Singapore Myanmar Investco - OCBC Investment 2017-01-03: Attractively Positioned For Strong Growth

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SINGAPORE MYANMAR INVESTCO LTD Y45.SI

Singapore Myanmar Investco - Attractively positioned for strong growth

• Prime exposure to high-growth Myanmar.
• Dominant in airport duty-free retail.
• Initiate with BUY and S$0.97 Fair Value.

Riding on attractive growth trends in fast emerging Myanmar 

• SMI offers prime exposure to Myanmar’s fast- growing consumer and tourism sectors, and we believe the group is attractively positioned to ride on the high-growth trends in consumer spending, international tourism, and infrastructure investment in the rapidly emerging economy. 
• The group’s core business portfolio comprises: 
  1. duty-free travel and branded retail stores, 
  2. restaurants and F&B distribution, 
  3. car rental services, 
  4. construction services, and 
  5. logistics and warehousing services.

Dominant in airport duty-free; holds Coffee Bean, Crystal Jade franchises 

• Among its portfolio of businesses, SMI’s crown jewel is its dominance in airport duty-free retail at Yangon International Airport’s new terminal where international flights primarily operate. We believe this new terminal will likely be a key international flight hub in Myanmar in the foreseeable future; and in the lucrative but competitive DFS industry, SMI’s exclusive control of classic DFS retail in the terminal with a 10- year concession is a formidable competitive moat. 
• As passenger volume and spending sees secular growth ahead, we believe SMI’s duty-free business, which enjoys significant operating leverage, will gain compelling profit traction. 
• SMI also holds F&B franchise rights in Myanmar for successful brands such as Coffee Bean, Crystal Jade and Ippudo Ramen.

Initiating with BUY and S$0.97 fair value estimate 

• SMI is led by a strong management team with emerging market experience, including CEO Mark Bedingham who was previously the regional managing director at LVMH for Asia Pacific and had served on the board of the world’s largest travel retailer DFS. 
• We are positive on SMI’s growth prospects from its current low base, particularly given its understandable business models and attractive positioning in a high-growth economy. 
• We initiate coverage with a BUY rating and fair value estimate of S$0.97.
• Our valuation is based on a conservative PE ratio of 16x FY2019F (ending Mar 2019), which is 15% below the two-year historical average PE of the MSCI World Consumer Discretionary Index and also below the current 18.6x PE for SGX- listed peer, Duty Free International.

Jodie Foo OCBC Investment | http://www.ocbcresearch.com/ 2017-01-03

OCBC Investment SGX Stock Analyst Report BUY Initiate BUY 0.97 Same 0.97