SINGAPORE (Feb 7): OCBC is upgrading Yoma Strategic Holdings to "buy" given its share price has now undergone an over-correction although worries over the outlook for the property sector have not fully abated.
"We maintain our fair value estimate of $0.55 for now," says lead analyst Joseph Ng in a Wednesday report.
In 3Q18, Yoma saw a 0.1% rise in revenue to $24.1 million, with gains in its automotive & heavy equipment and consumer businesses largely offset by weakness in the group’s real-estate development business.
The property segment saw sales drop to $1.4 million in 3Q18 from $6.1 million in 3Q17 largely due to the group’s change in sales strategy for StarCity’s Zone C following the recent buy-back of the development to withhold some units for long-term rental, as well as a re-design of other units to meet the demand for smaller spaces.
"For the same reasons, we believe that contribution from the group’s real-estate development business will continue to be muted in the near term," says Ng.
Overall, PATMI rose to $16.8 million in 3Q18 from $334,000 in 3Q17 due largely to the fair value and disposal gain from the completion of the disposal of the group’s tourism-related businesses.
However, Ng notes that the long-awaited condominium by-laws have been issued in December 2017, which allows foreign buyers to own up to 40% of the total floor area of a condominium building.
Registered condominiums will also soon be eligible for strata title, which should aid in the development of a domestic mortgage market, he adds.
"While these are broadly positive, we reiterate our concerns on supply as outlined in our report last month, with the future condominium supply in Yangon remaining substantial with more than 10,000 units currently in the pipeline, according to Colliers International," says Ng.
Nonetheless, OCBC believes earnings visibility for the group’s automotive & heavy equipment business continues to be evident, given it is fulfilling an additional order of 500 New Holland tractors with revenue to be recognised progressively.
For its consumer business, the group now has 21 KFC stores and is on track to meet its target of at least 32 stores nationwide by end-March 2019 and 50-plus stores in 2020.
"We maintain our fair value estimate of 55 cents for now," says Ng.
As at 2.16pm, shares in Yoma Strategic are up 1 cent at 48 cents or 25.3 times FY19 earnings.
