Yoma Strategic Holdings - DBS Research 2019-02-11: Abundance Of Food For The New Year


Yoma Strategic Holdings - Abundance Of Food For The New Year

  • Acquisition of 65% stake in Myanmar’s largest restaurant chains for MMK19.4bn (US$12.6m).
  • Acquisition will be immediately earnings accretive with a healthy cash flow.
  • Price implies a single-digit FYE Mar19 EV/EBITDA and valuation could range between 14x and 19x FYE Mar18 PE.
  • Expected completion by FYE Mar19.

What’s New

  • YOMA STRATEGIC HOLDINGS LTD (SGX:Z59) announced the acquisition of a 65% stake in Yankin Kyay Oh Group (YKKO), Myanmar’s largest restaurant chain with 37 outlets, for MMK19.4bn (US$12.6m) cash.
  • The existing shareholders, comprising the founder family and employees, will hold the remaining 35%. The acquisition is subject to the fulfilment of certain conditions. However, management expects to complete the deal by FYE Mar19. This would propel Yoma Strategic’s F&B business to double its F&B store count.
  • According to CEO, Melvyn Pun, “the acquisition will immediately be earnings accretive and will provide a tried-and-tested offering with a healthy cash flow”.
  • The acquisition will be funded by internal resources and its recent financing via US$70m Thai Bond Issuance. We understand that the acquisition price implies a single-digit FYE Mar19 EV/EBITDA. We estimate that the valuation could range between 14x and 19x FYE Mar18 PE. According to management, future capex and expansion will be self-funded from the positive cash flow position.
  • Yankin Kyay Oh Group (YKKO) is famous for its “Kyay Oh”, a popular vermicelli and flat rice noodle-based dish in Myanmar. While Kyay Oh contributes the majority of YKKO’s sales, the restaurant also offers a diversified menu ranging from Myanmar-style barbeque to Chinese and Thai dishes.
  • YKKO started as a small, family-run restaurant in Yangon. Now, it has become a household name and has 37 branches in Yangon, Mandalay, Nay Pyi Taw, Bago and Mawlamyine.

Our Views

  • The acquisition is in line with Yoma Strategic’s target to have some 6- 7 F&B brands to build scale in this business segment. When completed, Yoma will own a wide variety of food offerings covering various segments of the food industry, including both new international food and local cuisine.
  • Under its F&B business, Yoma Strategic currently operates KFC and will be bringing in Little Sheep Hot Pot and Auntie Anne’s Pretzel in 2019. While the acquisition is priced for an established food business, it immediately builds scale which Yoma Strategic could potentially extract further savings from its supply chain.

We have a BUY rating on Yoma with Target Price of S$0.40.

  • We believe Yoma Strategic remains the best proxy to ride on a potential economic turnaround in Myanmar despite some disappointment on Myanmar’s economic growth. With its diversified portfolio in property, consumer and automotive sectors, Yoma Strategic is well placed to tap into the growth.
  • The stock currently trades at 0.7x P/BV as it rides through the gestation period of its businesses.
  • Key catalysts are
    1. pick-up in the recovery of the Myanmar property market,
    2. continued support from the government to facilitate farming mechanisation, and
    3. stabilisation and turnaround to profitability of operations at its KFC stores and its automotive segment.

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2019-02-11
SGX Stock Analyst Report BUY MAINTAIN BUY 0.400 SAME 0.400