SINGAPORE (May 27): On April 22, Yoma Strategic Holdings announced a strategic partnership with Tokyo Century Corp for its vehicle leasing service in Myanmar. The latter will acquire a 20% stake in Yoma subsidiary Yoma Fleet for US$26.6 million ($36.6 million). The partnership is aimed at accelerating the expansion of Yoma’s vehicle leasing business.
Besides trying to meet growing demand for transport and logistical services, the expansion of Yoma Fleet is also a way for Yoma to grow its related entity Yoma Financial Services, which offers financing to vehicle owners.
Yoma Fleet was originally parked under Yoma Motors, another related entity, but Melvyn Pun, CEO of Yoma, says placing its fleet business under the same roof as its financing business was a move to capitalise on the lack of financing that is prevalent in Myanmar.
Compared with its regional neighbours, Myanmar’s unbanked population — specifically, adults without bank accounts — is high at about 80%. The reason for this is that after the military junta took over the country in 1962, the financial sector was nationalised and barriers to foreign and private sector participation were put in place.
It was not until the early 1990s that the liberalisation of the sector began, once again allowing the entrance of commercial, investment and development banks, as well as finance companies and credit societies. Typically, getting a loan was difficult in Myan-mar, as the lack of a central credit bureau meant that credit history was hard to verify, and capital even harder to provide. As at December 2018, the country’s first licensed credit bureau was still not operational, although it is expected to be operational by year-end.
Opportunity in finance
Today, the lack of access to credit lines is still a problem, but Pun sees opportunity for Yoma. “Having looked at the overall market, we believe [financial services] are a huge revenue pool that we can capture over the next 10 years in Myanmar,” he tells The Edge Singapore in an interview.
“We saw that there was a big lack of credit extension there. There’s probably around US$20 billion in revenue that players can capture if they have sufficient expertise and capital.”
To this end, Pun expects that the company’s partnership with Tokyo Century, one of Japan’s largest leasing companies, should put Yoma Fleet in good stead. “As we analysed Yoma’s strengths and weaknesses, we realised that it would be very helpful for us to bring in a strategic partner that has deep experience in the non-bank finance space. That allows us to capture financing from Japanese banks and also access attractive borrowing rates.”
Currently, Yoma Fleet, with more than 1,100 vehicles, is one of the largest vehicle leasing and rental operators in Myanmar. It manages total assets of more than US$40 million. Pun intends to scale up Yoma’s foray into financial services over time, driven by the rapidly rising smartphone penetration rate in Myanmar and the company’s partnership with Wave Money.
Yoma stands out from other Singapore Exchange-listed stocks because it has the best exposure to Myanmar’s economy, which is seen to have the greatest growth potential in Southeast Asia. There was an initial euphoria in 2016, when the National League for Democracy party won a landslide victory. That excitement soon gave way to disappointment when reforms did not happen quickly enough.
Yoma’s share price, following an initial surge, has been on a downward trend since mid-2013, when it traded at above 90 cents, compared with 35 cents on May 8, 2019. At this level, the company is trading at a historical price-to-earnings ratio of 73.4 times, which values the company at $654 million.
Over the past five years, the company’s revenue has hovered at just over $100 million a year. Its annual earnings have seen more movement. From the FY2016 peak of $37.2 million, the company recorded earnings of $26.6 million for FY2018, down 25.9% from FY2017’s $35.9 million.
Pun says the relatively flat top line may suggest that the company’s growth has stagnated, but this perception is a “mistake”. He points out that its earnings profile has undergone big changes, with active diversification away from real estate. “I’d say we are probably coming off a pretty tough period because real estate used to be 94% of our total revenue four years ago and, with this slowdown in real estate in the country, our amount of revenue contribution has come down substantially,” says Pun.
Between FY2014 and FY2018, the proportion of non-property revenue has increased tenfold, from 6% to 62%. Growth came from segments such as its New Holland tractors business; its consumer business, which included opening 24 KFC outlets in Myanmar; its investment in telecommunication towers; and, most recently, Yoma Fleet.
Property rebound?
That is not to say real estate will no longer be a focus. Pun is optimistic that, given a stabilisation of the Myanmar real estate market, earnings from this sector will pick up eventually. When the company reported 3QFY2019 earnings on Feb 13, it booked revenue of $6.2 million for its real estate business, up 348.8% y-o-y. Yoma attributes the strong growth to higher sales of its mass-market residential project, City Loft @ StarCity, and expects “positive momentum” to continue.
RHB Securities analyst Vijay Natarajan observes that Yoma’s non-real estate business has been gaining prominence on the back of the company’s active diversification, as well as the slowdown in real estate. “Demand for mid-range to high-end homes has been weak, [owing to] slow economic growth, unaffordability by locals because of restrictions on bank loans, and a slight oversupply,” Vijay tells The Edge Singapore.
“Thus, Yoma has recently tweaked its strategy to focus on the affordable housing segment, tying up with domestic banks to offer longer 25-year mortgage repayment terms to address affordability issues,” he says, referring to the City Loft project, where 90% of the 357 units launched so far have been sold.
He expects that, in the near term, Yoma will focus on this segment until the market recovers. “Thus, the outlook for the real estate segment in Myanmar is still muted in the near term, with affordable mass-market housing being the bright spot,” says Vijay, who has a “buy” call and price target of 57 cents on Yoma.
He adds that, while the initial euphoria over a new Myanmar has faded, the country remains a market with good potential for investors, thanks to its favourable demographics of a large and young population, abundant natural resources and strategic location.
“The Asian Development Bank forecasts a GDP growth of 6.6% to 6.8% in 2019 and 2020,” he adds. He warns, however, that economic and political stability remain key risks, as seen in the recent Rakhine crisis and slow pace of regulatory and economic reforms.
This story appears in The Edge Singapore (Issue 883, week of May 27) which is on sale now. Subscribe here
