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Investor CentralYoma Strategic Holdings Ltd. - MANAGEMENT REPLY: Does Yoma have enough Land Development Rights already - which of the brokers is right?
14/8/2014 – Analysts are divided whether Yoma Strategic Holdings Ltd should take up the land and Land Development Rights (LDRs) ownership from Serge Pun & Associates.
CIMB Research says Yoma already has enough land and LDRs to last a good ten years, and this acquisition could result in unwanted bloat.
OCBC Investment Research did not comment on the move but also notes the potential for a 1-for-3 rights issue instead of the anticipated 1-for-8.
For the first quarter performance, Yoma Strategic had positive revenue and profit figures but this is only because of the exceptional one-off gains.
In its outlook, the company says it remains confident in Myanmar beyond the coming 2015 general elections largely because of the reform-minded leadership of president U Thein Sein, the country's new leadership of ASEAN and the continuing economic developments unfolding.
Since Myanmar took ASEAN leadership in December 2013 and amid complaints of a general slowness about progress, the government has licensed foreign banks and telecommunications providers and issuing concessions to oil & gas operators.
The government has also begun liberating the power generation and distribution sector, beginning with the Yangon division.
With power now available, businesses and residents can expect more economic activity.
If this trend continues, a new affluent middle class will demand quality housing, which will play to Yoma's core business in real estate.
For the telecommunications tower business, Yoma's partnership with Digicel should benefit because telecommunications providers Ooredoo and Telenor have received their licences to operate.
Ooredoo received its license in June last year and Telenor Group's license followed in January this year.
If vehicle ownership also rises with greater affluence, Yoma subsidiaries Myanmar Motors Pte Ltd and First Japan Tires Services Company Limited (the joint venture with Mitsubishi Corporation), should also see improvements in business.
Retail operations are also expected to lift.
The tourism business "Balloons Over Bagan" is still enjoying popularity and there could be more first-time visitors in the near and mid-term.
One development Yoma says it will closely watch is land ownership disputes.
With the reform, many locals are staking claims to land and asking for compensation for having to leave.
Yoma says it will monitor developments and "co-operate where necessary".
The company just announced earnings for Q1FY15:
Revenue: +13.9% to S$17.3 mln
Profit: +243.1% to S$1.4 mln
Cash flow from operations: (S$7.2 mln) vs (S$10.2 mln)
Dividend: Nil vs Nil
Revenue increased to S$17.3 mln from S$15.2 mln previously because of land development rights (LDRs) and property sales.
Property and LDRs sales for Q1FY15 generated S$15.6 mln compared to S$14.4 mln in the previous corresponding period.
Earnings both account for more than 90% of Yoma's total revenue.
Comparing both periods, Q1FY15 comprises higher property sales than Q1FY14; property in Q1FY15 was 86.6% of total revenue, compared to just 46.1%.
And because property sales generally have lower gross profit margins than LDRs sales, gross profit margin dropped to 28.2% in Q1FY15 compared to 39.3% in Q1FY14.
So as at June 30, 2014, Yoma had sold all 528 units of Star City's Zone A Buildings A3 and A4.
Based on its percentage-of-completion method used in recognising revenue from sales of property units, just S$8.2 mln was recognised for Q1FY15.
Total contractual revenue for units sold in Buildings A3 and A4 is S$60.6 mln (based on the June 30, 2014 exchange rate), but out of this only S$33 mln has been recognised.
The remaining unrecognised revenue of S$27.6 mln is expected to be booked within the next six to twelve months.
As at June 30, 2014, Yoma has collected S$32.1 mln in cash deposits and instalments from buyers; this amount represents 53% of the total contractual price of the sold units.
Costs climbed as administrative expenses climbed to S$6.5 mln from S$4.1 mln previously, because of more hires in senior and middle management in the real estate and business development divisions over FY14.
Staff costs doubled to S$3.4 mln.
Cash and bank balances fell to S$12.8 mln as at June 30, 2014 compared to S$16.7 mln as at the preceding quarter.
This is broken down as:
S$7.2 mln because capital requirements climbed
S$8.1 mln in investing activities
S$2.7 mln was spent on new property, plant and equipment for the automotive business expansion
S$6.1 mln on increasing equity interest in Digicel Asian Holdings, of which it now holds 25% control
Offset by:
S$10 mln in proceeds from current bank borrowings
S$1.7 mln in proceeds from shareholders' loans
Bullish analyst report
OCBC Investment Research says there were no surprises in the first quarter results.
Performance is acceptable because of the lumpy nature of revenue recognition for property sales based on the percentage completion method and the bad weather in May through June which has slowed construction down.
Management expects construction in Zone A of Star City to pick up in the second half of this year.
Zone C of Star City comprising 914 units could excite when it launches in FY15.
OCBC Investment Research did not comment on the offer from Serge Pun & Associates.
OCBC Investment Research has a BUY call with an unchanged price target of S$0.82.
Bearish analyst report
CIMB Research says Yoma Strategic had a loss of S$0.8 mln for this quarter's performance after removing one-off gains but this should not be a concern as this will be made up for subsequently.
What could potentially be troubling is the offer from Serge Pun & Associates to own 250 acres of land and Land Development Rights (LDRs) of 1.2m sq ft of the Pun Hliang Golf Estate.
If Yoma Strategic takes up this offer, a 1-for-3 rights issue might be triggered.
This would mark a deviation from the initial 1-for-8 rights issue meant to fund the Landmark acquisition.
This and the addition of 135 mln new shares on July 2, 2014 - representing a 11.7% dilution - does not help the stock rating in CIMB's view.
Yoma Strategic currently holds LDRs of around 4.5 mln sq ft in Pun Hliang Golf Estate.
It also holds LDRs in Star City.
CIMB Research thinks this land and LDRs ownership in total is enough for another ten years.
So there should be no reward in making further land or LDRs acquisitions, especially when the 2015 presidential elections in Myanmar introduce new uncertainties into the market.
CIMB Research has a HOLD call with a target price of S$0.81, tweaked slightly from S$0.82.
Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.
1. Why does Serge Pun & Associates want to sell land and LDRs in the first place?
Is there a particular reason to offload the assets?
Have there been signals to indicate a possible drop in value?
2. What potential do these land parcels and LDRs hold?
Investors should know what possibilities the land parcels and LDRs offered by Serge Pun & Associates present.
Management reply:Yoma Strategic (the “Company”) has the first right of refusal deed (the “FRRD”) with Serge Pun & Associates (Myanmar) Limited (“SPA”) in respect to its land in Yangon, Myanmar dated 17 August 2006.
For the land development rights (“LDRs”) which we acquired from SPA, the acquisition price was derived from the average of the values by two reputable and recognised valuers, separately appointed by the SPA Group and the Company, and discounted by an amount to be agreed between the Company and the SPA Group. The Company’s appointed independent valuer was Jones Lang LaSalle.
In addition, an independent financial adviser was appointed to advise the Company’s independent directors on whether the terms of the acquisition are on normal commercial terms and are not prejudicial to the interests of the Company and its minority Shareholders. The Company’s appointed independent financial adviser for the acquisition of Star City in June 2012 and the proposed acquisition of Landmark development was KPMG.
In terms of demand and pricing, our residential developments continue to benefit from the growing domestic demand for quality homes, as well as the increase in the number of overseas Myanmar Nationals returning to Yangon. We believe, if and when mortgages and a condominium law allowing foreigners to own property are introduced, they will have a positive impact on the sale of our property development projects supporting the demand and prices of our real estate projects.
Total number of questions in the full story: 5)
We thank the company for its replies.
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