• 1HFY25 revenue declined 15% YoY to US$111.6mn due to a 55% depreciation in the Myanmar kyat (MMK). In local currency terms, revenue would have expanded 35% YoY, supported by an 81% jump in Yoma Land revenue.
• Net loss widened to US$12.5mn primarily from a US$7mn translation loss from Thai baht and US dollar borrowings. Wave Money’s money transfer volumes were mainly impacted by physical cash shortages in July, along with intensified conflicts in Northern Myanmar and severe flooding in August and September.
• MMK depreciated 55% based on the published bank board rates used as Yoma’s exchange rates assumptions. Yoma will diversify its funding sources to mitigate currency risk by tapping into local currency bank loans. Other measures include adjusting pricing strategies across various products and services. The aim is to continue to deleverage from the current net debt of US$142mn to below US$100mn (excluding the Yoma Central project loan facility). Completing and delivering the Estella housing residential project will also improve operating cash flows.  Yoma Central reported a net loss of US$5mn due to interest expenses. The company's book value is currently S$0.20 per share.

• Yoma Strategic (Yoma) will enter into a share exchange agreement with Tokyo Century Asia (TCA). Yoma will acquire a 20% stake in Yoma Fleet for US$18.5mn from TCA. In exchange, Yoma will issue 137mn new shares (or 5.74% stake) to TCA at an issue price of S$0.135. TCA cannot dispose the shares without consent within 60 months after the transaction.
• Yoma Fleet operates a fleet of 1,129 vehicles comprising passenger cars and commercial and heavy vehicles. The division also provides financing for consumer products such as mobile phones and washing machines.
• We believe Yoma will have a new substantial shareholder available for deeper collaboration and access to funding. The share exchange will cause the March 2024 net tangible asset (NTA) per share to decline 7.4% to US$0.1311. Yoma Fleet's growth plans include expanding the operating fleet, especially heavy machines, increasing lease rates, and introducing new synergy with Wave Money.

Key Highlights
i.    Transaction: Share exchange agreement with Tokyo Century Asia (TCA). Yoma will acquire a 20% stake in Yoma Fleet for US$18.495mn. In exchange, Yoma will issue 137mn new shares (or 5.74% stake) to TCA at an issue price of S$0.135. TCA cannot
dispose the shares without consent of Yoma within 60 months after the completion of
the acquisition.
ii.    Financial Impact: Yoma Fleet will become a wholly-owned subsidiary post-transaction. The share exchange will result in a decline in Mar24 NTA per share by 7.4% to US$0.1311. The implied valuation of Yoma Fleet is US$68.37mn.
iii.    Tokyo Century Asia: TCA is a subsidiary of Tokyo Century Corporation, one of Japan’s largest leasing companies and listed on the Tokyo Stock Exchange.
iv.    History of Yoma Fleet: Yoma Fleet was established in Myanmar on 15 January 2014. TCA acquired a 20% interest in Yoma Fleet for US$26.6mn on 30 April 2019.
v.    Background of Yoma Fleet: The company is in the business of vehicles, equipment and other consumer products leasing and rental. It provides four types of services – operating lease, finance lease, daily rental and consumer product financing. Customers include multinationals, local corporations, small medium corporates and individuals.
vi.    Rationale of transaction: Yoma views the valuation as attractive, and 100% interest will align the company with its future corporate plans. We expect an area of collaboration will be with Wavemoney. Wave Money is creating a lending platform for unsecured lending and buy now and pay later financing. Wave Money can create a credit score on its users' payroll, spending and location patterns. Lenders, such as Yoma Fleet, that join the platform can provide loans to users with the appropriate credit scores.
vii.    Outlook for Yoma Fleet: The company will look to expand its operating fleet, especially through the second-hand market. Heavy equipment imports are still available. Leasing rates can also rise as available credit financing has shrunk due to fewer banks and
microfinance operators.

