Yoma Strategic - RHB Invest 2018-12-26: Making Slow But Steady Progress


Yoma Strategic - Making Slow But Steady Progress

  • Maintain BUY, revising Target Price to SGD0.57 from SGD0.66, 68% upside.
  • Yoma’s share price has recovered by ~40%, after touching an all-time low in October. We believe the weakness stemmed from a combination of factors such as real estate slowdown, emerging market fund outflow and political tensions, which are now largely priced in.
  • With the overhaul in its real estate business and rapid scale up in its F&B, motors and financial services businesses, Yoma is now in a dominant position to reap the benefits.
  • While near-term market uncertainty remains, we see good long-term potential for investors at current levels.

Real estate – tweaking its strategy to build more affordable homes.

  • Owing to a slowdown in the mid-range to high-end residential segment, Yoma recently expanded its offerings with City Loft – affordable houses targeting the middle income segment. Yoma also tied up with domestic banks to offer longer, 25-year mortgage repayment terms for the new product launch. The move proved to be highly successful, with nearly half the 250 units sold at the first week of launch.
  • We are positive on the latest move as it addresses the key issue of affordability and helps broaden its target audience. While the margins for City Loft units are likely to be lower at ~25%, vs 35-45% for high-end homes, we believe the move provides much-needed earnings visibility.
  • Riding on the success, Yoma plans to launch and sell ~2,000 units pa in coming years.

Yoma F&B – expecting EBITDA breakeven in FY20 (Mar).

  • The expansion in KFC stores has been on track, with Yoma now operating 26 KFC stores (as at Sep 2018 vs 22 at Mar 2018) and on the way to operating 32 stores by end FY19. While the segment is still making core operating losses, management is confident of achieving breakeven in FY20. The opening of the first Little Sheep Hot Pot restaurant is expected by end-FY19, with plans to open five more in the future.
  • More recently, it announced the signing of a franchise agreement to bring Auntie Anne’s, the world’s largest soft pretzel franchise, to Myanmar.
  • Overall, management indicates that it plans to have about six brands under its F&B business, with a mix of local and international brands.

Financial services segment showing healthy improvement.

  • Wave Money achieved its cash flow breakeven in Sep 2018. Yoma Fleet also recorded strong growth, with 28% increase in vehicles leased in 1HFY19. Management remains optimistic on leasing activity prospects, with growth seen from organic and inorganic expansion.

Yoma Motors – expect a better 2H.

  • New Holland sales – impacted in 1HFY19 due to the strong monsoon season – are expected to see a pick-up in 2H. The opening of Volkswagen showrooms in Yangon and Mandalay are expected in 4QFY19 and should start contributing positively to the bottom line.

BUY with lower SGD0.57 TP

  • BUY with lower SGD0.57 Target Price based on a higher 20% (from 15%) discount to its SOP valuation, to factor in higher regulatory and political risks.
  • Our FY19F- 20F net profit forecasts are also lowered by 10-14% to factor in lower margins for real estate projects.
  • Key risks are slow pace of regulatory reforms, prolonged political tension and FX risks.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-12-26
SGX Stock Analyst Report BUY MAINTAIN BUY 0.57 DOWN 0.660