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Elevator Pitch

I assign a Neutral rating to Yoma Strategic Holdings (OTCPK:YMAIF, YOMA:SP), a diversified Myanmar conglomerate listed in Singapore.

This is an update of my initiation article on Yoma Strategic published on January 19, 2017. Yoma Strategic share price has fallen by -58%, from S$0.585 as of January 17, 2017 to S$0.245 as of June 17, 2020 since my initiation. It currently trades at 0.63 times P/B, and the share price is slightly more than half of what strategic investor Ayala Corporation (OTCPK:AYALY, OTCPK:AYYLF, AC:PM) deems as the fair value of the company (S$0.45).

Yoma Strategic has seen a wave of changes in the past one to two years. Philippine conglomerate Ayala Corporation announced in November that it is investing $155 million for a 20% stake in Yoma Strategic. Apart from synergies with its new second-largest shareholder, Ayala Corporation’s strategic investment helps investors understand Yoma Strategic’s investment merits. Yoma Strategic’s Wave Money is a leading fintech player in Myanmar, and Ant Financial Services, the operator of Alipay (BABA), is acquiring a substantial minority stake in Wave Money.

On the flip side, minority shareholders might not have the same long, multi-generational investment horizon that a strategic investor like Ayala Corporation has. There is no certainty if and when Myanmar will catch up with its Southeast Asian neighbors with respect to economic development. Also, while it is positive that Alipay is taking a stake in Wave Money, the latter is expected to face stiff competition in Myanmar’s growing mobile payments market. As such, I think that a Neutral rating for Yoma Strategic is justified.

Readers have the option of trading in Yoma Strategic shares listed either on the Over-The-Counter Bulletin Board/OTCBB as ADRs with the ticker YMAIF, or on the Singapore Stock Exchange with the ticker YOMA:SP. For those shares listed as ADRs on the OTCBB, note that liquidity is low and bid/ask spreads are wide.

For those shares listed in Singapore, there are limited risks associated with buying or selling the shares in terms of trade execution, given that the Singapore Stock Exchange is one of the major stock exchanges that is internationally recognized and there is sufficient trading liquidity. Average daily trading value for the past three months exceeds $1.2 million, and market capitalization is above $390 million, which is comparable to the majority of stocks traded on the US stock exchanges. Institutional investors who own Yoma Strategic shares listed in Singapore include Aberdeen Standard Investments, Eaton Vance Management, Capital International, and BlackRock, among others. Investors can invest in key Asian stock markets either using U.S. brokers with international coverage, such as Interactive Brokers, Fidelity, or Charles Schwab, or local brokers operating in their respective domestic markets.

Strategic Investor

On November 14, 2019, Yoma Strategic announced that Philippine conglomerate Ayala Corporation is investing $155 million for a 20% stake in the company via a placement of new shares. This will make Ayala Corporation the second-largest shareholder in Yoma Strategic, after the founding Pun family which will have a 27% equity interest (diluted from 34% earlier) post-transaction.

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Ayala Corporation is the fourth-largest company listed on the Philippines Stock Exchange with a market capitalization of PHP495 billion, or $9.9 billion. Similar to Yoma Strategic, Ayala Corporation is a diversified conglomerate with multiple business lines. Even prior to the share placement, Yoma Strategic is already partnering Ayala Corporation on renewable energy projects in Myanmar. Looking forward, Yoma Strategic could realize more synergies with its strategic investor, Ayala Corporation.

Ayala Corporation’s Businesses

(Source: Yoma Strategic’s November 2019 Investor Presentation Slides)

Yoma Strategic’s Businesses

(Source: Yoma Strategic’s July 2019 Annual General Meeting Presentation Slides)

More importantly, Ayala Corporation’s investment in Yoma Strategic can help investors to understand the company’s attractiveness as a potential investment candidate. Ayala Corporation explained its rationale for investing in Yoma Strategic at an investor call on November 18, 2019. Ayala is positive on Myanmar’s future growth prospects, and likes Yoma Strategic as a proxy for the country.

At the investor call, Ayala Corporation noted that Myanmar is “the second fastest-growing economy in the ASEAN region” and “a per capita income of roughly half that of” the Philippines. Notably, Ayala Corporation highlights that Myanmar “reminds me so much of the Philippines in the ’90s”, which is an indication that Ayala Corporation believes that Myanmar could potentially replicate the Philippines’ growth trajectory in the years ahead.

Ayala Corporation’s Market Capitalization Expansion In Tandem With The Philippines’ GDP Per Capita Growth

(Source: Yoma Strategic’s November 2019 Investor Presentation Slides )

A Comparison Of Myanmar With The Philippines

(Source: Yoma Strategic’s November 2019 Investor Presentation Slides)

With respect to Yoma Strategic’s investment merits, Ayala Corporation referred to Yoma Strategic as “the leading business house in Myanmar” and “a mini Ayala” in its November 2019 investor call. Ayala Corporation also added at the call that Yoma Strategic is a “partner that we are very comfortable with, that can provide us both political and business cover and on-the-ground knowledge.” With reference to the Ayala Corporation’s and Yoma Strategic’s property businesses as the chart below, there is immense potential for Yoma Strategic to replicate Ayala Corporation’s growth path and success in the medium to long term.

A Comparison Of The Property Businesses For Ayala Corporation And Yoma Strategic

(Source: Yoma Strategic’s November 2019 Investor Presentation Slides)

On the flip side, investors need to be aware that a strategic investor such as Ayala Corporation has a much longer investment horizon that most investors do, and it can extract synergies from its investment in Yoma Strategic via various collaborations unlike a minority shareholder.

