Brokers’ take

Compiled by Leila Lai

YOMA STRATEGIC HOLDINGS | BUY (MAINTAINED)

DEC 27 CLOSE: $0.33
TARGET PRICE: $0.57

RHB Research, Dec 26

Yoma's share price has recovered by about 40 per cent, after touching an all-time low in October.

We believe the weakness stemmed from a combination of factors such as a 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 food and beverage (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.

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 about 25 per cent vs 35 per cent to 45 per cent for high-end homes, we believe the move provides much-needed earnings visibility.

The expansion in KFC stores has been on track, with Yoma now operating 26 KFC stores (as at September this year versus 22 at March this year) 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 break-even in FY20. Overall, management indicates that it plans to have about six brands under its F&B business, with a mix of local and international brands. Wave Money achieved its cash flow break-even in September.

Yoma Fleet also recorded strong growth, with 28 per cent increase in vehicles leased in H1 FY19. Management remains optimistic on leasing activity prospects, with growth seen from organic and inorganic expansion.

New Holland sales - impacted in H1 FY19 due to the strong monsoon season - are expected to see a pick-up in H2.

The opening of Volkswagen showrooms in Yangon and Mandalay is expected in Q4 FY19 and should start contributing positively to the bottom line.

"Buy" with lower 57 cent target price based on a higher 20 per cent discount to its sum-of-parts valuation, to factor in higher regulatory and political risks.

Our FY19F-20F net profit forecasts are also lowered by 10 per cent to 14 per cent to factor in lower margins for real estate projects. Key risks are slow pace of regulatory reforms, prolonged political tensions and foreign exchange risks.

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