• Muted home sales in election run-up
• Near-term political uncertainties ahead
• Lower fair value estimate to S$0.48

Property market affected by uncertain political environment

Yoma’s 2QFY16 PATMI fell 97% YoY to S$0.3m from S$10.8m in 2QFY15. The drastic dip was mainly due to the absence of land development rights (LDR) sales for Star City Zone C in 2QFY15 and lower progress recognition at Star City. This was aggravated by higher admin expenses in 2QFY16 which rose 36% YoY to S$12.4m, mostly from costs incurred by new subsidiaries related to New Holland tractors, but partially offset by higher rental income from investment properties and contributions from the automobile segment and the new KFC store.

While the group’s execution remains strong across its segments, Yoma reported that the property market was impacted in the run-up to the elections as buyers delayed purchase decisions and this quarter’s results was significantly below the market’s and our expectations.

Despite a historic election in Nov, the new government would only be formed in mid-2016 and management believes that uncertainties will continue to weigh on business sentiments ahead. Given that the near-to-mid term outlook for the group’s key property development segment remains uncertain, we cut our FY16F and FY17F PATMI forecasts by 40% and 48% to S$21.6m and S$30.0m, respectively.

Maintain HOLD with lower S$0.46 fair value estimate

That said, the leasing environment in Myanmar remains robust and the group expects to grow recurring rental income significantly ahead; 115 out of 150 rental units at Star City has been leased to date and the Pun Hlaing office (c.10k sqm GFA) and hotel assets are expected to be completed in 2016.

We also saw meaningful growth from Yoma’s nonreal estate segments over the quarter. The group’s first KFC outlet contributed S$1.4m of revenue and the automobile segment also saw revenues jump YoY from S$0.4m in 2QFY15 to S$6.4m in 2QFY16 mostly due to the New Holland tractors business.

The group’s balance sheet remains fairly robust with a net gearing of 13% with S$18.0m in cash and equivalents. We incorporate softer residential assumptions into our model, and our fair value estimate dips to S$0.48 from S$0.52 previously. Maintain HOLD.

Source: OCBC Research - 13 Nov 2015