said.

It said it would expect YNH to sell the remaining office building to another en bloc purchaser this year, possibly with a higher price.

Apart from Menara YNH, earnings for the FY08 and FY09 would be largely contributed by four projects including 163 Serviced Suites (GDV RM322 million) within the KLCC vicinity, as well as Ceriaan Kiara condominiums (GDV RM200 million) and D' Kiara Place (GDV RM700 million) in Mont' Kiara, respectively.

YNH also leveraged on its in-house construction arm to maintain a healthy earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 43% for FY07, which was one of the highest in the industry.

"We view this positively as it provides a good cushion against building material price inflation threatening the property industry in the immediate term," it said.

YNH fell 12 sen to RM2.55 yesterday with 2.35 million shares done.