• Yoma reported FY24 revenue growth of 80% YoY to US$221mn and EBITDA jumped 160% to US$46mn. Growth was driven by property development sales and Wave Money.
• Excluding fair value gains, currency impact, and impairments, we estimate adjusted net loss in FY24 of around US$15mn (FY23: US$26mn). Yoma has further deleveraged with net debt dropping to US$36mn (FY23: US$73mn). This is a huge decline from the net debt of US$284mn two years ago.
• We expect Yoma to report further earnings growth in FY25 led by property development, Wave Money and F&B. Property division has a revenue backlog of US$147mn (FY23: ~US$34mn), representing 1.5 years of FY24 revenue. Sales will be further supported by new launches at City Loft West. Wave Money will benefit from the rise in digital transactions and stable transfer volumes. F&B margins are expected to recover from price increases after the recent fuel and utility costs spike. Yoma remains committed to deleveraging through the disposal of non-core assets and generating operating cash flows. Currency depreciation is the largest challenge. Translation losses dragged down the book value by around US$90mn in FY24. The share price is currently trading at a 62% discount to its book value of US$0.164.

The Positive

+ 10-fold spike in property development profitability. Property sales jumped 105% to US$94mn in FY24. The profitability of the property division spiked 10-fold to S$22.9mn. Many projects launched enjoyed stellar responses and were fully sold out. The strategy towards a more affordable and differentiated offering has supported City Loft @ StarCity and Estella sales. Unrecognised revenue is US$147.1mn (FY23: US$33.8mn), which will be realized over the next 12-18 months.

The Negative

- Currency devaluation and Yoma Central losses. The decline in Myanmar kyat has impacted FY24 results at multiple levels. There are currency losses from trade payables in US dollar terms and translation losses on US dollar loans. On the flip side, there was a fair value gain on investment properties of US$45mn at Yoma Land Services. The subsidiary reports in kyat and weakness in the currency caused a fair value gain despite stable property value in US dollar terms. Yoma Central registered a net loss of US$23mn in FY24.

Outlook

We do not expect any major recovery in the Myanmar economy. ABD estimates Myanmar's GDP growth to be 1.2% in 2024 (2023: 0.8%).

The following are our expectations in FY25 for the 3 key divisions:

• Yoma Land: Unrecognised revenue of US$147.1mn will support earnings in FY25. The priority in FY25 will be to complete the record project sales. There will still be new launches namely 2 buildings in City Loft West. We believe both towers could generate sales of almost US$40mn if fully sold. Demand has been supported by affordable pricing and differentiation (such as solar power at Estella).
• Wave Money: Money transfers (or OTC revenue) are the key earnings contributors. In 2H24, money transfers were US$5.9bn. We expect the value transferred in FY25 to be stable. The economy's general health is dependent on this. The majority of the growth will come from digital payments and float as Wavemoney builds a stronger ecosystem of merchants and customers around its platform.
• Food and Beverage (36 KFC and 37 YKKO restaurants): EBITDA in 2H24 fell 26% YoY to US$1.4mn due to one-time settlements and rising utilities. A fuel shortage late last year spiked diesel prices to power the restaurants' generators. Margins were temporarily pulled down as Yoma raised their menu prices to recover margins. There are also plans to open 2 to 4 new restaurants.

• We visited Yoma’s impressive office campus at Pun Hlang Estate in Yangon, which housed major business units such as Yoma Land, Wave Money and Yoma Fleet. The malls we visited had the usual traffic jams in the city centre. We also saw new infrastructure underway that will improve connectivity to their flagship StarCity project.
• Preparation for the preliminary works on-site in the iconic Yoma Central project in the heart of Yangon is commencing after its suspension in 2021. The project's residential tower will be relaunched this year.
• Operating challenges in the current environment include the long delivery time to import building materials, constant power disruptions, rising inflation, and availability of foreign currency. These challenges also meant opportunities. Demand for real estate for projects such as Yoma Land with quality materials and reliable power supply jumped as households hedged rising inflation and depreciating local currency. Yoma continues to capitalise on the demand for affordable housing. Another trend is the fast adoption of digital finance, supported by the central bank.

