Yoma Strategic Holdings - CIMB Research 2015-11-13: Hope for a new future

YOMA STRATEGIC HOLDINGS LTD Z59.SI

Yoma Strategic Holdings - Hope for a new future

2QFY16 core net loss of S$2.2m (1HFY16: S$0.2m profit) due to slow property sales in Myanmar as buyers delayed purchases ahead of its general elections.
Non real estate businesses, mainly automotive and F&B (KFC), contributed 39% to group revenue in 2QFY16 (2QFY15: 1%).
We see an improving 2HFY16, with contributions from tourism and new KFC stores.
Property sales may come back in FY3/17, pending a peaceful transfer of power in Myanmar.
Upgrade to Hold; positive newsflow on Myanmar’s reform is a key catalyst.

Excluding one-offs, Yoma recorded a core net loss of S$2.2m in 2QFY16 (2QFY15: S$5.2m profit).
Revenue declined 52% yoy due mainly to the absence of the LDR sales of S$25m (star city Zone C) that Yoma recognised in 2QFY15.
Administrative expenses rose 35% yoy to S$12.4m (2QFY15: S$9.2m) due to:
1. a one-off share-based payment to CEO of S$0.9m, and
2. additional overhead expenses related to new business initiatives including New Holland tractors, landmark development and KFC businesses.

The impact from the decline in property sales was partially cushioned by new income streams from the New Holland tractor business (acquired in Feb 15) and the KFC business (first store opened in Jun 15), which together formed 39% of its 2QFY16 group revenue.
According to management, Yoma would continue expanding the non-real estate business to increase its scale to match the group’s real estate business by 2020.

2HFY16 would see contribution from its Balloons over Bagan services (operates in OctApr only), whose outlook is premised on Myanmar’s strong tourism growth. Myanmar’s tourism arrival is expected to reach 4.5m in 2015, surpassing 2014’s 3.8m. Sales of New Holland tractor business would also see further pick up in 2HFY16, after the rainy season ends in early Oct. Its second KFC store opened in Oct, with the third to be opened shortly, would also contribute to Yoma’s profitability in 2HFY16.

Management believes that Myanmar’s residential property market would remain slow in the coming quarters due to the wait-and-see sentiment of potential buyers. The group will phase its project developments according to market conditions. As such, we cut our FY16 and FY17 core EPS forecasts by 38% and 21%, respectively, to reflect the delay in property sales.
In our view, sales may come back in FY3/17, after the new government is formed (expected by Apr 16).

We upgrade Yoma from Reduce to Hold, as we are hopeful that a peaceful handover of power in Myanmar from the old semi-military government to a new civilian government would pave the way for the country’s continuous economic growth.
Our new TP of S$0.49 is based on a lighter 35% discount (compared to 40% previously) to FY16 RNAV, due to the general positive sentiment towards Myanmar’s democratic reform.

Roy CHEN CIMB Securities | William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2015-11-13

CIMB Securities SGX Stock Analyst Report HOLD Upgrade REDUCE 0.49 Up 0.46