A military coup d’etat (not the first time) took place in Myanmar on 1 Feb 2021. It started off with the Nov 2020 election whereby the military disputed the results – the National League of Democracy (NLD) had won majority of the seats in the Parliament (396 of 476 seats).
The leaders of NLD were deposed and detained. Myanmar is currently in a state of emergency and the military is in power now.
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I am not into politics and that is not the point of this article. I am more interested in investing opportunities that arise due to events like this.
Yoma Strategic Holdings Ltd – what do they do?
Yoma is listed on SGX and a well-known play for Myanmar and its share price was not spared when the news broke out – it closed the day at $0.21 or 25% lower.
Yoma (SGX:Z59) has a variety of business segments, the major ones include development properties, sale of F&B (e.g. KFC and YKKO restaurants) and automotive vehicles (e.g. distribute Mitsubishi, Volkswagen and Hino brands).
This is a very common feature of Southeast Asia (SEA) businesses and I think it’s due to the heterogenous markets in the region. It can be difficult to scale a business to another SEA country due to the differences in consumption patterns and hence, it becomes easier to sell another product or service to the same people in the country.
Also, businessmen want to be a power player to protect their interests given the unstable political climate. They do not want politicians to seize assets which they had painstakingly built up. As long as they can control a large part of the nation’s wealth and the supplies to the country, they can be untouchable. Hence, there is a lot of turf guarding and the creation of such powerful conglomerates in SEA.
Key Shareholders
Serge Pun is the patriach of the Yoma empire and his son, Melvyn Pun, is the CEO of the company. The former has about 28.13% stake in Yoma. The shareholders also include Fernando Zobel de Ayala, the COO of the powerful Filipino conglomerate – Ayala Corporation. He has 14.86% stake. Fund managers such as Aberdeen and Eaton Vance had substantial stakes in Yoma too (more than 5%).
Their diverse shareholders suggest that foreign investors recognised the potential of Myanmar and Yoma could be an effective way to take advantage of that trend.
Myanmar’s potential
Myanmar has a good population size of 54 million (South Korea has about 50 million and could stand on the world’s stage) and the people are young with a median age of 29 years old (compare to the median age of 47 years old in Japan).
Her annual GPD growth rate has been ranging between 5% to 9% in the last decade, except in 2019 when it was lower at 2.9%.
The country has the ingredients and the potential to make substantial progress if they can get their act together. If so, conglomerates like Yoma would prosper together and play a major role in building up the nation.
Foray into mobile payment
Yoma acquired a 34% stake in Wave Money, a leading mobile payment provider in Myanmar. Grab has also partnered Wave Money, integrating both the wallets together which facilitated the ease of use for drivers and passengers to make and receive payments with either wallet.
The validation was strengthened when fintech giant, Ant Group announced that it would make a US$74 million investment into Wave Money.
In October 2020, Yoma Strategic acquired an additional 10% interest in Wave Money and now holds a 44% interest in Wave Money.
This strategy looks uncannily similar to Reliance Industries with Jio, where an old-economy business transformed itself into a tech play by garnering the masses with a new telco service and partnering with tech giants into other businesses thereafter. It allowed Reliance to become the gatekeeper to the pockets of millions of Indians. Reliance’s success strongly suggests that Yoma could become the gateway to Myanmar if it can execute this well.
Yoma Strategic Holdings’ Financials
Yoma is currently trading below its book value:
- Total Assets = US$1,342,117,000
- Total Liabilities = US$548,183,000
- Perpetual Securities = US$30,000,000
- Non-controlling Interest = US$194,625,000
- Book Value = US$958,995,000
- Book Value per share in SGD = $0.34
- Share price = $0.18
- Price-to-book (PB) = 0.5
Comparing its historical PB ratio, we can see that it is trading at the lowest point in the past 5 years and well in the undervalued zone.
Although the financials look rosy now, we can be more conservative by discounting some of the assets that may not be able to hold value that well, especially since there’s political uncertainty in Myanmar now.
We can take cash, investment properties and properties for own use at 100% of their value and discount the rest of the assets by 50%. This is my typical CNAV method to determine value stocks with greater margin of safety.
If so, we will get about $0.04 CNAV per share which appears to be so low that the share price is unlikely to go near it. But this gives us some indication of the worse case scenario in which Yoma’s assets get massively written off.
Latest Updates
Military Coup
Yoma gave an official update to the business situation following the coup and it doesn’t look that bad as the businesses are still operating,
“Some of the Group’s businesses were disrupted intermittently on 1 February 2021 due to outages in the telecommunications network which has since recovered. As at the date of this Announcement, cities in Myanmar remained calm and the Group’s business services including Wave Money, the KFC and YKKO restaurants and logistics businesses have resumed operations.“
Covid-19
Another concern is the impact of Covid-19 on Yoma. Based on the first quarter results, their F&B segment suffered a decline in revenue although the rest of the business segments were unaffected.
In fact, the group’s overall revenue was higher than the preceding year’s quarter.
To buy or not to buy?
A contrarian investor would often look for bad news as opportunities to invest at good prices. Yoma seems to be in this situation because of the military coup in Myanmar – it is trading at 5-year low PB ratio.
But we cannot blindly invest just because of some bad news. There must be some attractive investment thesis that justify even a cheap investment.
Firstly, I think Myanmar’s progress is underway but of course we cannot assume a smooth sailing journey. It might be a three-step forward and two-step back situation. This coup is an example. But I wouldn’t totally dismiss her potential to progress for decades to come given its large hungry and young population.
Secondly, the stake in Wave Money might prove to be a great move should it become the de facto payment platform for Myanmar. Yoma would be able to build a lot more businesses on top of it. This could also pivot Yoma into a tech play and attract better valuation.
But these are uncertain at this point in time and some of its assets may be written off depending on how bad the coup turns out to be. The saving grace might be that there are some powerful investors behind Yoma which includes the wealthy Ayala family from the Philippines.
With uncertainties on both upside and downside, I would put Yoma as a long shot bet if I were to take a position. It belongs to the risky end of my barbell portfolio.
At the time of writing I have no position in Yoma. I may or may not put on a position after this article is published. I am not a financial advisor. DYODD.