• Following the pandemic and coup in 2021, Yoma has undergone a major de-leveraging and rightsizing exercise. Net debt has shrunk from US$326mn in September 2021 to US$134mn in September 2023. The company disposed of investment properties, restructured Yoma Central debt, resized F & B operations, lowered manpower costs and generated operating cash flow.
• Real estate development has been the key performer for Yoma. Revenue has more than tripled in 1H24 to US$48mn. As of September 2023, there is a further US$65mn of unrecognized revenue. Buyers are seeking hard assets in an environment of rising inflation, negative real interest rates and a depreciating kyat currency.
• The macro environment in Myanmar has been extremely challenging. Myanmar's GDP (in USD nominal terms) contracted 17.5% YoY in 2021 and 8.9% in 2022. Inflation is running at 20% p.a. and the kyat currency is officially down 60% since 2021. Yoma is responding to these challenges by de-gearing its balance sheet, disposing of non-core assets, localising costs and rebalancing its headcount. The share price is currently trading at a 71% discount to its book value of US$0.189.

Company Background

Listed on the SGX since 2006, Yoma is a leading conglomerate in Myanmar, with businesses

spanning real estate, mobile financial services, leasing, F&B, automotive & heavy equipment and investments. In November 2019, Ayala Corporation acquired a 14.9% stake in Yoma at S$0.45 per share, valuing the company at S$1,055mn. In December 2022, Yoma together with a consortium of investors completed the acquisition of Telenor's 51% interest in Wave Money, raising Yoma's effective stake in Wave Money to 65%. In terms of EBITDA in 1H24, the key divisions are real estate (67%), wave money (18%) and food and beverage (13%).

1H24 FINANCIAL RESULTS

• Revenue: 1H24 revenue spiked 173% to US$111.6mn. The key driver to growth was the 245% YoY rise in real estate development revenue to US$47.9mn and contribution from Wave Money after raising its stake from 44% associate to 65% subsidiary in Dec23.
• EBITDA: There is an almost 4-fold spike in EBITDA to US$18.8mn. Around 2/3 of the jump came from the jump in property earnings. The next three major contributors were Wave Money, leasing and F&B.
• Profit After Tax: In 1H24 Yoma's net loss narrowed from US$11.3mn to US$1.3mn and PBT turned positive to US$2.4mn. Finance costs have been the largest drag on earnings, rising 51% to US$8.3mn. Interest expense related to Yoma Central had previously been capitalized as part of the development cost. 1H24 interest expense from Yoma Central was US$4mn.

YOMA LAND

• Projects: Yoma has several property projects in Yangon, Myanmar: (i) City Loft @ StarCity: Apartments launched in November 2018.; (ii) Star Villas: Landed housing launched in 2020 May 2020; (iii) City Villas: Affordable landed homes launched in August 2022; (iv) City Loft West* (May23); (v) The Estella* (Oct23).
• Track record: Since 2018, Yoma has shifted its strategy toward more affordable housing. It has built up a brand name in project quality and completion. The payment terms for purchases are typically 20-30% upfront and the remaining balance in progressive payments. Yoma Land also works with banks to secure mortgages for its customers.
• Outlook: As of September 2023, there is US$65.2mn of unrecognised revenue from the property division, not included in this number are the 515 of the 527 Estella units which have been sold and booked since the launch in October 2023. Future launches include Phase 4 of the Estella (163 units) and City Loft West 3rd tower (247 units). There is another 6.2mn sft landbank (Star City 1.4mn, Pun Hlaing Estate 4.8mn) which Yoma can develop on its own or with partners.

• 3Q21 revenue in line, at 55% of our 2H21e estimate. Yoma F&B and Motors performed better than expected, led by resumption of food delivery services and sale of automotive vehicles despite limited credit processing and closure of dealer showrooms in April.
• Third wave of Covid-19 led to stay-at-home orders from 17 July to 15 August 2021. Business was disrupted, especially for Yoma Motors, as automotive showrooms were shut.
• Maintain NEUTRAL with a lower TP of S$0.129, from S$0.147. We roll over to FY22e and lower our book value by 4.6%, after accounting for 10%/5% impact on trade receivables and investments in associate companies from closures, offset partially by FX. Our TP remains pegged at 0.45x P/BV, slightly above its 2007-2010 average P/BV of 0.41x during major conflicts, political upheavals and natural disasters.

