Yoma Strategic Holdings - CGS-CIMB Research 2018-06-28: Tipping The Balance Towards Non-real Estate Business

Yoma Strategic Holdings - CGS-CIMB Research 2018-06-28: Tipping The Balance Towards Non-real Estate Business YOMA STRATEGIC HOLDINGS LTD SGX: Z59

Yoma Strategic Holdings - Tipping The Balance Towards Non-real Estate Business

  • Yoma Strategic’s share price dipped 30% YTD to 12.4x forward P/E and 1.0x current P/BV based on Bloomberg consensus estimates, below 7-year historical average for both.
  • Its non-real estate business continues to grow, accounting for 60% of FY3/18 revenue, despite the slowdown in Myanmar’s real estate market.
  • Management is optimistic on achieving EBITDA breakeven in the consumer segment (c.13% of FY18 revenue) as Yoma scales up its KFC business in Myanmar.
  • Introduced a new business pillar – financial services – after its recent acquisition of a 34% stake in Wave Money to tap on mobile financial services growth in Myanmar.
  • Net debt-to-equity ratio of 29.4% at end-FY18. The company faces interest rate risk due to increase in borrowings in FY18.

Scaling up its non-real estate business

  • Revenue generated from the non-real estate business has grown 33% y-o-y to S$65.2m in FY18, accounting for 60% of total revenue (up from 47% of group revenue in FY17). 
  • FY18 topline growth for the non-real estate business was mainly driven by higher revenue from its consumer, automotive and heavy equipment segments that partly offset the slowdown in real estate sales (down 36% y-o-y to S$42.6m in FY18).

More New Holland tractors sold

  • Automotive and heavy equipment revenue was up 34% y-o-y to S$51m in FY18, as Yoma sold 911 tractors during the year (compared to 692 tractors in FY17), benefiting from the continued mechanisation of Myanmar’s agriculture sector.
  • Other revenue growth drivers were the expanding passenger and commercial segments, in which Yoma provides distribution and after-sales service for international brands, including Mitsubishi Motor and Volkswagen in Myanmar.

Hopes for turnaround in EBITDA for consumer business soon

  • Yoma’s consumer revenue has rose 30% y-o-y to S$14.2m in FY18, as it continued to expand its network of KFC outlets in Myanmar (23 as at 30 May 2018). The group targets to add another nine stores by Mar 2019F, slowing its pace of new outlet openings from 10-11 in FY18.
  • Although the consumer segment incurred EBITDA losses in FY18, management stated during Yoma’s FY18 results briefing at end-May 2018 that it aims to achieve EBITDA breakeven soon from increasing economies of scale.

New growth pillar – financial services

  • Financial services became a stronger fourth pillar of Yoma’s business (6.3% of FY18 revenue) with the acquisition of a 34% stake in Wave Money for c.S$25.7m in Mar 2018, in addition to its existing vehicle-leasing business (Yoma Fleet).
  • Wave Money offers a convenient way of transferring money via mobile app and has seen its user base grow from zero in Oct 2016 to 1.3m (c.2.5% of Myanmar’s adult population) in Feb 2018, translating into a compound monthly revenue growth rate of 22% from Jan-17 to Jan-18.

Muted net debt-to-equity ratio but faces interest rate risk

  • As at 31 Mar 2018, Yoma’s borrowings amounted to S$243.5m, with net debt-to-equity ratio of 29.4% (up from 19.7% in FY17). 
  • The group had net liability exposure of c.S$111m in US$ at end-FY17 and its net interest expenses rose $5.7m to S$11.2m in FY18 due to higher borrowings and amid the rising interest rate environment.

Trading at 12.4x forward P/E based on Bloomberg consensus

  • Based on Bloomberg consensus estimates, the stock is currently trading at 12.4x forward P/E and at 1.0x current P/BV, below its historical 7-year average of 29.4x and 1.6x, respectively.
  • Consensus estimates FY19F dividend yield of 0.8%.

Colin TAN CGS-CIMB Research | https://research.itradecimb.com/ 2018-06-28
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