At its investor call on November 18, 2019, Ayala Corporation cautioned that “it is not an overnight transaction for us and “we do recognize that there are risks involved”, but noted that “we have a long-term view to these assets.” Similar to many family-owned companies, Ayala Corporation could be taking a multi-generational view with respect to its investment in Yoma Strategic. This is because there is no certainty if and when Myanmar will catch up with Philippines or its Southeast Asian neighbors in terms of economic development (e.g., GDP per capita).

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It is noteworthy that while Myanmar’s GDP growth is still among one of the fastest in Asia, the country’s growth has slowed down in recent years, as per the chart below.

Myanmar’s GDP Growth

(Source: Trading Economics)

Fintech Business

Apart from Ayala Corporation’s strategic investment, the growth of Yoma Strategic’s fintech business Wave Money has been another key highlight for the company. Started in 2016, Wave Money is a pioneer in Myanmar as the first licensed mobile financial services provider. On its corporate website, it refers to itself as a company that provides “accessible, safe and convenient mobile financial services via a nationwide agent network (over-the-counter or OTC business) or via a wave account on your phone (digital or e-wallet business).”

Wave Money’s Business Units And Service Offerings

(Source: Yoma Strategic’s May 2020 Investor Presentation Slides)

Notably, Ayala Corporation made special mention of Wave Money at its investor call on November 18, 2019, explaining the investment in Yoma Strategic. Ayala Corporation highlighted that Wave Money “is the leading mobile payment system in Myanmar, which is a “similar platform to our GCash (Ayala Corporation’s mobile wallet company).”

Ayala Corporation also noted at the call that Yoma Strategic has “been able to operate Wave Money profitably because their model is taking the platform and using it as a remittance platform.” The majority of mobile payment companies are loss-making. Wave Money bucks the trend because it started as an over-the-counter, or OTC, business doing remittances (a more profitable mature business compared to the digital or e-wallet business, which is still scaling up), and the fact that there is limited competition from traditional banks (bank branch penetration is relatively low).

Wave Money’s Profitability

(Source: Yoma Strategic’s May 2020 Investor Presentation Slides)

Yoma Strategic announced on May 18, 2020 that the operator of Alipay (China’s leading third-party online payment platform), Ant Financial Services Group, is making a significant minority investment of $73.5 million in Wave Money. The transaction is pending regulatory approval.

If and when the deal is completed, Yoma Strategic’s equity stake in Wave Money will be reduced from 44% to 29.5% (Yoma Strategic’s sister company Yoma Bank will own a 3.4% stake), while Ant Financial Services will have a 33% equity interest in Wave Money. In the announcement, Yoma Strategic noted that Wave Money “will leverage Ant Group’s experience building mobile payment platforms to enhance its digital competence, capabilities, user experience and service offerings.”

Wave Money has a target of achieving 1.3 million (6% penetration rate of internet users in Myanmar) and 11.2 million (40% penetration rate) monthly active users by 2020 and 2024, respectively. These ambitious growth targets are supported by Myanmar’s low banking penetration rate and high digital penetration rate.

Myanmar’s Key Facts Relating To Banking And Digital Penetration Rates

(Source: Yoma Strategic’s May 2020 Investor Presentation Slides)

The key risk for Wave Money is that it does not grow its digital/e-wallet business fast enough in the next few years to offset the eventual slowdown in its OTC business’ growth. Wave Money has approximately 90% market share in the OTC market in Myanmar, and the mature OTC business is a key contributor to Wave Money’s profitability. But Yoma Strategic highlighted in its May 2020 investor presentation that it expects “the OTC business to continue at modest growth rates” once the inflection point in the chart below is reached.

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In Myanmar’s mobile wallet market, Wave Money’s major competitor is KBZPay, which is owned by a leading commercial bank in the country, KBZ Bank. Major digital payment platforms such as Alipay, WeChat Pay (TCEHY) and GrabPay (GRAB) currently don’t have a presence in Myanmar. Wave Money’s first-mover advantage and its 57,000-strong agent distribution network in the country are the company’s key strengths which allow it to fend off competitive threats. Nevertheless, given that Myanmar’s mobile market is still at the early stages of development, it is difficult to determine if Wave Money’s market leadership will be challenged in the future.

OTC and Digital P2P (Peer-to-Peer or Digital/E-wallet) Adoption Curve In Myanmar

(Source: Yoma Strategic’s May 2020 Investor Presentation Slides)

Competitive Landscape In Myanmar’s Digital Payment Market

(Source: Yoma Strategic’s May 2020 Investor Presentation Slides)

Valuation

Yoma Strategic trades at 0.63 times P/B, based on its share price of S$0.245 as of June 17, 2020. As a comparison, the stock’s historical five-year and 10-year mean P/B multiples were 1.15 and 1.40 times, respectively.

As another point of reference for Yoma Strategic’s valuation, Ayala Corporation is acquiring a 20% equity interest in the company for $155 million, which translates to a $0.3265 or S$0.45 per share valuation for Yoma Strategic. Ayala Corporation disclosed that it determined the valuation of Yoma Strategic based on “sum of the parts and discounted cash flows methodologies and other relevant metrics.”

Risk Factors

The key risk factors for Yoma Strategic include a failure to realize synergies with its new strategic investor Ayala Corporation, its fintech company Wave Money growing at a slower-than-expected pace in the future, and political & economic issues in its home market, Myanmar.

Note that readers who choose to trade in Yoma Strategic shares listed as ADRs on the OTCBB (rather than shares listed in Singapore) could potentially suffer from lower liquidity and wider bid/ask spreads.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.