The Positives

+ Held up by real-estate development; better-than-expected F&B and Motors. 3Q21 revenue in line, at 55% of our 2H21e estimate. This was held up by a 46% YoY increase in real-estate development, as construction resumed at StarCity and Pun Hlaing Estate. Conversion rates of bookings to sales at both Star Villas and City Loft @ StarCity were healthy. F&B and Motors performed better than expected, driven by a resumption of food delivery services and sale of automotive vehicles despite limited credit processing and the closure of dealer showrooms in April.

+ 3Q21 core operating EBITDA positive; cost-cutting in place. Core operating EBITDA remained positive in 3Q21, with gross profit covering interest expense. Yoma also paid down US$10mn of gross loans and extended several loans in 3Q21. It continued to cut operating expenses and defer non-essential capex. Staff costs were slashed by more than 60% through job cuts, furloughs and pay reductions. Consolidated cash balance improved QoQ.

The Negatives

- Lower real-estate service revenue. Revenue from real-estate services fell 5% YoY, attributable to lower occupancy at Pun Hlaing Estate as expatriate residents left. This was partially offset by higher leasing by locals, supported by lower rents, better amenities and security provided by the estate.

Outlook

The current third wave of Covid-19 in Myanmar could further disrupt business in the coming quarter. Public holidays were declared for 17 July-15 August 2021 and stay-at-home orders implemented in 86 townships in 10 regions and states. Only healthcare facilities, banks and shops selling essentials, medicines and medical supplies were allowed to remain operational.  F&B establishments could only open for takeaways and/or deliveries.

These measures are expected to affect Yoma F&B and Motors. F&B sales are currently 30% below pre-pandemic levels. Most automotive showrooms were forced to close during this period. Revenue from real estate may be resilient as construction is still going on at StarCity, despite a slowdown in sales. Yoma financial services are likely to hold up as Yoma is looking at improving the efficiency of the asset base of Yoma Fleet. Wave Money’s monthly active users grew by double digits MoM in May, after the resumption of mobile 4G network services. However, people’s preference for physical cash in a tight credit environment is likely to affect transaction volumes for the coming quarter.

Yoma is rightsizing its restaurant platform to focus on its two main brands: KFC and YKKO. Previously guided at 30%, it is now looking to close around 25% of the restaurants permanently or temporarily if they can no longer be operated profitably. Yoma closed Little Sheep Hot Pot on 1 July 2021. Auntie Anne’s will cease operations by end-August. We are expecting revenue loss of about 1%. For Motors, Bridgestone tyres ceased operations as of end-July as the brand could no longer operate competitively in Myanmar after price hikes. Yoma Strategic has a 30% interest in the Bridgestone tyre business. We estimate that write-offs from closures will affect trade receivables and investments in associate companies by 10% and 5% respectively in 4Q21.

Maintain NEUTRAL with lower TP of S$0.129, from S$0.147. We roll over our estimates and lower our FY22e book value by 4.6%, after accounting for 10%/5% impact on trade receivables and investments in associate companies respectively due to write-offs from closures. This is partially offset by higher US$/S$ assumptions of 1.36 from 1.34.

Accordingly, our TP drops to S$0.129. This remains pegged at 0.45x P/BV, slightly above its 2007-2010 average P/B of 0.41x during major conflicts, political upheavals and natural disasters. What could turn us more positive are widespread Covid-19 vaccinations and a turnaround in Myanmar’s political situation.

• Myanmar’s military junta has declared a state of emergency for a year. Expect business disruptions and political instability to affect medium-term investment sentiment and economic growth.
• Yoma’s fundamentals are intact. International lenders and investors still supportive of company.
• Maintain BUY with a revised SOTP TP of S$0.34 (previously S$0.46) to reflect lower land bank prices for Yoma Land. We also cut FY21-22 earnings by 27% and 35% to capture impact of Covid-19 lockdowns and slower growth forecasts.

