Singapore Myanmar Investco - CIMB Research 2017-02-06: Riding on Myanmar’s growth

Singapore Myanmar Investco - CIMB Research 2017-02-06: Riding on Myanmar’s growth SINGAPORE MYANMAR INVESTCO LTD Y45.SI

Singapore Myanmar Investco - Riding on Myanmar’s growth

  • Pure Myanmar exposure with key businesses in travel/fashion, F&B and auto services.
  • A potential beneficiary of growing tourism and foreign investments, SMI believes it is on track for an FY18 turnaround, led by its duty-free operations.
  • Based on Bloomberg estimates, SMI currently trades at 16x/10x FY18/19F P/E respectively.
  • Risks include regulatory changes in Myanmar, loss of duty-free concessions and franchise rights, according to management.

Proxy to Myanmar 

  • We visited Singapore Myanmar Investco (SMI) which operates diversified businesses across travel/fashion, F&B, auto services, construction and logistics/warehousing in Myanmar. 
  • Led by management with prior experience in Jardine Group and LVMH Moet Hennessy, SMI not only inked a 10- year exclusive supply agreement with DFS Group, but also won a 10-year duty-free retail concession at the new terminal (T1) of Yangon International Airport (YIA) for 90% of commercial space.

Management sees favourable industry tailwinds 

  • The Myanmar Tourism Ministry forecasts tourist volume to rise from 5m in 2016 to 7.5m in 2020, while YIA operator targets to achieve 8m international arrivals through the new and bigger airport, up from 4.68m in 2015. 
  • With a portfolio of major F&B brands (like Crystal Jade, IPPUDO, Coffee Bean & Tea Leaf) and international car rental franchise “Europcar”, management believes that demand for its F&B and infrastructure services could grow in tandem with booming tourism and the economy in Myanmar.

Profitable and cash-generative duty-free business 

  • SMI targets to turn profitable in FY18, as it capitalises on the increasing number of leisure and business travelers to Myanmar, and is backed by a cash-generative dutyfree business with gross margins of 20-22%. 
  • Apart from dominating the airport duty-free retail with 39 multi-brand, multi-category outlets, SMI is also penetrating into Myanmar’s domestic retail with secured commercial space in Junction City and more locations in the pipeline.

1H17 results scorecard 

  • In its 1H17 results, SMI reported core net loss of US$2.6m which was an improvement vs. 2H16’s core net loss of US$4.8m, thanks to the new travel retail segment, according to management. 
  • It also recorded operating cash outflow of US$7.6m and net gearing of 62%. 
  • We also note that the company had conducted a few rounds of private placements to raise ~S$27m for debt repayment and new store expansion.

Trading at 16x/10x FY18/19F P/E, based on Bloomberg consensus 

  • Based on Bloomberg consensus EPS estimates of 2.7UScts/4.3UScts for FY18F and FY19F, SMI currently trades at 16x/10x P/E respectively. This is at a discount to our forecasted 22x/18x PE of DFIL for FY18/19F respectively. 
  • SMI sees political/regulatory changes, as well as loss of duty-free concessions and franchise rights as some of the risks the company faces. 
  • Over 90% of its sales is denominated in US$, which helps to mitigate currency risk, in management’s view.

Target Price: N/A

NGOH Yi Sin CIMB Research | William TNG CFA CIMB Research | 2017-02-06
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