Yoma Strategic - DBS Research 2020-05-15: Battling COVID-19 With Digitization


Yoma Strategic - Battling COVID-19 With Digitization

  • Yoma Strategic's 12M-Mar20 recorded net loss of US$73m mainly due to fair value loss (vs fair value gains last year), and higher administrative and interest expenses.
  • F&B and property sales most impacted by COVID-19.
  • Meanwhile, Wave Money is thriving from higher adoption of digital transactions.

Battling COVID-19 with digitization

  • Amid the COVID-19 pandemic, Yoma Strategic (SGX:Z59)’s F&B and property sales have been most impacted especially in 2QCY20. However, management has secured sufficient funding for its property projects while seeking relief from landlords and franchisors to weather through the challenging business environment.
  • Wave Money was a welcomed contribution, albeit small, as it benefits from higher adoption of digital transactions during COVID-19.

6M-Mar20/12M-Mar20 impacted by real estate business due to fair value loss and absence of fair value gains; mitigated by contributions from newly acquired F&B business and Wave Money:

  • Yoma Strategic has changed its financial year to FYE Sep from FYE Mar previously, in line with the mandate from The Ministry of Planning and Finance of Myanmar to adopt the new FYE Sep. As such, this financial year will be 18 months from 1 Apr 2019 to 30 Sep 2020.
  • 12M-Mar20 recorded net loss of US$73m vs 12M-Mar19 net profit of US$34m. The key reason for the net loss is absence of fair value gains recorded in 12M-Mar19 due to the change in financial year, fair value loss from disposal of assets (US$32m), and higher administrative (+28% y-o-y) and interest (+19% y-o-y) expenses. The fair value gains are for the reclassification of properties in Pun Hlaing estate to investment property.
  • Yoma Strategic's 12M-Mar20 revenue fell 7.6% y-o-y to S$93m mainly from
    • Yoma Land (real estate development -32% y-o-y),
    • Yoma Land Services (-4% y-o-y) and
    • Yoma Motors (-9% y-o-y), mitigated by
    • Yoma F&B (revenue more than doubled) and
    • Yoma Financial Services (Yoma Fleet +10% y-o-y).
  • Yoma Strategic's 12M-Mar20 core EBITDA dropped 51% y-o-y to US$8m mainly due to Yoma Land which recorded net core EBITDA losses of US$1.2m and Yoma Land Services (-40% y-o-y). These were mitigated by Yoma F&B (core EBITDA of US$3m vs core EBITDA loss of US$1m in 12M- Mar19), Yoma Financial services (+7% y-o-y) and lower losses from Yoma Motors (16% y-o-y).
  • 6M-Mar20 recorded net loss of US$16m vs US$21m profit in 6M-Mar19. Revenue grew 4% y-o-y while core EBITDA (ex-fair value gains) is estimated to have fallen by c.41% y-o-y mainly due to Yoma Land recording a net core EBITDA loss of US$1.1m vs US$3.8m in 6M-Mar19. The net core EBITDA loss was mainly due to final adjustment to construction costs of Galaxy Towers which was completed in Dec-19.
  • Yoma Strategic's gearing (net debt-to-total capital) has improved from 30.3% in Mar-19 to 24% in Mar-20 following repayment of borrowings with the proceeds received from the sale of edotco in Nov-19 and first tranche of Ayala’s investment in Dec-19.
  • Amid the COVID-19 pandemic, Yoma Strategic has taken steps to manage costs, reduce non-essential capex, and the Board and senior management have taken voluntary reductions in directors’ fees and salaries of 25% from 1 Apr 2020 for 6 months.

Yoma Strategic Business Segments Update:

Property sales and F&B impacted by COVID-19 while Wave Money benefited from increased digital transactions:

  • Yoma Land – City Loft@Star City sold 187 additional units in 6M-Mar20; 68 units in 3M-Mar20 vs 119 units in 3M-Dec19. As such, total sales take-up rate achieved was 79% of 791 units launched in 6 buildings. Unrecognised revenue stood at US$20m with construction progress ranging between 13% to 61%. Peninsula Residences sold 3 units in 6M-Mar20 resulting in total sales of 19 units to-date (15 sold as at end-FYEMar19). COVID-19 pandemic has impacted property sales especially from overseas property buyers (largely from China) who could not travel to Myanmar to view the projects. Management believes sales activities would return when movement restrictions start to ease.
  • Yoma Land Services – lower occupancy and rental rates due to a more competitive environment
  • Yoma F&B – Revenue and core EBITDA growth were mainly led by contributions from new subsidiaries; YKKO (acquired in Feb-19) and KOSPA (entered into a JV arrangement in Mar-19). However, this segment was probably the most directly impacted by COVID-19 pandemic when restaurants were asked to close from Feb-20 onwards. Yoma F&B has onboarded Foodpanda and GrabFood to continue its operations via food delivery. This generated some 20% to 25% of its sales. Management has negotiated for various forms of rent reliefs / support from landlords ranging from 2 months to 1 year. Discussions are ongoing with franchisors on potential relief / support. Total number of stores was stable at 91 stores which comprises 44 KFC outlets, 43 YKKO outlets, 3 Auntie Anne’s kiosks and 1 Little Sheep Hotpot vs 33 KFC stores, 37 YKKO outlets, 2 Auntie Anne’s kiosks and 1 Little Sheep as at FYE Mar19
  • Yoma Motors – Fewer tractors were sold as the agriculture sector was weak on falling crop prices led by export restrictions to India and border closures with China and Thailand from COVID-19. However, these were partially compensated by higher automotive sales which has better margins, driven by 94 Volkswagen vehicles, 27 Ducati motorbikes and contributions from 310 vehicle sales by Mitsubishi.
  • Yoma Fleet – Number of vehicles has grown 9.5% y-o-y to 1,269 vehicles and 3rd party AUM grew by 34.3% to US$46m. Yoma Fleet has seen improvements in daily rental passenger utilisation on small vehicles in central locations which has resulted in gross profit margin improvements.
  • Wave Money – Yoma’s 34% stake in Wave Money contributed US$4.3m of profit in 6M-Mar2020 and this is expected to increase with a higher stake of 44% upon completion of the acquisition of additional stake. COVID- 19 has further increased the adoption of digital transactions and payments. Revenue and transaction numbers were up 16.2% q-o-q and 13.9% q-o-q respectively. Wave Money is further exploring potential agricultural / micro financing loan disbursements via the Wave Money platform, as encouraged by its government.
  • Ayala Corporation partnership – First tranche of US$109m of shares was placed on 2 Dec 19. Yoma Strategic will be organising an AGM in the next 3 months to execute the second tranche of US$46m.

Maintain BUY; Target Price of S$0.50

Rachel TAN DBS Group Research | Derek TAN DBS Research | https://www.dbsvickers.com/ 2020-05-15
SGX Stock Analyst Report BUY MAINTAIN BUY 0.500 SAME 0.500