KUALA LUMPUR, Aug 14 — 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 per cent to S$17.3 million
Profit: +243.1 per cent to S$1.4 million
Cash flow from operations: (S$7.2 million) vs (S$10.2 million)
Dividend: Nil vs Nil
Revenue increased to S$17.3 million from S$15.2 million previously because of land development rights (LDRs) and property sales.
Property and LDRs sales for Q1FY15 generated S$15.6 million compared to S$14.4 million in the previous corresponding period.
Earnings both account for more than 90 per cent of Yoma’s total revenue.
Comparing both periods, Q1FY15 comprises higher property sales than Q1FY14; property in Q1FY15 was 86.6 per cent of total revenue, compared to just 46.1 per cent.
And because property sales generally have lower gross profit margins than LDRs sales, gross profit margin dropped to 28.2 per cent in Q1FY15 compared to 39.3 per cent 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 million was recognised for Q1FY15.
Total contractual revenue for units sold in Buildings A3 and A4 is S$60.6 million (based on the June 30, 2014 exchange rate), but out of this only S$33 million has been recognised.
The remaining unrecognised revenue of S$27.6 million is expected to be booked within the next six to twelve months.
As at June 30, 2014, Yoma has collected S$32.1 million in cash deposits and instalments from buyers; this amount represents 53 per cent of the total contractual price of the sold units.
Costs climbed as administrative expenses climbed to S$6.5 million from S$4.1 million 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 million.
Cash and bank balances fell to S$12.8 million as at June 30, 2014 compared to S$16.7 million as at the preceding quarter.
This is broken down as:
S$7.2 million because capital requirements climbed
S$8.1 million in investing activities
S$2.7 million was spent on new property, plant and equipment for the automotive business expansion
S$6.1 million on increasing equity interest in Digicel Asian Holdings, of which it now holds 25 per cent control
Offset by:
S$10 million in proceeds from current bank borrowings
S$1.7 million 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 million 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 million new shares on July 2, 2014 - representing a 11.7 per cent dilution - does not help the stock rating in CIMB’s view.
Yoma Strategic currently holds LDRs of around 4.5 million 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. We keep your investments honest.
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.
3. What are the implications if the 1-for-3 rights issue is triggered?
Investors are looking forward to more buy-in in the form of the 1-for-8 rights issue.
So what can they expect if this does not happen?
Management reply: Following our announcement dated 24 June 2014, we announced that the one rights share for every eight existing shares will be revised into one rights share for every three existing shares to fund the following proposed acquisitions:
- Proposed acquisition of an 80 per cent interest in Landmark Development with the existing leases of c. 24 – 26 years for US$43.20 million
- Proposed acquisition of the economic benefit of 70 per cent of an additional 250 acres land in Pun Hlaing Golf Estate for c. US$70 million
The proposed 1 for 3 rights issue at S$0.38 is expected to raise c.US$130 million
The above proposed acquisitions are subjected to shareholders approvals and the EGM and right issues are expected to take place in [4Q2014]
4. Why is it difficult to disclose executive director salaries?
Yoma Strategic was queried by the SGX about its disclosure of executive director salaries.
SGX asked for the company to declare the exact salaries of its executive directors, rounded to the nearest thousand dollars.
But on page 41 of its 2014 Annual Report, the remuneration of the non-independent directors Serge Pun, Andrew Rickards and Cyrus Pun are all shown in bands - not specifics - and rounded to the nearest hundred thousand.
Mr Serge Pun earned S$1,800,000 to S$1,900,000.
Mr Andrew Rickards earned S$1,400,000 to S$1,500,000.
Mr Cyrus Pun earned S$500,000 to S$600,000.
For the independent directors of Yoma’s Board – which can be disclosed in bands of S$250,000 – their remunerations are in specifics.
In other words, Yoma has done the exact opposite of what is required of the 2012 Code of Corporate Governance.
The Code of Corporate Governance 2012 states in Paragraph 9.2:
“The company should fully disclose the remuneration of each individual director and the CEO on a named basis. For administrative convenience, the company may round off the disclosed figures to the nearest thousand dollars. There should be a breakdown (in percentage dollar terms) of each director’s and the CEO’s remuneration earned through base/fixed salary, variable or performance-related income/bonuses, benefits in kind, stock options granted, share-based incentives and awards, and other long-term incentives.”
Paragraph 9.3 goes on to say:
“The company should name and disclose the remuneration of at least the top five key management personnel (who are not directors or the CEO) in bands of S$250,000. Companies need only show the applicable bands. There should be a breakdown (in percentage or dollar terms) of each key management personnel’s remuneration earned through base/fixed salary, variable or performance-related
income/bonuses, benefits in kind, stock options granted, share-based incentives and awards, and other long-term incentives.
In addition, the company should disclose in aggregate the total remuneration paid to the top five key management personnel (who are not directors or the CEO).
As best practice, companies are also encouraged to fully disclose the remuneration of the said top five key management personnel.”
Remuneration disclosure guidelines continue to Paragraphs 9.4, 9.5 and 9.6.
Yoma Strategic explained in its reply that it does this on the “the overall interests of the business”.
Incidentally, Yoma Strategic ranked 26th on the 2014 Governance & Transparency Index for SGX-listed companies.
Management reply: We are committed to ensuring that the company is run in the interest of all shareholders. Adhering to an international standard of corporate governance and transparency has always been a priority for us. We constantly look to improve our business practices and provide further transparency to our internal policies.
Although we did not reveal the exact dollar value, we would like to highlight that the level and mix of each of our executive directors’ remuneration are disclosed in bands of S$100,000, which complies with the various disclosure requirements of SGX-ST in our FY2014 annual report. [We believe most companies still use bands of S$250,000, which is an even wider range.]
As pointed out in your email, we were ranked 26 out 644 SGX-listed companies in the recent Corporate Governance and Transparency Index 2014 putting us in top 5 per cent of the SGX-listed Companies for Governance & Transparency. This represents a major improvement over our 74th ranking in 2013 and 177th in 2012, which is a recognition of our efforts to constantly improve our corporate governance and transparency.
5. Why does it have S$40.4 million in unbilled trade receivables?
Who are the customers and when will they be billed?
Management reply: The unbilled trade receivables are largely due to the extended payment given to our buyers for our properties, as well as third party investors on the sale of land development rights (LDRs) including Star City Zone B.
We thank the company for its replies.
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