Yoma Strategic Holdings Ltd (SGX: Z59) is a conglomerate that offers investors exposure to the fast-growing Myanmar economy. The group owns businesses in four very different industries in Myanmar. Chief Executive Officer Melvyn Pun recently said that each business pillar is “growing at a rapid pace” such that the group, currently with a market value of slightly over S$600 million, could be worth S$3 billion within five years.
I decided to find out how much the company is really worth now and what investors could expect in five years.
Sum-of-parts valuation methodology
Yoma Strategic Holdings Ltd has four core business operations: property, financial services, automotive, and food and beverage.
The easiest way to value a company that has four very different core business pillars is to value each separately and add them together.
Around 55% of the group’s total revenue comes from its property division. The property division is further divided into property development and property services, which include rental income from its investment properties.
The group’s development arm generated US$31.84 million in revenue, while its real estate services segment contributed US$24.4 million.
Both segments reported strong year-on-year growth. The group also owns a large land bank of low-density residential land, which will be used for development. It also recently converted some of its land bank to investment properties in order to construct apartment buildings for leasing purposes.
Using the relevant data from its balance sheet, these properties are currently worth US$737 million.
The group’s financial services segment is made up of Yoma Fleet and Wave Money.
Based on its last fundraising round, a 20% stake in Yoma Fleet was acquired for US$26.6 million, giving Yoma Fleet an implied post-money valuation of US$133 million. As such, Yoma Strategic’s 80% stake is worth US$106 million.
The group has set a target to grow Yoma Fleet’s asset size to US$200 million by 2023 from its current size of US$6.3 million.
Yoma Strategic also has a 34% stake in digital financial services provider Wave Money. Based on its purchase price, its stake in Wave Money was valued at US$57 million. Wave Money has been growing at a tremendous rate, with FY2019 revenue having more than tripled from a year ago.
Source: Yoma Strategic Holdings Ltd FY19 Q4 Earnings presentation
The group also imports and distributes a suite of automotive brands into Myanmar. In 2019, revenue from this segment declined 30.3% due to flooding caused by heavy rains, which affected the demand for tractors.
In total, the automotive and heavy equipment segment brought in US$22.74 million in revenue but still suffered a net segment loss of US$5.9 million.
Lastly, the F&B segment consists of restaurants and distribution and bottling of beverages. In the 12 months ended 31 March, the F&B segment brought in US$14.5 million in sales, representing a 40% increase from the previous year.
The main driver of growth was the opening of 11 new KFC outlets during the year, bringing the total number of KFC outlets to 33. However, heavy administrative costs mean this segment is still in the red.
Valuing the company today
To value the company, we will have to sum up the value of each core business pillar.
The property segment currently has a book value of US$737 million.
Its stake in the two financial services companies adds up to US$160 million.
As the automotive segment is not yet profitable, we have to estimate its value based on its revenue. A proxy for an automotive distributor is Jardine Cycle & Carriage. Although Jardine Cycle & Carriage has multiple other businesses, its core business is the distribution of automotive brands around the region. At the time of writing, Jardine has a price-to-sales ratio of 0.55. Attaching the same multiple to Yoma’s automotive segment gives it a valuation of around US$11 million.
For the F&B segment, I will use Jumbo Group Ltd, a listed F&B company in Singapore, as a proxy. Jumbo Group shares have a price-to-sales multiple of 1.6. Using that multiple, Yoma’s F&B segment has a valuation of US$23.2 million.
We also need to deduct the net debt to get the equity value of the company. Adding together its parts, Yoma Strategic has an equity value of US$613.2 million.
The big question: Will Yoma Strategic be worth S$3 billion in five years?
There are some positive trends that could potentially lead to higher revenue in the next few years.
First, its two financial services companies, Yoma Fleet and Wave Money, are expanding at rapid rates.
The group is also capitalising on the growing consumer appetite by expanding the number of F&B brands it works with and growing the network of KFC outlets in the country.
These two segments are likely to see rapid top-line expansion, and their corresponding valuations should likewise increase, too.
However, despite this, I still feel that Pun’s prediction of an S$3 billion valuation in five years seems far too optimistic. The property segment in particular is very unpredictable and seems unlikely to grow at the pace he has suggested.
So how much will the company be worth in five years? Unfortunately, there are too many unknowns to exactly predict where the company will be in five years. It very much depends on the company’s execution of the development of its land banks and how fast it can grow its other three core business segments.
For now, investors will have to rely on more updates in upcoming results to get a better gauge of how much of the company’s growth prospects will eventually materialise.
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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 Jeremy Chia doesn’t own shares in any companies mentioned.