• Strategic partnership with Ayala corporation to re-ignite its growth trajectory in the medium term.
• New capital injection to fuel its real estate platform growth.
• Exciting opportunities for Wave Money to expand its mobile wallet offering.
• Sharpen balance sheet with strategic divestments.

BUY, Target Price Raises to S$0.50

• The strategic investment from Ayala Corporation, we see YOMA STRATEGIC HOLDINGS LTD (SGX:Z59) gaining new wings to soar higher as the new partner open up a myriad of opportunities for growth.
• We raise our Target Price to S$0.50 as we ascribe a tighter 45% (vs 60%) discount to SOTP.

Ayala Corporation to Take Strategic 20% Stake in YOMA

• Yoma Strategic has forged a new partnership with Ayala Corporation with the latter taking a 20% stake in Yoma Strategic and its sister company First Myanmar Investment Public Co Ltd. (“FMI”) for US$237.5m.
• For Yoma Strategic, Ayala Corporation will pay US$155m for a 20% stake at a price of S$0.45, representing a 38% premium to the last traded volume weighted price. The 20% stake will make them the 2nd largest shareholder in Yoma Strategic after the founding Pun Family which will continue to hold a 27% in Yoma Strategic. Yoma Strategic will issue 478.6m new shares to Ayala in two tranches –
  1. 332.5m shares or 14.9% stake in the enlarged share base and
  2. an additional 142.18m (5.1% stake) after getting shareholders approval.
• Mr. Fernando Zobel de Ayala, the president and Chief Operating Officer (COO) of Ayala Corporation will sit on the board of Yoma Strategic.
• The new strategic partnership is a significant milestone for Yoma Strategic and see the partnership in many levels, apart from the group being a new significant shareholder. Firstly the equity injection will empower Yoma Strategic with the renewed financial capacity to fuel is growth aspirations in the longer term. We believe that the complementary businesses lines of both Ayala Corporation and Yoma Strategic in Philippines and Myanmar respectively enables Yoma Strategic to capitalise and undertake on the best practices for its business lines (especially real estate, financial services, fintech and energy) that Ayala has developed over time and provide the group with a clear roadmap of growth.

Funds to Fuel Growth in Real Estate; Non-bank Financial Business

• The new capital raised will be utilised mainly towards its (50%- 70%) into the group’s real estate business ; Financial service businesses (c.5%); consumer businesses (c.5%) and the remainder to recapitalise the balance sheet (15%-25%) and general corporate uses (15%-25%).

Opportunities we see:

• Real Estate: With a majority of its funds utilised towards real estate, we see the group continuing to grow beyond current landbank in the long term. In the near term, the funds will allow
  1. YOMA Central development to be self-funding
  2. optimising its existing landbank, pursue a faster development and selling strategy for its City Lofts, affordable housing projects and opportunistically look at potential M&A amidst the rapid urbanisation in Myanmar.
• Non-bank financial: Will Wave Money be the mobile wallet for Myanmar? We see many opportunities that Wave Money ( 44% stake by Yoma Strategic) can learn from GCash, a joint Venture by Ayala Corporation, Ant Financial and Globe Telecom which has over time cemented itself as the leading mobile wallet in Philippines. We remain excited on the longer term prospects for Wave Money which is currently dominant in the over-the counter (OTC) transfer market. However, we see the opportunity in the longer term to expand its digital footprint into the mobile wallet ecosystem and potentially also secure new strategic investors to grow this platform into a leading mobile wallet for Myanmar.
• Renewal energy: Ayala and Yoma Strategic have also formed a joint venture to co-invest to target Myanmar renewable energy sector; with an initial commitment of US$50m from AC Energy (a company of the Ayala corporation) to explore the development of 200MW of additional renewal energy projects within Myanmar.

Recapitalisation of Its Balance Sheet; Selling Non-core Assets

• The group also announced the sale of its 12.5% interest in edotco for US$57.5m; with the transaction unlocking substantial gains for the group. Yoma Strategic is expected to monetise substantial fair value gains of US$44.1m (or close to 5x its initial investment of US$10.35m) and US$3.0m above its last reported book value of US$54.5m. Proceeds can be utilised to repay its debt and part of its will be invested into an additional 10% stake in WAVE money for US%6m.
• Yoma Strategic have also decided to dispose of its interest in The Grand Central Shopping Mall in Dalian, China and written down its holding value by US$32.0m to US$31.6m. If divested, the monies will come in handy to be redeployed into its other businesses or repay its debt.

2Q20 Results; Hit by One-offs

• Yoma Strategic reported a net loss S$44.1m for 2QFY20, (YTD loss of S$57.5m) driven largely by the one-offs write down from its shopping mall in Dalian. Revenues was down 24.5% mainly due to the lower recognition of sales from in 2QFY20 compared to additional recognition of sales at StarCity Galaxy Towers (2QFY19).
• We note that the unrecognized revenues for its real estate business for City Loft buildings (which completion range 7% to 24%) is US$16m. Its real estate services was lower due to lower leasing income from the Star Residences from StarCity due to ongoing refurbishments while its automotive divisions dipped 11.9% to US$4.9m due to lower sales of New Holland Tractor and JCB construction equipment, offset by additional revenue from its Volkswagen business. Its consumer division rose by more than twice a year ago to US$8.2m mainly on
  1. new stores for KFC,
  2. additional contribution from the acquisition of YKKO (+US$3.1m) and KOSPA (+US$1.53m).
• Margins stayed stable at 35%.

Valuation

• Maintain BUY, Target Price of S$0.50. We remain positive on the group's prospects and see it as a beneficiary of an improved economic outlook coupled with a recapitalize balanced sheet.

Where We Differ: Best Proxy to the Potential Economic Turnaround in Myanmar

• Despite some disappointment on Myanmar’s economic growth, we believe Yoma Strategic remains the best proxy to ride on the country’s potential economic growth in the longer term.
• With Ayala corporation as a new major shareholder with a 20% stake, we see complementary business platforms which the group can take-on best practices to pursue growth. A majority of the new capital injection will go into Yoma Strategic’s real estate business and also potential new landbanks that the group intends to pursue.

Source: DBS Research - 15 Nov 2019