Singapore Myanmar Investco - OCBC Investment 2017-11-16: Work In Progress

SINGAPORE MYANMAR INVESTCO - OCBC Investment 2017-11-16: Work In Progress SINGAPORE MYANMAR INVESTCO LTD Y45.SI

SINGAPORE MYANMAR INVESTCO - Work In Progress

  • FV now at S$0.665.
  • Proxy to Myanmar’s growth.
  • Reiterate BUY.



Gross profit up 53% YoY 

  • Singapore Myanmar Investco (SMI) reported its 1HFY18 results on Tuesday. 
  • Gross profit increased 52.5% YoY to US$3.1m, supported by an increase in gross profit margin from 21.1% in 1HFY17 to 26.6%.
  • The group recorded a net loss of US$2.1m from continuing operations, vs. a net loss of US$1.6m in 1HFY17. Part of the increase in net loss was due to positive one-off items in the previous half-year including a US$300k write-back of over-accrual of bonus and a US$137k writeback of over-accrual of corporate secretarial costs in 1HFY17. 
  • Notably, Duty Free & Fashion Retail and Construction Services made up 59.4% of 1HFY18 revenue, with profit (before unallocated expenses) increasing 60% YoY to US$2.1m – though that increase was more than offset by the increase in the group’s head office expenses and finance charges. 
  • Looking ahead to 2HFY18, management expects to post a YoY increase in revenue, along with reduced operational costs.


Airport duty-free retail player in a rapidly developing economy 

  • Foreign arrivals at Yangon International Airport reached 0.75m for the first 8 months of 2017, up 14% YoY. We do note that one key risk to our FY19 forecasts is any continuation of the Rakhine state atrocities, which may deter visitors from signing on tour packages next year and put a damper on arrivals. 
  • Nonetheless, the long-term growth story is still intact. We believe that SMI’s positioning in the profitable airport duty-free retail space in a developing country – that is still at a low base in terms of economic indicators relative to neighbouring countries – offers investors a unique opportunity to participate in the country’s growth. 
  • The Asian Development Bank projects a 7.7% GDP growth rate for Myanmar in 2017 and 8.0% growth in 2018. 
  • We highlight three factors in SMI’s favor – 
    1. the current low base that revenue is at, 
    2. the high gross profit margins of the Duty Free & Fashion Retail segment, coupled with 
    3. the less-than-proportional increase in fixed costs we project going forward. 
  • With a change in analyst, after adjusting for the placement and tweaking our assumptions for FY19F, our fair value decreases from S$0.97 to S$0.665 (16x FY19F; year ending Mar 2019), which implies a healthy 48% upside from yesterday’s closing price of S$0.45. 
  • Maintain BUY.






Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-11-16
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.665 Down 0.970



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