Tuesday, 21 January 2014

Yoma Strategic Holdings

OCBC on 20 Jan 2014

We turn positive on Yoma and upgrade the stock to BUY with a higher fair value estimate of S$0.97 (versus S$0.84 previously). Our investment thesis rests on two key parts. First, our base case is for the Landmark acquisition to complete in 1H14. The accretion from this project makes up 41% of Yoma’s fair value estimate and we anticipate a successful acquisition to be a key price catalyst. Second, note that Yoma’s share price in 2013 has stagnated mostly between S$0.70 and S$0.90 despite management penning potential deals across diverse businesses. We believe the market is generally discounting these deals’ eventual earnings impact given their ubiquity across various companies on the SGX and a dearth of fruitful outcomes to date. In 2014, however, we expect Yoma to transition from a mostly deal-making phase into one where management would deliver, from its incubated plans, large-scale operational traction and fuller earnings visibility. We see this likely leading to a meaningful re-rating for the share price.

Upgrade to BUY with higher S$0.97 fair value
We turn positive on Yoma and upgrade the stock to BUY with a higher fair value estimate of S$0.97 (versus S$0.84 previously). Our investment thesis rests on two key parts. First, our base case is for the Landmark acquisition to complete in 1H14. The accretion from this project makes up 41% of Yoma’s fair value estimate and we anticipate a successful acquisition to be a key price catalyst.

To deliver large-scale operational traction
Second, note that Yoma’s share price in 2013 has stagnated mostly between S$0.70 and S$0.90 despite management penning potential deals across diverse businesses. We believe the market is generally discounting these deals’ eventual earnings impact given their ubiquity across various companies on the SGX and a dearth of fruitful outcomes to date. In 2014, however, we expect Yoma to transition from a mostly deal-making phase into one where management would deliver, from its incubated plans, large-scale operational traction and fuller earnings visibility. We see this likely leading to a meaningful re-rating for the share price.

Raising FY14 earnings estimates
Last Friday, Yoma reported 3QFY14 PATMI of S$5.2m, up 42% YoY, due to a boost from land sales and a maiden contribution from “Balloons Over Bagan”. Overall, we judge 3QFY14 results to be above view, albeit from a volatile low base, and raise our FY14 forecast from S$7.8m to S$11.8m. In terms of the top-line, 3QFY14 revenues rose 132.5% YoY to S$30.2m, again boosted by real estate sales; we note that only S$14.8m out of a total S$60.6m from units sold in Star City to date has been booked which points to S$45.9m of progress billings over the next 4-6 quarters. Management continues to report a fairly healthy rate of sales conversion in Star City - 526 out of 528 units in Buildings A3 and A4 and 474 out of 1,043 units in Zone B has been sold as end of Dec 2013.

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