Yoma Strategic - RHB Invest 2018-05-31: Non-real Estate Business Gaining Prominence

YOMA STRATEGIC HOLDINGS LTD SGX: Z59

Yoma Strategic - Non-real Estate Business Gaining Prominence

Maintain BUY and Target Price of SGD 0.66, 64% upside.
FY18 net profit came in below expectations mainly due to a slowdown in its real estate business. This was however partially mitigated by rapid growth in its non-real estate business. We believe the YTD 26% decline in Yoma Strategic's share price has already factored in most of the negatives arising from slow economic progress and ongoing political tensions.
Yoma Strategic should slowly start reaping benefits from the growing scale at its consumer and automotive business, with the fast growing financial services segment acting as an additional catalyst. Upside could also come from a pickup in real estate project sales.

Management acknowledged that sales at its real estate projects have been slower than expected, impacted by weak demand for mid-to-high end projects and pending the implementation of the condominium law.
In light of higher demand for mass market projects, it has redesigned its existing unit offerings in Galaxy Towers at Star City to cater to demand for smaller, affordable units. Yoma also plans to launch a new project, ‘City Loft’ in Star City at slightly lower price points compared to Galaxy Towers.
Sales at its new launch, The Peninsula Residences Yangon, have been better than expected, with Yoma selling about 13 of its 30 units launched so far.

Yoma now operates 23 KFC stores (as at May) compared to 12 stores as at end- FY17. With the increasing scale of its KFC business, management aims to reap cost benefits and efficiency by consolidating its supply chain.
Yoma will also be adding Little Sheep, one of the international Hot Pot brands, to its franchise portfolio. The first Yangon store is planned for opening in 4Q18, with plans to open five more stores in future.
It has also entered into a JV with Pernod Ricard, for the production and distribution of alcoholic beverages in Myanmar.

Heavy equipment revenue grew 41% y-o-y, driven by strong growth in New Holland tractor and the JCB business. This segment’s outlook remains promising from the continued mechanisation of the agricultural sector and upturn in construction and infrastructure sectors.
On the passenger and commercial segment, the addition of more showrooms and dealerships for its Volkswagen and Mitsubishi brands is expected to drive growth.

Revenue growth (m-o-m) from its recent acquisition of Wave Money has been higher than its expectations (25% m-o-m growth) and is on track to achieve cash flow breakeven over the next few months.
Yoma’s fleet business has been moved to its financial services segment, and is expected to see an accelerated growth from higher fleet size, tweaks in price offering, and its new partnership with Grab.

Maintain BUY and Target Price of SGD 0.66, based on our SOP valuation, which takes into account the diverse nature of its businesses. We valued its real estate interests using an RNAV approach. We used DCF to value its consumer business, and P/E for its fast-growing automotive business.
Our Target Price is derived after imputing a 15% discount to factor in political and regulatory risks.
Key risks include prolonged political tensions and forex risks.

Vijay Natarajan RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-31

SGX Stock Analyst Report BUY Maintain BUY 0.660 Same 0.660