Yoma Strategic Holdings Ltd’s Latest Earnings: A Tripling In Profit Seen

Editor’s Note: Please note that the second quote made by management should actually be attributed to Melvyn Pun, CEO of Yoma Strategic instead of Serge Pun, Chairman of Yoma Strategic, as previously indicated.

Yoma Strategic Holdings Ltd (SGX: Z59) had released its fiscal third-quarter earnings (for the three months ended 31 December 2015) this morning.

The company is a conglomerate with business interests in Myanmar in diverse sectors such as real estate, automotive, retail, agriculture, tourism, and construction.

With this as a backdrop, let’s dig into the firm’s latest earnings.

Financial highlights

For the reporting quarter, Yoma Strategic’s revenue had dipped by 5.0% from S$25.0 million a year ago to S$23.8 million. But, its net profit had soared by 223% to S$25.2 million from S$7.8 million the previous year.

The strong growth in the company’s bottom-line was largely driven by a S$27.7 million fair value gain on held-for-trading financial assets (an investment made in a telecom towers business).

Interestingly, Yoma Strategic commented in the earnings release that it “expects to record a revaluation gain in this investment periodically until it has been disposed.” The company has an agreement to sell the investment at a predetermined multiple of EBITDA (earnings before interest, taxes, depreciation, and amortisation) and at a value of not less than US$40.25 million.

On the cash flow front, there was some improvement seen in the reporting quarter as Yoma Strategic had brought in S$3.2 million in operating cash flow and spent S$7.0 million on capital expenditures, giving rise to free cash flow of a negative S$3.8 million (S$3.2 million – S$7 million). This compares to the free cash flow of a negative S$8.3 million seen in the same quarter a year ago.

Coming to the balance sheet, Yoma Strategic ended 31 December 2015 with a net debt position of S$65.8 million (S$82.6 million in borrowings and S$16.8 million in cash and cash equivalents). While that gives the firm a low net-debt to equity ratio of just 9%, the balance sheet has in some ways, weakened compared to a year ago when there was a net debt position of just S$5.8 million.

Business highlights

During the quarter, the company’s non-real estate businesses had seen a 260% year-on-year jump in revenue to S$13.8 million largely on the back of strong growth (76%) in the sale of tractors in its tractors business.

The company’s vehicle leasing arm also pitched in by more than doubling revenue to S$1.1 million. In the nine months ended 31 December 2015, Yoma Strategic has already leased out 313 vehicles compared to 124 a year ago.

As for the real estate-related businesses, there was a big dip in revenue from S$19.1 million a year ago to S$5.1 million for the sales of residences and land development rights.

Yoma Strategic had cited a few reasons for the phenomenon, including (a) buyers holding off any purchases in the run up to the country’s November 2015 general elections, (b) lower revenue recognised due to the completion of certain projects, and (c) a decision to defer sales in a real estate project until near-completion in order to obtain a higher profit margin.

Prospects and valuation

Yoma Strategic is running KFC restaurants in Myanmar. It expects to open its fourth store by February 2016 (there are already three in operation) and has a target of 12 by March 2017.

As mentioned earlier, Yoma Strategic expects to recognise fair value gains periodically on its telecom tower-related investment. The company commented in the earnings release that “[t]elecom infrastructure remains one of the fastest growing segments in Myanmar, and edotco [a business partner of Yoma Strategic] is targeting to grow its 1,250 towers operation to 5,000 towers over the next three years.”

Serge Pun, the chairman of Yoma Strategic, shared his thoughts about Myanmar’s real estate market and his optimism on the development of the country in the earnings release:

“Given the political stability and positive sentiment following the recent general election at the end of 2015, we are starting to see signs of a recovery in the real estate market. I continue to be optimistic regarding the long term sustainable growth of the real estate market due to the country’s continued growth as an emerging economy. Myanmar still has a lot to catch up with the rest of the world, and this long runway will sustain the growth of its real estate sector, notwithstanding periodical market adjustments.”

Melvyn Pun, Chief Executive Officer of Yoma Strategic, He also gave a quick summary on Yoma Strategic’s future outlook:

Our non-real estate business are growing nicely, supporting our steady development as a diversified conglomerate in Myanmar. Our telecom towers investment is expected to generate meaningful earnings for us each year, while our KFC, New Holland tractor and vehicle leasing businesses are all growing rapidly.

We expect to see recovery in the real estate market over the next few quarters. In particular, we are hopeful that the passing of the new Condominium Law last week will drive the availability of mortgages and foreign investment in the real estate market. We will continue to invest and strengthen our leadership position in our core businesses so that we can capitalise on the growth opportunities in the future.”

At its current share price of S$0.43, Yoma Strategic is trading at 21 times trailing earnings and 1.1 times its latest book value.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.