Yoma Strategic - Refuelling For The Next Leg
- Yoma offers investors the best proxy to invest in Myanmar with a strong and diversified business model.
- Recent quarterly results have been a mixed bag reflecting a sluggish real estate market caused by uncertainty over new regulations governing foreign buying. However, we see these as hiccups in a long structural uptrend driven by urbanisation, foreign direct investments and financial sector liberalisation.
- Notably, Yoma has scaled up its consumer and automotive businesses well.
- We maintain our positive view and BUY recommendation with a SGD0.78 TP (26% upside).
Moving ahead on Yoma Central.
- Following the receipt of building permits from the Myanmar Investment Commission, Yoma Strategic (Yoma) has moved ahead with the ground-breaking and construction of its USD600m mixed development Yoma Central (formerly known as Landmark).
- The project, strategically located in the heart of downtown Yangon, would feature The Peninsula hotel, a business hotel, offices, serviced apartments and branded residences. Management is looking for a suitable window to soft-launch the residential units sometime in 2Q17. That said, the real estate market in Yangon remain sluggish, plagued by uncertainty over details of the newly implemented Condominium Law.
- We expect further bylaws to be passed to clarify the legislation, before any pickup in foreign investment demand.
Non-real estate businesses ramping up steadily.
- Given the slow market conditions, Yoma is re-configuring the next phase of its Star City township, Galaxy Towers, towards smaller studio and 1-bedroom units to enhance affordability.
- On the non-real estate front, contributions from key businesses are increasing steadily (at 60% of 3QFY17 (Mar) group revenue) due to the:
- Continued ramp-up of the KFC store network and solid contributions from its automotive leasing and agricultural equipment units;
- Flattish real estate numbers.
- We expect the business momentum to be sustained on the back of a large 600- tractor order from the Ministry of Agriculture to be delivered over the following months and the roll out of another 10 KFC outlets in the next 12 months, bringing its store count to 22 by Mar 2018.
Recycling capital from non-core asset divestments.
- In Dec 2016, Yoma completed the divestment of 12.5% or half of its stake in its telecoms towers JV with Axiata, generating USD35m in proceeds, which can be re-deployed into its core businesses.
- Next is the spin-off of its tourism assets, comprising its hot air balloon business and hospitality assets into a separate listed vehicle via a reverse takeover (RTO) exercise. The exercise would give the tourism business a separate platform to raise capital independently for expansion.
Maintain BUY and SGD0.78 TP.
- We value the stock using a SOP methodology to reflect the diverse nature of its businesses. We use a revalued NAV approach to value its real estate and DCF to value its consumer business. We have also applied a 10% conglomerate discount to our valuation.
- Our TP of SGD0.78/share reflects an upside of 26%.