Yoma Strategic Holdings - CIMB Research 2016-07-27: Sluggish residence sales

YOMA STRATEGIC HOLDINGS LTD Z59.SI

Yoma Strategic Holdings - Sluggish residence sales

1QFY3/17 reported net profit was boosted by a significant revaluation gain, without which Yoma would incur a core net loss of S$8m (4Q16: S$5.3m core loss).
Residence sales at Star City and Phang Hlaing Golf Estate (PHGE) remained sluggish in the 1Q. Revenue of non-property segment continued to grow.
Cut FY17-19F EPS by 39-100% to reflect the sluggish residence sales.
Yoma unveiled plans for the Landmark Development, targeting completion in FY21.

Our target price is cut to S$0.40, still based on 40% discount to FY17 RNAV.

Yoma’s 1Q17 net profit of S$1.8m (US$1.3m; 1Q16: S$2.6m) was boosted by a non- core revaluation gain of S$10.2m on its telecom tower investment. Excluding this and other one-off items, Yoma recorded core net losses of S$8m (US$5.9m) vs. S$5.3m loss in 4Q16 and S$2.3m gain in 1Q16.
Revenue declined 22.4% yoy to S$17.6m (US$12.9m; 1Q16: S$22.6m) due mainly to the 75% yoy fall in property sales to S$3.1m (1Q16: S$12.3m).

We understood that, in the 1Q, the sales rate at Star City was a mere 10-15 apartment units/month, or 120-180 units annualised, and that only 2-3 landed house units were sold at PHGE.
Even if we factor in a moderate improvement in the sales rate, it may still take 20-30 years for Yoma to fully monetise its property investments in Star City (with a remaining development potential of 6,000-7,000 apartment units) and PHGE (a few hundred landed house units).

Non-property sales rose 37% yoy to S$9.6m in 1Q17 (1Q16: S$7.0m) on the back of 6% yoy growth in the group’s automotive (tractor trading and vehicle leasing) businesses and contribution from its new F&B (KFC franchise) business.
Despite the revenue growth of the non-property businesses, we expect its near-term contribution to the bottomline (if any) to be very limited given the start-up costs and the lack of scale of the KFC franchise business as well as the thin margin for tractor trading.

On 23 Jul, Yoma signed two separate new master leases for the sites of the Mixed-Use Development and the Peninsula Yangon (collectively, the Landmark Development) for an extension period of 50 years (from 1998).
With completion targeted in FY21, the two developments (48%- and 24%-owned by Yoma, respectively) have an estimated GDV of over US$1bn. Management plans to launch the pre-sale of the luxury residence for The Mixed-Use Development after Apr 2017 (i.e. 1QFY3/18).

With the wider core net loss in 1Q, we now expect Yoma to break even, at best, in core earnings in FY17 so we slash our FY17F core EPS by 100%.
We also cut our assumptions for future project launches at Star City and PHGE, reducing our FY18F EPS by 53% and FY19F EPS by 39%.
Yoma currently trades at a lofty 1.5x FY17 P/BV, against FY17-19F ROEs of merely 0-3.9%.
Key upside risks to our call include significantly faster-than-expected residence sales.

Roy CHEN CIMB Securities | William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2016-07-27

CIMB Securities SGX Stock Analyst Report REDUCE Maintain REDUCE 0.40 Down 0.45