What’s new

Just three months ago in November 2020, Aung San Suu Kyi’s National League for Democracy achieved a landslide victory in elections, bagging 83% of the 1,171 the seats available. On 1 February 2021, the military alleged discrepancies of more than 10mn votes. It has declared a state of emergency to take control of the country for one year and dismissed 24 ministers and deputies, making 11 new appointments in their place. It has also pledged to hold fair elections in a year.

What’s next for Yoma

1. Supportive lenders and investors amid unrest. While the coup came as a shock, international lenders and partners have not pulled out their funds. We believe that Ayala (AC PM, Not Rated) will proceed with its second-tranche equity investment in the company by 11 May 2021. Ant Financial’s transaction in Wave Money is also close to completion. Yoma’s deal to buy out Telenor in Wave Money is ongoing. Yoma will be deploying its cash conservatively.
2. Business disruptions, near term. During the coup, state telecommunication services were disabled, the streets were quiet and all construction work ceased. Although most operations have returned, we are anticipating business disruptions in the short term. There could be fewer OTC and digital transactions through Wave Money as consumers conserve cash. F&B sales are also likely to be lacklustre due to weak consumer sentiment. Given the pause in construction at Yoma Central, we believe its completion may be delayed till 3Q22, from 1H22. This results in a 19% dip in FY22 topline.
3. Political instability to affect investment sentiment and medium-term growth. FDIs into Myanmar largely stem from Southeast Asia, with Singapore and China contributing 46% and 14% to date. Although China may continue its investments given that Myanmar is a vital piece of Beijing's Belt and Road infrastructure initiative, FDIs as a whole may drop due to political instability. This could affect the country’s economic growth.
4. Covid-19 impact. Ahead of Yoma’s 1Q21 update, we cut FY21 forecasts to account for Covid-19 lockdowns implemented from October to December 2020. Our growth forecasts for all its business lines for FY21-22 have been trimmed from 5-7% to 0-2%. Wave Money’s contribution to FY21 income has been lowered by 20%, offset by higher contributions from an additional 10% stake acquired on 13 October 2020. Overall, FY21-22 earnings have been cut by 27% and 35% respectively.
5. Possible depreciation of kyat (MMK). As of September 2020, Yoma had not entered into any currency hedging. Any MMK depreciation against US$ could result in an Other Comprehensive Income loss, which has a negative impact on Yoma’s net asset value. As of September 2020, US$ net debt was US$212mn.

Recommendation

Maintain BUY with a revised SOTP TP of S$0.34, from S$0.46. The change in our TP mainly captures downward adjustments in land bank prices for Yoma Land (Figure 1) to the lower end of the range guided by management in 4Q20. This reflects slower property development and sales in the near term. In addition, we estimate a 5% impact on asset values, assuming a 10% depreciation of MMK/US$ to spot levels of 1,470-1,500 (Figure 2). Our 20% conglomerate discount is unchanged.

Developments to monitor:

1. Sanctions from foreign nations
2. Ayala’s and Ant Financial’s investments
3. MMK currency movements

• 6M-Sep 20 and FY20 topline met expectations, at 98%/100% of our forecasts. Core operating EBITDA remained positive. FY20 double whammy from lower gross profit margins and net fair value losses for investment properties in Myanmar and China. As a result, net loss was 15x more than expected.
• Mid-term outlook remains mildly positive, underpinned by unrecognised real-estate revenue and new projects.
• Maintain BUY and SOTP TP at S$0.46.

The Positive

+ 6M-Sep 20 and FY20 topline met; core operating EBITDA remained positive. Despite Covid-19, revenue in 6M-Sep 20 increased 25% YoY. This was aided by real-estate development (+117% YoY) and automotive and heavy equipment (+34% YoY). Partially offsetting the gains was weakness in real-estate services due to competitive leasing and the consumer segment during lockdowns in April, May and September. Full year, the consumer segment held up, led by the consolidation of YKKO and KOSPA for the entire FY20. Real-estate service revenue was down 65% YoY due to lower operator fee income as a result of fair-value losses. 6M-Sep 20 and FY20 core operating EBITDA remained positive at US$2.9mn and US$2.6mn respectively.

