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Phillip Capital initiates coverage on Yoma with 'buy' on 'stellar growth' in financial services

Source: The Edge Singapore

Broker's Calls

Felicia Tan 23/06/2020, 12:35pm

SINGAPORE (June 23): Phillip Capital has initiated coverage on mainboard-listed investment company Yoma Strategic Holdings with a “buy” call and a target price of 46 cents, representing a 87.8% upside for the stock.

The call comes as the Myanmar conglomerate has its feet firmly placed in the country’s most attractive and fast-growing consumer segments, namely mobile finance, property, food and beverage (F&B), and motor vehicles.

Analyst Tan Jie Hui identifies five investment merits for Yoma, which are: attractive valuations; possession of a huge land bank of 20 million sq ft equivalent to 10 to 15 years of sales; stellar growth in the financial services; its status as the largest F&B operator in Myanmar; and infrastructure improvements in the country, which could benefit Yoma’s heavy equipment and motor segment.

He estimates Yoma’s revenue for FY20e to come in at $108.2 million, and for FY21e at $113.3 million.

“Our sum-of-the-parts (SOTP) target price of 46 cents… is after applying a 20% conglomerate discount,” he writes in a note dated June 22.

“In our SOTP model, property and financial services constitute 73% and 17% of assets respectively. The outstanding 10% comprises the remaining business lines – such as F&B, automobiles and heavy equipment,” he adds.

Yoma currently generates its revenue through property, F&B, motors, and financial services, with property development being the biggest contributor.

“However, as Yoma moves towards opening more F&B stores and growing [its fintech arm] Wave Money, we expect a shift in portfolio towards these growth segments,” says Tan.

Yoma’s property arm, Yoma Land, boasts one of Myanmar’s largest land banks at 9.3 million sq ft and 20 million sq ft of gross floor area, with three strategically located flagship developments – StarCity, Yoma Central and The Peninsula Yangon and Pun Hlaing Estate. The land bank will be developed progressively over the next 10 to 15 years.

As Myanmar moves towards urbanisation, Yoma’s real estate business will be the main beneficiary.

However, the Covid-19 pandemic has caused a delay in construction activity. A competitive leasing environment may also result in slower leasing activity in the near term, which could impact rental income.

Yoma Financial Services oversees Yoma Fleet, one of Myanmar’s largest vehicle leasing and rental operators, and Wave Money, the country’s first and leading provider of mobile financial services (MFS) that is licensed to provide services such as money transfers, airtime top-ups, and bill payments.

Yoma F&B, which is made up of the restaurants (including 45 KFC outlets), bottling, and logistics segments, is the largest F&B platform in Myanmar.

Yoma also has a 15% stake Metro Myanmar, a leading specialist in food wholesale and retail, that offers customers a virtual one-stop-shop solution.

“We see potential cost synergies from these joint ventures moving forward as this end-to-end distribution and logistics platform can complement Yoma’s F&B restaurant businesses,” Tan adds.

Yoma Motors, which oversees a portfolio of automotive brands covering the agricultural and construction equipment (heavy equipment), and passenger and commercial vehicles (PCV), enjoyed an improved overall gross margin for the six months ended March, due to better margins from PCV.

“Despite lower contributions from Heavy Equipment, its scalability also resulted in a 5x increase in revenue y-o-y which pushed Yoma Motors closer to breakeven,” says Tan.

The demand for PCV is also expected to increase due to new government policies in Myanmar to help raise the number of new cars on the road (including control measures on imports of used righthand drive vehicles, which now dominate the market).

In March this year, Yoma Micro Power (YMP), one of its joint ventures finished building 250 micro solar-hybrid power plants which will help power rural Myanmar. Rural households can pay for their utilities via cash or Yoma’s Wave Money.

In November 2019, Ayala Corporation, one of the largest conglomerates in the Philippines, acquired a 20% stake in Yoma at 45 cents a share in November 2019, valuing the company at $1.06 billion.

See: Ayala Corp said to eye $324 mil investment for 20% stake in Pun's Yoma Strategic and First Myanmar Investment, FT reports

Ant Financial bought 33% of Yoma’s fintech arm, Wave Money, for US$73.5 million (S$102.5 million) in May.

As at 12.35pm, shares in Yoma Strategic Holdings are changing hands 0.5 cents higher, or 1.9% up, at 27 cents.

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