Yoma Strategic Holdings:
Weak results, positive guidance;
Price Target : S$ 1.02
•1QFY14 profit tumbled 82% y-o-y to S$0.4m, missing expectation
•Sales were below forecast due to slow construction and weaker sales at Star City, offset by LDRs
•Trimmed FY14F/15F earnings: weaker margins and higher SGA expenses partly offset by expectations of stronger committed LDR sales in Q2 and quicker construction
•Maintain BUY rating and S$1.02 TP
1QFY14 earnings below estimate. Net profits tumbled 82% y-o-y to S$0.4m, 38% below our estimate and only 2.5% of our FY14F profit. The weak results were due to 1) a 38% shortfall in property sales – weaker Star City unit sales in the quarter were partly offset by sale of LDRs, and 2) low sales recognition because a revision to building height from eight to twelve storeys delayed construction. Gross margin rose to 39.3% from 37.1% in 1QFY13, but was still a tad weaker than our forecast. SGA expenses doubled to S$4.7m due to employee share option charges and higher staff costs as it raised headcount to meet expansion plans. We had forecasted SGA expenses of S$7m per quarter.
Star City sales moving, stable ASP. Star City remained the key driver in 1QFY14 with 22 units sold at an ASP of US$150/ sqft, similar to last quarter. Unit sales were weak but Yoma sold LDRs for an entire block in Zone B for S$5.9m. This is under an agreement Yoma signed with a 3rd party investor to 1) sell LDRs for five blocks of apartments at Star City to the investor for development, and 2) sell apartment units in Zone B to end buyers for an incentive fees, on behalf of this investor.
Expect improvements in 2QFY14 and beyond. Yoma has guided that 2QFY14 revenue would be anchored by sale of LDRs for two more buildings in Zone B valued at S$15m. We also expect it to recognise revenues from a rising backlog for Zone A and some from Zone B, since Dragages had started construction in June. There should also be incentive fees from the sale of unit in block B1 launched last quarter. We understand take up rate has been brisk with firm ASP.
Trimmed FY14F/15F earnings by 4%; maintain BUY. Given visible revenue drivers, we are maintaining our sales assumptions but trimmed earnings after adjusting for weaker gross margins and lower SGA expenses. RNAV-based TP is intact at S$1.02.