The Negatives

- FX, impairment and associate losses. The bulk of 6M-Sep 20 losses came from subsidiaries’ conversion of US$ valuation into MMK (-US$34mn). An impairment loss on prepayments and operating rights for Yoma’s agricultural investments was also booked (-US$6mn). Netting off fair-value gains/losses and interest income, “other income” loss was US$16mn. Additionally, Yoma booked its share of losses from Memories Group, whose tourism operations were affected by Covid-19 and translation losses on borrowings (-US$7mn). All in all, net loss was US$48mn for the half year.

- FY20 double whammy from lower gross profit margins and net fair value losses. FY20 gross profit margins plunged from FY19’s 50% to 32%. This was blamed on lower real-estate service revenue. The segment contributes one of the highest gross profit margins to Yoma. Other culprits were lower-margin products at Star City and lower consumer margins following higher packaging and delivery costs. Coupled with net fair value losses of US$12mn vs net other gains of US$9mn in FY19, FY20 net loss increased 77% YoY. 

Outlook

Myanmar is reeling from a second wave of the pandemic. Movements are now restricted within townships, with stay-home orders and prohibitions on restaurant dine-in. As the number of new cases slightly dwindles from its highs, the authorities are easing some of the measures. We are cautiously optimistic on a recovery in 2021

F&B and Yoma Motors are expected to be weak in the near term. That said, FY21 group topline should be supported by significant unrecognised revenue at Yoma Land and Yoma Motors. As of 9M-Sep 20, Yoma Motors had sold an estimated 200+ Mitsubishi units that are pending recognition (c.US$10mn). Over at Yoma Land, three out of its six City Loft buildings are 25-65% completed. Unrecognised revenue here amounts to c.US$12mn. Following its recent launch, Star Villas Phase 1 - Yoma’s first landed development in Star City - has sold 27 out of 32 units, accumulating c.US$15mn for recognition. Star Villas is expected to be completed in the next 12-15 months. Phase 2 will be launched in the coming months following the success of Phase 1. These projects are expected to support FY21’s topline.

We are looking at a turnaround in FY22, when Yoma Central and Star Hub will be completed. Yoma Central is in advanced leasing negotiations with anchor tenants for its office and retail space. Upon completion in mid-FY22, it is expected to generate US$90-110mn of recurring revenue - equivalent to FY20 revenue. Additionally, Yoma recently launched Star Hub, its first suburban commercial property at StarCity. Target date of completion is end-2021. Prominent technology and financial-service companies have already committed to more than 50% of its office space. Rental yields here are estimated in the mid-teens, to be generated from FY22.

Maintain BUY and SOTP TP of S$0.460. We updated our segmental assumptions following Yoma’s latest valuation guidance. Our valuation metrics and TP remain largely unchanged, including our 20% holding-company discount. Yoma Land constitutes 86% of its total valuation after net debt and overheads.

The report is produced by Phillip Securities Research under the ‘Research Talent Development Grant Scheme’ (administered by SGX).

• Overall revenue saw 3.2% growth YoY underpinned by 21.4% and 33.3% growth in Yoma Land and Yoma Motors respectively, offset by -30.9% YoY performance by Yoma F&B.
• Yoma Land’s revenue is well supported by a backlog of unrecognized revenue, while Yoma Motors’ growth is attributable to pent up demand in the Heavy Equipment segment.
• Maintain BUY with an unchanged target price of $0.46.

The Positives

+ Yoma Land’s revenue is well supported by backlog of unrecognized revenue. Although sales were minimal this quarter (8 units of CityLoft and 1 unit of Peninsula Residence) amidst cautiousness in big-ticket expenditure and delays in paperwork, Real Estate Development registered a 45.5% YoY revenue increase. It is largely attributable to the revenue recognized from the completion of City Loft. Unrecognised revenue now amounted to US$17mn as at 3Q20 vis-à-vis more than US$20mn in 2Q20. Real Estate Services revenue was lower YoY due to lower occupancy levels and rental rates at Pun Hlaing Estate and StarCity. However, the lower rental rates and the amenities and services offered amidst COVID-19 had driven a partial recovery in occupancy levels in recent months.

