• Ant Financial is the newest strategic partner in Wave Money (Yoma’s strategic investment in digital money) with a new capital injection of US$73.5m.
• Yoma Strategic’s investment in Wave Money will be reduced from 44% to 33% post transaction.
• We see the partnership with Ant Financial as a game-changer to spearhead Wave Money’s next phase of growth with stronger financial muscle, expertise and expansion in service offerings.
• We believe Yoma Strategic’s early investment in Wave Money has paid off and will continue to grow as it looks “to strengthen its interest in Myanmar’s digital financial services sector, which includes exploring the possibility of increasing its shareholding in Wave Money”.

Ant Financial Is the Newest Strategic Partner in Wave Money

• Yoma Strategic (SGX:Z59)’s investment in Wave Money has found another strategic partner in Ant Financial Services Group (the operator of Alipay), with a new capital injection of US$73.5m to promote financial inclusion for the unbanked and underbanked communities in Myanmar.
• The existing shareholdings in Wave Money comprises Yoma Group (collective stake of Yoma Strategic – 44% and Yoma Bank – 5%) owns 49% while Telenor owns the remaining 51% in Wave Money. In Nov19, Yoma Strategic announced that it will acquire an additional 10% stake to raise its stake from 34% to 44%.
• Following the Ant Financial transaction, Yoma Group’s (collective stake of Yoma Strategic and Yoma Bank) shareholding in Wave Money will fall from 49% to 33% while Yoma Strategic’s 44% stake in Wave Money will be reduced to 29.5%. We estimate that Telenor, which currently owns the remaining 51%, will see its stake reduced to 34% post Ant Group taking a 33% stake in Wave Money.
• Based on our ballpark estimates, Yoma Strategic’s valuation of its 44% stake has increased by more than 2x from its latest book value of US$29m to US$60m. Just to recap, Yoma Strategic first partnered Telenor by taking on a 34% stake at US$19m in Mar 2018 and subsequently increased its stake by another 10% to 44% at US$6m.
• We estimate that the transaction price implies a valuation of 9x PE on annualised 6-month Mar 2020 net profit or 12x 12-month Mar 2020 net profit.
• The transaction is subject to regulatory approvals.

Wave Money Is Profitable

• Wave Money is a leading mobile financial services provider in Myanmar with the largest agent network of more than 57k agents or “Wave Shops” across 295 out of 330 townships nationwide, covering 89% of the country.
• Wave Money’s platform has more than 21m users including Wave Pay for remittances, utility payments, airtime top-ups and digital payments.
• In 2019, Wave Money’s transfer volume more than tripled y-o-y to MMK6.4tr (US$4.3bn), 6% of Myanmar’s GDP.
• Wave Money is currently working with financial institutions, NGOs and government bodies to disburse funds/loans.
• Wave Money had turned EBITDA positive in Sep 2018, two years after its launch and was bottom-line profitable in FYE Mar 2020.

Our Views

• We believe the partnership with Ant Financial is a game-changer to spearhead Wave Money’s next phase of growth including
  1. additional capital for future expansions,
  2. leveraging on Ant Group’s expertise in building a super app for the needs of the Myanmar people,
  3. expanding its service offerings to encompass other avenues of digital transactions, and
  4. opening up to international market in the future.
• The partnership came at an opportune time when the government announced in mid-2019 that it was fully committed to improve financial inclusion from 48% to 60% by 2022 with fintech being identified as an effective vehicle to drive its initiative. This was further hastened by the COVID-19 pandemic where the government has been explicitly promoting the use of mobile money to combat COVID-related challenges. As a result, Wave Money has seen a pick-up in transactions during this challenging period.
• The industry remains fragmented with 181 companies that are officially providing mobile financial services in the market and could see potential competition from regional players such as GrabPay or WeChat. We believe the combination of strong shareholders with various skillsets, i.e. Ant Group (mobile financial service provider), Telenor (telco operator), Yoma Strategic/Yoma Bank (local business [including F&B] operator and financial institution) forms a strong digitalisation team. This, coupled with Wave Money’s dominant position in this market, will set them apart from their competitors.
• We believe Yoma Strategic’s early investment in Wave Money has paid off and will continue to grow in contribution as it looks “to strengthen its interest in Myanmar’s digital financial services sector, which includes exploring the possibility of increasing its shareholding in Wave Money”.

Source: DBS Research - 19 May 2020