Yoma Strategic Holdings -
STI : 3,081.72
Price Target : 12-Month S$ 1.02
buys land to build hotel
• Acquiring 80% stake in JV company to build 46- room hotel in Pun Hlaing Golf Estate
• To invest US$2.4m for the land and US$9.4m for construction
• This move will strengthen Yoma's interest in tourism, but it needs to address financial and human capital issues for this development
Yoma has entered into a conditional agreement to acquire 80% stake in a plot of land in Pun Hlaing Golf Estate from Pun Hlaing Lodge (PHL) for US$2.4m. The land is designated for the construction of a hotel on 8,887 m2 site and has a remaining lease of 45 years. The plan is to build a 46-room international standard hotel with conference and banquet facilities.
Under the agreement, Yoma's wholly-owned subsidiary Yoma Development Group will take 80% stake in a Myanmar-registered JV company, with PHL as its partner. The JV company will hold the rights to the land and be responsible for the construction of the hotel, to be funded by equity and debt. For its share, Yoma is expected to contribute up to US$9.4m to fund the construction.
Separately, PHL will procure the rights to another plot of land in the vicinity with an area of 221.5 m2, which will be injected into the JV company at no additional consideration. The plan is to develop this plot of land into a fitness and leisure centre for use by hotel guests and residents of Pun Hlaing Golf Estate. The target market for this hotel would be golfers at the estate and participants/visitors of international tournaments to be held there in future.
Our take: Strategically, this venture fits into Yoma's plans to expand into tourism-related businesses. Economically, it is also positive given the captive market of Pun Hlaing Golf Estate, considered one of Myanmar's finest with independent facilities and an 18-hole championship golf course. Based on the land acquisition price and estimated construction costs, the cost per room would be approximately US$320k. The returns, however, would depend on room and occupancy rates. All in, Yoma's share in this venture would cost US$11.8m, to be funded by internal cash flow and debt.
As always, Yoma's ventures demand investment in either human or financial capital, or both. The concern would be its ability to balance its attention and resources on the several ventures that are happening simultaneously. This development seems positive as tourism remains strong in Myanmar, with tourist arrivals up by 30-40% YTD. But we have not factored this latest development into our forecasts as the venture is pending approval, and we need more details to estimate the scale and impact on Yoma's bottomline. No change to our Buy rating and TP of S$1.02.
Publish date: 11/12/13