+ Yoma Motors registered revenue growth of 33.3% largely attributable to the Heavy Equipment segment; Passenger and Commercial Vehicles (PCV) segment held up. Despite the COVID-19 impact from border closures and falling crop prices, more tractors and implements were sold due to pent up demand after many quarters of weaknesses arising from the exceptionally heavy monsoon last year. New Holland sold 124 tractors in the quarter compared to 61 tractors in 3M-Jun2019. Higher PCV revenue was driven by the sale of 16 Volkswagen vehicles and 22 Ducati motorbikes. Mitsubishi and Hino also saw significant improvements with 184 Mitsubishi vehicles (65 vehicles in 3M-Jun19) and 26 Hino trucks (9 trucks in 3M-Jun19) being sold. Mitsubishi sales were boosted by the popular Xpander model and there remains c.US$7.5mn backlog of unfilled orders.

+ Revenue from Yoma Financial Services increased by 5.6% YoY underpinned by an enlarged finance lease portfolio in Yoma Fleet; Wave Money remains EBITDA positive despite weaker transaction numbers. Vehicle numbers for Yoma Fleet grew by 11.1% year-on-year to 1,290 vehicles and third-party assets under management stood at US$45.6 million as of 30 June 2020. As finance leases carry higher gross profit margins, we are expecting a larger flow-through from Yoma Fleet to the bottom line in 2H20.

Due to the Thingyan holidays amidst the Myanmar New Year in April and COVID-19 measures, Wave Money’s OTC business was largely affected, which resulted in a decline in revenue and transaction numbers of 16.5% and 25.3% respectively from the previous quarter. However, its e-wallet business continued to record double digit growth rate month-on-month as more people opt for cashless transactions and is on track to reach its 1.3 million MAUs target by December 2020. EBITDA for Wave Money remained positive due to economies of scale and cost control. 

The Negatives

- Yoma F&B revenue was down 31% YoY due to COVID-19 measures. 3Q20 revenue declined 31% YoY due to government-imposed lock downs, curfews and prohibitions on dine-in between April to mid-May and temporary store closures in severely affected trade zones. The month of April was most affected as revenue fell 50% YoY. During the initial stages of COVID-19 there was a large shift towards delivery, which mitigated some of the shortfall in dine-in revenue. Delivery accounted for 40% of the total sales in April at the peak, which normalised to 15%-20% as restrictions eased and some of these customers return to restaurants. June recorded a smaller decline of c.25% YoY since the Myanmar government allowed restaurants to resume operations conditional upon adherence to certain guidelines at the end of May.

Outlook

Pre-COVID, CityLoft has been recording a healthy booking rate at >50 units per month. Amidst COVID-19, interest in the property remained high as the team continued to engage customers through virtual show flats. However, CityLoft’s booking rate slowed significantly from April to May. As the economy started to reopen at the end of May, buying interest noted a recovery. Booking rate was nearing half of pre-COVID levels by July. 

According to World Bank’s June report, the agriculture sector had been resilient and is expected to grow by 0.7% for the year. This is mostly due to an increase in production of crops, such as rice, and beans and pulses. Meanwhile, the Myanmar government and NGOs are also supporting the agricultural industry by providing lower-interest loans for buying inputs and giving greater flexibility on loan repayments. These initiatives will spur demand for tractors which is beneficial for Yoma Motors.

During this period, Wave Money will continue to work with various organisations such as Myanmar Agricultural development to disburse loans for farmers and Social Security Board to disburse medical and COVID-19 quarantine relief through the adoption of Wave Pay. We are expecting the growth of the e-wallet business to be fast-tracked by these schemes to make up for fewer transactions in the OTC business.

Yoma F&B witnessed improved performance MoM as business starts to recover in the coming quarter. Sales for July was nearing-pre-COVID level with same store sales growth recorded in certain days. The accelerated adoption of delivery services positioned Yoma F&B better to capture sales thwarted due to dine-in prohibitions. Yoma’s target of opening 2-3 KFCs by the end of 2020 remains unchanged.

Maintain BUY with an unchanged TP of S$0.460. Our target price translates to a total upside of 58.6%. Property and financial services will constitute 68% and 19% of the valuation respectively. A conglomerate discount of 20% has been applied (Fig.1).

The report is produced by Phillip Securities Research under the ‘Research Talent Development Grant Scheme’ (administered by SGX).

• Acquisition of Telenor’s 34.2% stake in Wave is at an attractive price of $76.5mn, a 20% discount to our projected valuation of Wave.
• Yoma will become the controlling shareholder of Wave through Wave Holdco at 63.7%. Yoma’s effective stake to increase up to 40.7% with a further US$25mn investment. We expect deeper collaboration and integration with Yoma’s other consumer businesses.
• Maintain BUY with an unchanged target price of $0.46.

Acquisition Details

The aggregate consideration for the acquisition is US$76.5mn in cash for Telenor’s stake (34.2%) in Wave Money (Wave). Yoma intends to restructure the holding of its interest in Wave through a newly incorporated investment holding company in Singapore, Yoma MFS Holdings (Wave Holdco). Wave Holdco will hold the Group’s existing interest (29.5%) in Wave.

As at 24 June 2020, Yoma plans to invest up to a further US$25.0mn into Wave Holdco for an additional stake of up to 11.2% in Wave. A consortium of investors, as new shareholders of Wave Holdco, would contribute the remaining amount for the acquisition. The consortium comprises of private equity and financial institutions, most of which Wave has existing relations with. Upon completion of the acquisition, Wave HoldCo will hold up to 63.7% interest in Wave Money. Yoma’s effective interest in Wave will be up to 40.7%.

Acquisition Impact:

+ Acquisition of stake at an attractive price of $76.5mn for a 34% stake, a 20% discount to our projected valuation of Wave. Wave’s over the counter (OTC) as well as e-wallet and digital payment business (WavePay) are currently valued at US$162mn and US$117mn respectively based on a EV/EBITDA metric of 9x and USD/MAU* metric of 90x (CY20**: OTC EBITDA – c.US$18mn, CY20: WavePay’s MAU – c.1.3mn). Over the past month, WavePay grew by more than 30% in MAU. Yoma is projecting for WavePay to hit its MAU target of 11.2mn by CY24.

+ Better strategic focus for Wave post-Telenor’s exit. Telenor has made a strategic decision that telecommunications will continue to be their core business. It has divested several smaller businesses prior to the current Wave transaction. Nonetheless, Wave will remain the preferred e-wallet business for Telenor and their business relationship is expected to continue. Post Telenor’s exit, Wave will be more focused in its strategy to grow, underpinned by Ant’s strength in financial services and technology coupled with Yoma’s local presence and expertise.

+ No change in management team or operations. In the early stages of Wave’s growth, Wave leveraged on Telenor’s network and technological infrastructure for its operations. However, within the past 2 years of operations, Wave successfully built its own standalone network and infrastructure. Although Wave’s key management team comprises members originated from Telenor (e.g. Wave’s CFO), the team has been with Wave since inception and has agreed contractually to stay for the next few years. Therefore, we are not expecting any change in the way Wave operates, nor in its management team.

+ Controlling stake to increase collaboration between WavePay and the Yoma’s existing business lines. The collection of data from WavePay’s digital payment business will help Yoma better identify the drivers behind Myanmar’s consumerism. Additionally, this collaboration is expected to drive potential end-user financing and integration with Yoma’s existing businesses through certain payment functions (e.g. in consumer and real estate services) as well as a closer alignment of new products and features on WavePay (e.g. in Yoma Fleet). (Fig. 1)

*MAU = Monthly Active Users

** CY20 = Calendar Year 2020

Maintain BUY with an unchanged TP of S$0.460. Our target price translates to a total upside of 53.3%. We increased the valuation of Yoma’s stake in Wave Money, offset by a 15% devaluation in Pun Hlaing Estate’s land bank due to the expectation of a weaker outlook in the premium property space. Property and financial services will constitute 68% and 19% of the valuation respectively. A conglomerate discount of 20% has been applied (Fig.2).

The report is produced by Phillip Securities Research under the ‘Research Talent Development Grant Scheme’ (administered by SGX).